Tax: Cut tax by investing in spouse’s name

Source: ET Wealth – Dec 27, 2010 : How to cut tax by investing in spouse's name
Spouse:
* Can give gift to spouse. No gift tax.
-> If spouse invests gift and earns income, Section 64 of the Income tax Act says that income derived from money gifted to a spouse will be treated as the income of the giver. It will be clubbed with his (or her) income for the year and taxed accordingly.
-> E.g.: If you buy a house in your wife's name but she has not monetarily contributed in the purchase, then the rental income from that house would be treated as your income and taxed at the applicable rate.
-> E.g: If you give money to your wife as a gift and she puts it in a fixed deposit, the interest would be taxed as your income.
-> E.G: If you gift money to his mother-in-law, a transaction that has no gift tax implications. Then a few days later, the lady gifts the money to her daughter, which again does not have any tax implications. The money can then be invested without attracting clubbing provisions, right? Wrong. The tax man will put two and two together and can still catch you.
* You buy a house in your wife's name.
-> You loan her the money in exchange, for jewellery that she gives you for the same amount. In this case, the rental income from the house would not be taxable to you. E.g: if you transfer a house worth Rs 10 lakh to your wife and she transfers her jewellery for the same amount in your favour,
* Invest in ppf in the name of your spouse.
-> There is no tax on income from the Public Provident Fund
* Invest in shares & mutual funds in spouse’s name
-> There is also no tax on gains from shares and equity mutual funds if held for more than a year. So, if one invests in these options in the name of the spouse, there is no additional tax liability.
* Gift gold jewellery to wife.
-> Gold does not generate any income. Besides, in the past few years the appreciation on gold has been higher than the returns offered by fixed deposits.
* If a wife saves a little out of the money given to her for household expenses, that money is her own. If it is invested, the gains will not be clubbed with the income of the husband.