Income Tax Rule for SIP: If a husband gives money to his wife and she invests it, will the returns from that investment be taxable? Let’s understand.
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SIP Tax Rules: SIPs are a popular trend these days because they offer substantial returns. However, these returns are taxable. Many people wonder if a husband gives Rs. 10,000 to his wife and she uses it as an SIP, will the return be taxed? If you’re also searching for the answer, let’s explain whether tax is applicable, and if so, who is responsible for paying it?
Couples often assume that money given to their wives is a gift and exempt from tax. However, this is only partially true. Under Section 56(2)(vii) of the Income Tax Act, gifts to their wives are exempt from tax on their income tax returns (ITR). However, if the wife invests the money elsewhere, the returns on that investment are taxable. The Income Tax Department considers that return as part of the husband’s income and as per section 64(1)(iv) it will be added to the husband’s income and the husband will have to show it in the ITR.
Does the wife also have to pay taxes?
If a husband gives money to his wife, it is considered a gift or for household expenses; it is not taxable. However, if the money is invested and results in capital gains, it is added to the husband’s income. In such a case, the wife does not need to pay any separate taxes.
Understand when a husband and wife will have to pay taxes from this table.
| Transaction Type | Clubbing Rule | Key details |
|---|---|---|
| Cash Gift | tax free | The husband can gift any amount to his wife, there is no ‘gift tax’ on it. |
| Investing gift money | Clubbing applicable (Yes) | If the wife invests the gift money somewhere and earns interest, then that interest will be added to the husband’s income. |
| Transfer of property (without payment) | Clubbing applicable (Yes) | If the husband transfers a house or shares in the name of the wife, the rent or dividend earned from it will be considered the income of the husband. |
| Stridhan / Pin Money | Tax Free (No) | The return received on investing the money saved from household expenses is considered as the wife’s own income. |
| Professional Salary | dependent on conditions | If the wife works in the husband’s company, the salary is valid only if she has a degree or experience for that work. |
| Capital Gains | Clubbing applicable (Yes) | If the wife makes a profit by selling the property gifted by the husband, that profit will be reflected in the husband’s tax return. |
| Income on Income | Clubbing not applicable | If the interest earned from the investment is reinvested elsewhere, then the income from that second investment will be considered as the wife’s own income. |
It’s worth noting that returns from a Systematic Investment Plan (SIP) are subject to capital gains tax. If the investment is in an equity mutual fund and the money is withdrawn before one year, a 15% tax is levied under short-term capital gains (STCG). If the investment is held for more than one year, gains up to ₹ 1 lakh are tax-free under long-term capital gains (LTCG). Beyond that, a 10% tax is levied.
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