Can I transfer money in my wife\'s Bank Account ?

[manish2000]

Hello,
I have been in US for last 8 years and plan to R2i somewhere in Apr-13. I would have around 100k in Bank Account and approx. 70K in 401K. When I do come back to India in Apr-13, I would be transferring the 100K immediately, within couple of weeks to some Indian Bank Account. I wanted to know if I can have the money transferred to my Wife account. The reason for doing so would be to make a fixed deposit and earn interest on that which ofcourse would be on my wife’s name. As Fixed deposit will be from her account the interest would be on my wife’s account too. As my wife would be house wife in India too I am thinking that would reduce the total family tax liability. My wife is a house wife here too. I would hopefully be earing Indian salary income and if the bank interest is added under my account would be taxed at maximum tax rate.

Will transferring money to my wife’s account be treated as tax planning and fair or would it someday be treated as tax evasion by tax authorities?

Folks - Please share any thoughts or experience as to in whose name have you transferred the money when you had only 1 person earning and the wife being home maker from tax planning perspective.

Thanks

[dbs]

Permit me to tell you how I did it.

DW was a low income person while in India and continued so in UK.

While in India, I used to transfer money to her account for household expenses. She would save some of it and invest. That would be her income and she would file IT returns for that income. Her investments were mostly in long term growth avenues and she has a sizable income from that now in her own right.

Contniued the same process in UK. When we returned, she transferred money from her UK account to her India account. Income from that is solely hers.

This all above board. IT officers investigated her IT returns and income source around 1989 with a trumped up excuse. The trigger was probably purchase of a flat by her. They were handed over thick files and a summary. They went back with the tails tucked well in.

Similarly I had started accounts and investment in stocks for my sons as well as PPF accounts when they were school children. It was mainly funded by the gifts they received on birthdays/scholastic achievemnts/etc. The stocks have done well but PPF has not served the purpose it was supposed to do as both guys have been employed outside the country most of the time. I still keep plugging in the minimum account every year after getting the duration extended.
___________________________
A bad plan is better than no plan.

[kodur_Sathya]

A NRI is entitled to keep his deposit as NRE . So i may suggest that you may keep the deposit from now. Indian banks do offer higher rate of interest even when the money are parked as NRE (Foreign currency). Earlier they paid 2 -4% interest. Now they pay 8-9% interest.
So start the deposit now itself.
Now that your wife is also a NRI. Have the deposit split into two names.
Say 50K in your name and 50K in your spouse name
Now, when u return to india, you are still entitled to keep the interest exempt if its maintained in NRE foreign currency account.
Even if the interest income is taxable. It is still within the limits for the income that you may get.
Say It may be about 2.5 lakhs per annum. When u invest in eligible investment. your tax can become Zero also. :)
Sathya

[RRK]

Hello,
I have been in US for last 8 years and plan to R2i somewhere in Apr-13. I would have around 100k in Bank Account and approx. 70K in 401K. When I do come back to India in Apr-13, I would be transferring the 100K immediately, within couple of weeks to some Indian Bank Account. I wanted to know if I can have the money transferred to my Wife account. The reason for doing so would be to make a fixed deposit and earn interest on that which ofcourse would be on my wife?s name. As Fixed deposit will be from her account the interest would be on my wife?s account too. As my wife would be house wife in India too I am thinking that would reduce the total family tax liability. My wife is a house wife here too. I would hopefully be earing Indian salary income and if the bank interest is added under my account would be taxed at maximum tax rate.

Will transferring money to my wife?s account be treated as tax planning and fair or would it someday be treated as tax evasion by tax authorities?

Folks - Please share any thoughts or experience as to in whose name have you transferred the money when you had only 1 person earning and the wife being home maker from tax planning perspective.

Thanks

Your objective (reduction of taxes) can't be met with the plan you proposed.
The interest income arising from your wife's account will be clubbed with your income ( I guess you will be at 30% marginal tax rate).
This will defeat your plan.

