TomorrowMakers

Depending on its usage, the money a wife receives from her husband may or may not be taxable.

Is a homemaker obliged to pay tax on earnings received from her husband?

Shikha is a 34-year-old stay-at-home mother. After the birth of her twins last year, she took an indefinite sabbatical from work to enjoy motherhood. In the absence of a regular ‘income’, her husband Rachit has been crediting her account with Rs 40,000 every month. Since tax season is around the corner, Shikha is wondering if the money from her husband is considered taxable.

Let’s look at the taxability of this amount under three circumstances:

1. When the money is given for personal expenses

In most cases, the money transferred from a husband to his wife is for her personal usage. She may use it for household needs or to meet her expenses. If Rachit has been giving the money to Shikha purely to cater to her personal expenses, it is not considered taxable on her part, and she need not file an IT return for the amount. The tax implication changes if she saves some amount from her personal expenses and deposits it in the bank. She would then be accountable to pay taxes on the interest earned from such deposit.

2. When the money is ‘loaned’ to the wife 

However, there may be scenarios where Shikha, despite not being engaged in a full-time job, decides to start a home business. In this situation, the money received from Rachit will be treated as a loan. He is required to charge interest on the amount provided and set a date for Shikha to return the money. The interest thus earned will be an ‘income’ for Rachit and it will be duly considered towards his tax calculation. However, the income from the business will not be a part of his tax statement. The income accruing from Shikha’s venture, however, will be taxable to Shikha as per Income Tax laws and the income slab.

3. When the money is invested by the wife

As an investment-savvy individual, Shikha may decide to invest the money given by Rachit in shares, mutual funds, fixed deposits, or any other investment avenue. The income generated from this investment will not be a part of Shikha’s taxable income list. It will instead be clubbed with her husband’s income, on which he will pay taxes as per the relevant slab. If Shikha ends up suffering capital losses, it will be Rachit who will be able to claim the loss for tax purposes. This clubbing of income specifically helps to curb tax evasion. Otherwise, people might purchase shares or invest in other assets in their spouse’s name and avoid the tax thereon.

But here's a caveat: if our investment guru Shikha decides to reinvest the earnings accrued from her initial investment, that income is treated as capital gains, and she is liable to pay taxes on the same.

Are you a homemaker facing a similar dilemma regarding money provided by your husband and its tax implications? We hope this piece answers all your queries in detail and helps you to file your tax returns correctly. Having said that, there is no doubt that homemakers are great at a lot of things, but they somewhere lag behind when it comes to handling finances. Here's why.

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