Money that you receive from a spouse is free from taxes, but once this money is invested, the income earned from that investment adds to the giver’s income and taxed appropriately. As an example, consider that you purchased a house on your wife’s name. Any income earned from that house, whether in the form of capital gains on selling, or from rent, will add on to your taxable income. If your spouse didn’t contribute a share of money for buying the home, you shall be taxed for the entire income.
It is a good idea to invest in tax-exempt options like the PPF or tax-exempt bonds from infrastructure companies namely NHAI, IRFC, Hudco, etc. The investment limit of PPF is Rs 1 lakh. This is a total combined limit that applies for your child and you.
Here are the common reasons where you must cross-check before handing over your income tax return (as published in ET Wealth on Feb 13, 2012):
- Ending life insurance policy before 3 years.
- Not including interest income in your tax return.
- Selling a house bought on loan within five years.
- Not including ornaments in wealth tax.
- Receiving gifts and cash from persons other than blood relatives.
- Not paying wealth tax on second house.
- Both spouses claiming tax benefit on same expenses.
- Withdrawing PF within five years of joining a company.
- Taking benefit of basic exemption limit twice in a year.