Income tax clubbing for r2i couples

[sathyalan]

Good morning,


I am thayalan, an NRI, living in UAE for almost around 16 years with family. My wife was working here for quite some time and left the job to take care of the kids. we both have separate PAN CARDS and NRE accounts with around 10 lakhs each. I have transferred some amount from my NRE account to her NRE account. Now we are planning to settle down in India for good. I understand that after we become resident Indians our accounts will become RNOR and enjoy tax free interest for our FD for max three years and it becomes resident accounts with applicable tax slaps. Here my questions are


1. After our accounts become resident accounts, our FD interests are taxable. Both will receive interest separately. Will my wife's interest income be clubbed to my income or will it be considered as her income and file a tax herself with her PAN?


2. How clubbing works interms of income tax for the NRI couples both have earned abroad and deposited some money on their NRE ACCOUNT.


Thanks in advance.


Regards,
Thayalan

[dbs]

The income from money each of you remitted to your respective NRE accounts will not be clubbed.

There may be only one point of concern. The transfer from your NRE account to her NRE account.

I am not a tax expert just a laymen.

[wd40]

The clubbing on income is valid only for 2 years or something. So by the time you come to India and finish the rnor phase and become resident, the clubbing will be over and then your wife's income is her income, your income is your income.

It is a good idea to remit money in wife's account, especially if she is not planning to work. This is what I have also been doing. So when we come back to India, we both will file seperately and reduce our income tax.

Sent from my Redmi Note 4 using Tapatalk

[dbs]

The clubbing on income is valid only for 2 years or something. So by the time you come to India and finish the rnor phase and become resident, the clubbing will be over and then your wife's income is her income, your income is your income......

The clubbing never stops. Only the income from the clubbed income is not clubbed.
e.g.
Money invested in FD (cum). 100000.
Income Rs. 10000 this will be clubbed
Now FD value 110000
Next year income 11000. 10000 will be clubbed but not balance 1000.
This sequence will continue for ever or until the FD is cashed.

Again I am not a tax expert.

[vapasi1]

The clubbing never stops. Only the income from the clubbed income is not clubbed.
e.g.
Money invested in FD (cum). 100000.
Income Rs. 10000 this will be clubbed
Now FD value 110000
Next year income 11000. 10000 will be clubbed but not balance 1000.
This sequence will continue for ever or until the FD is cashed.

Again I am not a tax expert.

I doubt if married filing separately is possible unless both have income from business, job, etc.
Dont think you can let passive income or investment income in spouse name and file aeparately fir her to reduce taxation.

[dbs]

I doubt if married filing separately is possible unless both have income from business, job, etc.
Dont think you can let passive income or investment income in spouse name and file aeparately fir her to reduce taxation.

In India, there is no concept of filing jointly. There are Individual Joint Hindu Family, Partnership and company filing possible.
From the description, it appears that there will be substantial passive income. By dividing as you suggest, both will be able to benefit from exemptions and lower tax rate bands.
Yes,

[RAJESH H DHRUVA]

Dear Thayalan

1. Interest earned from NRE accounts and deposits is taxable from the date you return to India for permanent settlement.

2. Under Income Tax Law NRE interest is exempt only in case of a Person Resident Outside India ( PROI ) defined in FEMA.

3. It’s interest from FCNR and Resident Foreign Currency Deposits which are exempt in case of a Non Resident and R but NOR.

4. Income is not clubbed if the same is earned by each individual as an NRI on the ground of bank account being joint accounts.

5. Spouse can have savings or pin money also termed as her own capital.

Best wishes
RAJESH H DHRUVA
femaonline.com

[sathyalan]

Thank you dbs,wd40,rajesh and all for your valuable inputs.


Mr.Rajesh,


i was under impression that we can enjoy the tax free interest for our FD for the first two years after our return to India Since we are an NRI for more than 9 Years.


we do not have joint account, we have two separate NRE Accounts. how do we prove that the money in my wife's account is earned by her? since she stopped working five years before, we do not have any proof like salary slip or bank statement. i have remitted around 10 lakhs to her NRE account recently from the exchange house. is this remittance considered as PIN money and also termed as her own capital and will not be clubbed to me?


sorry for recurring query, it may be useful for many who are planning for R2i.


Thanks in Advance,


Regards,
Thayalan

[wd40]

Thank you dbs,wd40,rajesh and all for your valuable inputs.


Mr.Rajesh,


i was under impression that we can enjoy the tax free interest for our FD for the first two years after our return to India Since we are an NRI for more than 9 Years.


we do not have joint account, we have two separate NRE Accounts. how do we prove that the money in my wife's account is earned by her? since she stopped working five years before, we do not have any proof like salary slip or bank statement. i have remitted around 10 lakhs to her NRE account recently from the exchange house. is this remittance considered as PIN money and also termed as her own capital and will not be clubbed to me?


sorry for recurring query, it may be useful for many who are planning for R2i.


Thanks in Advance,


Regards,
Thayalan

You don't have to prove money in your wife account is hers. Like I said before, you can freely gift money to your wife, no tax on it. But on the interest generated, you are supposed to pay tax for 2 years. After 2 years, it is as good as her money earned by her and any new interest is treated as her own income and she has to pay tax on it.

Sent from my Redmi Note 4 using Tapatalk

[Pranjjal]

The clubbing on income is valid only for 2 years or something. So by the time you come to India and finish the rnor phase and become resident, the clubbing will be over and then your wife's income is her income, your income is your income.

It is a good idea to remit money in wife's account, especially if she is not planning to work. This is what I have also been doing. So when we come back to India, we both will file seperately and reduce our income tax.

Sent from my Redmi Note 4 using Tapatalk

As per Section 64 of the Indian Income Tax Act, any income arising from assets gifted to spouse is to be taxed in the donor spouse's hands. This law is put in place to prevent tax planning by transferring income to the non-earning spouse.
I've seen NRIs usually transfers certain amount of money out of his own funds in favor of his wife and minor children, under the impression that each one of them would be liable to wealth tax independently but it's completely wrong assumption. After R2i even if you're in RNOR status any transferred assets in favor of wife and minor children would be liable to be clubbed for the purposes of wealth tax in husband's hands.

Please be aware of the fact that IT(income tax) department in India asks for the source of income with proofs these days. If your wife is working do not gift money to each other/club income with the intention to avoid tax, keep the earnings separate.
If your wife is non-working any money invested in her name using your income in any kind of assets shares, FDs etc which generates further income shall be clubbed with your income. As per clubbing provisions of Income Tax, this is considered as your own income and taxed at slab rates applicable to you. However if wife is a homemaker and is not earning an income, if you send her some money to take care of her personal expense then this has no income tax implication and is not considered an income in her hands but, any interest earned in the bank account on that amount may still be clubbed.