Tax Free Income through non-working Spouses – Time to clear the myths!!

The next in series of tax planning and personal finance articles by Ms. Deepa Nittala, a practicing Financial Planner and veteran Banker and a user of ApnaComplex

Tax Savings through non-working spouse – Is it possible?

One of my client took a personal loan since he knew he needed money, but after his loan amount was received, his requirement got deferred for some time. He transferred the money to his spouse’s account and fixed it as deposit, assuming the interest that is generated is tax free( if form 15G submitted at bank). He showed me his calculation on how he will earn more than what interest he pays towards the loan.

I had a two hour discussion with him and I spent more time analysing his calculations. Unfortunately, the calculations he made went wrong, as this “interest” income from non-working spouse’s fixed deposit is not tax free.

Misconceptions around investments in name of non-working spouse

This is a commonly observed phenomenon. Transferring money to spouse’s account and book Fixed deposits or buy rent generating properties, assuming that this is treated as gift to family member and are not liable to pay tax on the interest earned.

At this stage, its important to clarify 2 misconceptions:
Income generated ( like rentals, deposit interest) from such amounts gifted by Husband to the homemaker wife :
1. Gets clubbed with husband’s income .
2. Such income is taxed at husband’s tax bracket.

How can a non-working spouse get you some tax-free income

Then what is it that we can do , to make our hard earned money do some hard work for us?
Solution 1: Transfer the money to spouse’s Public Provident Fund (PPF) account if a long term lock in is acceptable for you. PPF is tax free at funding as well as maturity stage (Read more about PPF in our Tax Planning-101 post.)

Solution 2: If so much lock in not possible, you can park the amount in debt mutual funds or liquid funds or can set up an SIP (Systematic Investment Plan) into equity mutual funds, which are more tax effective than Fixed Deposits or Recurring Deposits.

In simple terms, money can be gifted to your non-working spouse – but this amount must be further invested into instruments which generate tax free returns. Only such cases where returns alone are tax free are not clubbed with your income.

Such tax saved is your rupee saved and rupee earned.
Time to make your money work hard for you !!

About the author
Deepa Nittala is a practicing Financial Planner and a veteran banker, working with a multinational Advisory Firm in Hyderabad. She is into unbiased advisory and guides people with comprehensive financial planning services. She can be directly reached at deepanittala at gmail dot com.


This article aims at providing information for benefit of ApnaComplex customers and blog readers. We recommend you to please use the information only as a guidance for further discussion and action with help of relevant financial planning professionals. If you need professional advise on this topic you can please reach out to the author through email mentioned above.

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