Income from funds transferred to Wife attracts clubbing provision

TAX TALK-13.07.2015-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant


Income from funds transferred to Wife attracts clubbing provision

Query 1]
I am a salaried person and pay Income Tax. I transfer my salary from salary account to a joint saving account where I am the 1st holder and my wife is 2nd holder. My wife transfers this account's deposit into term deposits where she is 1st holder and I am 2nd holder. She is having PAN and submits 15G in bank. Total interest is below Rs. 2.50 Lacs. Please tell me whose is the tax liability on the interest received from term deposit? [S.Nandi , Jabalpur-snandi1957@gmail.com]
Opinion:
"The husband who wants a happy marriage should learn to keep his mouth shut and his checkbook open." - Groucho Marx
Its not your case alone. It a global phenomenon as has been rightly recognized by Joey Adams also when he says "Marriage is give and take. You'd better give it to her or she'll take it anyway."
It happens with everyone. Wife is the only person to enjoy the privileges. However, the Tax implication is left with the Husband. Even though the ownership of funds may be transferred in favor of wife, still liability to pay income tax would be that of husband. There is a clubbing provision in the Indian Income Tax Act-1961. As a result of clubbing provision, where an asset/property/money is transferred by an individual to his/her spouse or minor Child or Daughter-in-law, directly or indirectly, otherwise than for an adequate consideration, any income from such asset by way of interest/rent etc is deemed as the income of the transferor by virtue of section 64(1A) / 64(1) (iv) / 64(1)(vi) of the Income Tax Act-1961. Effectively, even if FD stands in the name of wife, still interest come thereon would be treated as yours only & would be clubbed with your other income.

Query 2]
1.      There are saving bank a/c’s with a facility of term deposit-sweep/reverse sweeps, in which after a certain limit excess amounts are credited in term deposit and to savings a/c, whenever necessary. These term deposit A/c’s give higher rate of interest for the time the amount remains in term deposit A/c’s. Please clarify if interest of such bank A/c’s also qualify for exemption of Rs. 10000/-?
2.      A house previously given on rent has not fetched any income this year due to not getting suitable tenant. Can we show municipal taxes as loss from house property and carry forward it for future? [Chandan s fatnani-cnn_fatnani@yahoo.com]
Opinion:
1.      Section 80 TTA offers deduction of interest on deposits in saving account up to a maximum of Rs. 10,000/- and explicitly provide for exclusion of interest on "time deposits" from deduction. To my knowledge, Sweep in /out facility in a saving bank account is a benefit providing combination of both, saving A/c as well as fixed deposit A/c. It’s a bank internal feature that allows account holder to transfer funds (automatic or manual) from saving a/c to virtual fixed deposits accounts and vice versa too, to enable higher interest. An important question raised by you is whether interest, for the purpose of section 80TTA includes interest from deposits in Sweep or Flexi Account? Though deposit in Flexi/Sweep Account is a kind of term deposit, explanation to section 80 TTA clearly provides that "for the purpose this section, 'time deposit' means deposit repayable on expiry of fixed period". In normal course, Sweep Transfers are never repayable on expiry of fixed period even though there may be a fixed period for crediting interest thereon. Sweep transfers, in general, are repayable on demand & not after a fixed period. It appears to be an extension of saving account only as the customer has to merely issue a cheque for withdrawals and these deposits automatically get transferred in the account to the extent of required payment. In my considered opinion, the interest would be covered by section 80TTA and deduction up to maximum of Rs. 10,000/- would be admissible in such cases.
2.      Deduction towards municipal taxes paid is not available if there is no rental income against the property. Other readers may further note that municipal tax is deductible only if it is borne by the landlord. The deduction is available on payment basis. When municipal taxes have become due but not actually paid, the deduction would not be admissible.




[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at SSRPN & Co, 10, Laxmi Vyankatesh Apartment, C.A. Road, Telephone Exch. Square, Nagpur-440008 or email it at nareshjakhotia@ssrpn.com].

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