Marriage isn’t just about uniting hearts; it’s also about merging finances! Understanding the tax nuances of married life and parenthood can help couples optimize their financial future. This guide dives into income clubbing rules and child-related tax benefits with examples of Mr. Aryan and Mrs. Kavya, showing you how to maximize savings while staying compliant with the law.
When Can Aryan and Kavya's Income Be Clubbed?
Income clubbing applies when one spouse earns income due to the substantial interest or asset transfer rules. Let’s decode the scenarios with examples:
Scenario 1: Income from a Concern Where Spouse Has Substantial Interest
A spouse has substantial interest if they hold 20% or more shares/voting rights in a company or 20% of profits in another entity.
Case 1: Salary Without Qualification
Aryan holds 60% of shares in Apex Corp. His wife Kavya works there, earning ₹40,000/month, but lacks the qualifications for her role. Under the law, her salary will be clubbed with Aryan’s income.
Computation of Aryan's Income:
Particulars | Amount (₹) |
Salary of Kavya (₹40,000 × 12) | 4,80,000 |
Less: Standard Deduction (Section 16) | 50,000 |
Taxable Salary of Kavya | 4,30,000 |
Assumed Other Income of Aryan | 7,00,000 |
Total Taxable Income | 11,30,000 |
Case 2: Salary with Qualification
If Kavya is qualified and her salary reflects her expertise, the income won’t be clubbed.
Income Component | Aryan (₹) | Kavya (₹) |
Other Income/Salary | 7,00,000 | 4,80,000 |
Less: Standard Deduction | - | 50,000 |
Gross Taxable Income | 7,00,000 | 4,30,000 |
Case 3: Both Spouses Have Substantial Interest
If both Aryan and Kavya hold 25% shares each in Apex Corp and earn ₹40,000/month from it, their total taxable incomes will depend on whose pre-clubbing income is higher.
Example Calculation:
Income Component | Aryan (₹) | Kavya (₹) |
Business Income | 3,50,000 | - |
Rent from Property | - | 60,000 |
Capital Gains | - | 4,50,000 |
Pre-clubbing Income | 3,50,000 | 5,10,000 |
Since Kavya’s income is higher, both salaries will be clubbed in her hands.
Scenario 2: Income from Asset Transfers
If a spouse transfers assets to their partner without valid consideration, the income arising is taxable in the hands of the transferor.
Example:
Aryan gifts Kavya shares of Zenith Ltd.
Kavya earns ₹25,000 in dividends and ₹6,00,000 from selling shares.
Both incomes are taxable in Aryan’s hands.
· Further, she invested the proceeds into shares of Jio Ltd, and received Rs. 10,000 as dividends. Such income will also be taxable in the hands of Aryan because even if the asset changes its shape and identification, the income will still be clubbed.
Note: If he gifted such shares on their pre-wedding, then provisions of clubbing are not applicable and Section 56(2)(x) would come into force.
Exceptions to Clubbing Rules
Income will not be clubbed when:
The spouse earns through professional qualifications or expertise.
Assets are transferred with adequate consideration or under an agreement to live separately.
Property acquired is from pin money (personal expenses).
The couple is no longer married.
Tax Benefits for Families with Children
Raising children comes with its own set of tax benefits! Couples can claim the following deductions:
Tax Benefit | Maximum Deduction |
Tuition Fees | ₹1,50,000 u/s 80C |
Children’s Education Allowance | ₹100/month per child (max 2) |
Hostel Allowance | ₹300/month per child (max 2) |
Interest on Education Loan | Full interest deduction u/s 80E |
Sukanya Samriddhi Yojana (SSY) | ₹1,50,000 u/s 80C |
Example (Girl Child Benefits):
Kavya invests ₹1,20,000 annually in SSY for her daughter. The scheme offers:
Tax-free interest accrual.
Full exemption on maturity proceeds.
By combining this with education-related allowances, Aryan and Kavya reduce their tax liability while securing their daughter’s future.
Pro-Tips for Financial Success as a Couple
Plan for Tax Savings Together: Jointly review assets and income to align with tax-efficient strategies.
Invest in Child-Centric Schemes: Utilize benefits like SSY, education loan interest deductions, and tuition fee exemptions.
Stay Updated: Tax laws evolve. Regularly revisit your strategy to ensure compliance and maximize savings.
Marriage and parenthood bring immense joy but also financial responsibility. By understanding income clubbing rules and leveraging child-related tax benefits, couples like Aryan and Kavya can create a more stable, prosperous financial future while enjoying the journey of life together!
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