If you are giving money to your wife, out of love, be prepared to take up the tax bill. If you are planning for tax reduction, this is bad plan.

There are certain loop holes and methods that helps to reduce taxes legally. dbs post is correct. Learn few tricks there.

kodur satya post is incorrect.
1) You mentioned 100K, assuming it is US$, you will get about 50 Lakhs+, at 9%, your wife will get 4.5L. much more than his estimate.
2) NRE a/c will be closed after return and have to be converted to resident indian account. What is the point in saving in NRE ?
3) he ignored clubbing provisions.

[manish2000]

I am not giving money to my wife, its both of our money (My wife and Me) from US tax point of view. The reason I feel so because I have been submitting tax returns under status for Married filling Jointly in US for last 8 years. This makes me to believe that we both are equal owners of the money. When we move back to India, I think there is no concept of submitting return jointly with higher deduction. One has to submit their return separately. If we do so, my wife would not have any earning, and I would be only Salary earner + I would be earning interest on around $100K i.e 50 lakh which would be taxed at max rate if I transfer money to my Bank Account. Adding this to the main post, would anyone be able to suggest the best way for tax savings on Interest Income. The intention is to have that moved to my wife's account.

[krivan1]

If you and your wife are NRIs currently, you can transfer to your wife's NRE account any amount without any issues. As this is the repatriation account with tax free status, no one in India would ever question or bother about these funds. They would presume your wife has earned the income either through job or business.


Once you both are R2Ied, this NRE account need to be converted to resident accounts. If the wife's NRE account is converted as resident account, one need to report the tax on the interest. As like Indian working couple, both of you can file IT returns separately.

Means you can file IT returns with your job income in India and your wife can file IT returns with FD interest income provided she does not have any other income.

The Clubbing of incomes would come only if you tranfer the amounts across Indian resident accounts & interest earned (Husband to Wife).

[manish2000]

If you and your wife are NRIs currently, you can transfer to your wife's NRE account any amount without any issues. As this is the repatriation account with tax free status, no one in India would ever question or bother about these funds. They would presume your wife has earned the income either through job or business.


Once you both are R2Ied, this NRE account need to be converted to resident accounts. If the wife's NRE account is converted as resident account, one need to report the tax on the interest. As like Indian working couple, both of you can file IT returns separately.

Means you can file IT returns with your job income in India and your wife can file IT returns with FD interest income provided she does not have any other income.

The Clubbing of incomes would come only if you tranfer the amounts across Indian resident accounts & interest earned (Husband to Wife).

Thanks and that's is what I too have on my mind. I have an NRE Account for my wife with small balance. I am not sure if I do this, i.e. transfer balance to my wife's account, the Indian Income Tax would not question. Also the point is how many days in advance I should be doing it, I do not want to do before 01-JAN-2013 as I do not want to get into any clarification with US Tax authorities on why I have transferred such a substantial amount. I know it would be easy to explain, but I am just trying to avoid doing so before 01-JAN-2013.

[kodur_Sathya]

I think it was not understood properly
1) The deposit will be made in two names of 50K each. Even its a indian deposit, the interest for each deposit would be around 2.5 lakhs.
2) Clubbing provision are not applicable in this. The assets are initially not owned india and transfered to others. The assets are owned by two people abroad. And invested in india by these two people. The clubbing provision is applicable when the assets are generated in india and transfered in india without adequate consideration.
Hope above clarifies

[RRK]

If you and your wife are NRIs currently, you can transfer to your wife's NRE account any amount without any issues. As this is the repatriation account with tax free status, no one in India would ever question or bother about these funds. They (1) would presume your wife has earned the income either through job or business.

The Clubbing of incomes would come only if you tranfer the amounts across Indian resident accounts & interest earned (Husband to Wife).

(1) Who is they ? Why would they make this wrong assumption ?

(2) Clubbing of income is applicable for any gift given to spouse. Why do you think only resident accounts are affected ?

[kodur_Sathya]

how is that one should infer that it affects NRI also? Is that is given in Act? or any supreme court decided case law that says it affects NRI.?