The practice of buying or transferring assets into a wife's name is widespread in India. Examples include buying real estate, stocks, or jewellery in the wife's name. There may be a number of causes for this, including the fact that women have to pay less stamp duty than men. Among many other reasons to purchase the assets in the wife's name, tax evasion is still a hidden agenda.
The tax provisions
To curb the issue of tax avoidance or reduction by utilising the exemption slab of income earned by a wife or spousal income, Indian tax laws have included provisions like:
As per the Income Tax Act, if an asset or income is transferred to the spouse, without adequate consideration, then, for the purpose of income tax computation, that income or income from that asset shall be included in the hands of the transferor spouse. An exception to this rule is if an asset has been transferred in connection with an agreement to live apart.
Similarly, according to the Income Tax Act, if some income has accrued to spouse from a concern in which the other spouse has a stake of 20% or more. The exception to this rule is if your spouse earns that income due to holding some technical or professional qualification.
As per the Wealth Tax Act, an asset transferred to a spouse, without adequate consideration, shall be included in the net worth of the transferor spouse for the purposes of wealth tax calculation.
What is Capital Gains tax?
The profit that an investor makes when they sell an investment is subject to the capital gains tax. A tax paid by an investor upon selling their asset, based on the amount by which the asset appreciated during the time it was held. It is owed for the tax year during which the investment is sold.
Only 'capital assets' like stocks, bonds, digital assets like cryptocurrencies and NFTs, jewellery, coin collections, and real estate, are subject to capital gains taxes.
Types of Capital Gains and current rates
As per Section 80C of the Income Tax Act, short-term capital gains would attract a tax at the rate of 15% if the investor decides to sell it within a year, and long-term capital gains tax would be charged at a rate of 10% or 20% on profits exceeding Rs. 1 lakh generated through equity-oriented funds and shares.
The long-term capital gains tax rates for 2022 and 2023 are 10%, 15%, or 20% of the profit, depending on the filer's income. The income brackets are adjusted annually.
Will spousal income be computed in capital gains tax?
In simple words, yes. It can be understood better with an example. If an immovable property is purchased by the husband either jointly with the wife or solely in the wife's name (to save stamp duty), then for the purposes of calculating Income Tax or Wealth Tax the same would be included in the hands of the husband. Similarly, if the husband funds the deposits made by the wife, then the interest earned from such deposits would be added to the husband's income for tax computing purposes.
How to calculate
While calculating the taxable gains for the year, you can deduct capital losses from capital gains.
If you have incurred both capital gains and losses on both short-term and long-term investments, the computation becomes slightly more complex.
Put short-term gains and losses in one group and long-term gains and losses in another. To determine the overall short-term gain, all short-term gains must be added up. Then, the short-term losses are added together. The long-term gains and losses are then totalled.
A net short-term gain or loss is created by balancing the short-term gains and losses. The long-term gains and losses are treated in the same way.
