How to save maximum without falling into clubbing provisions?

POSTED BY Chakri ON January 17, 2011 11:15 am COMMENTS (4)

Hi Everybody,

Happy pongal! [belated] 🙂

I’m in 30% tax bracket, I’d like to invest more on my wife and kid’s names. I’d like to know the ways to invest to get rid of Clubbing of the income which is generated by that investments.

I’ve 2 options as of now:

1. Investing 70,000 [in total 1,40,000] in thier PPF accounts respectively.[ I’ll invest another 70,000 in my PPF a/c also], so the generated income will be into my daughter’s hand [she will get majority by the time of maturity of this] and the income generated from this is fully tax free [as of now].

2. Investing 2 lakhs on my wife’s name and kid’s name in MF’s which will be for Long Term, So the income generated from these MF’s after one year will be tax free since they will fall under Long Term Capital Gains. So the income from this investment is tax free if it is LTCG [as of now, Not sure after DTC comes into picture].


In your article you have mentioned in Pt.4 “#4 Give a Loan to your Spouse or Child , not a Gift“. Can you please explain in more detail like

1. How to do it for Spouse, what should be the interest rate which will be acceptable to the Income Tax dept guys, do we need to show through bank that my spouse has paid her interest regularly ?

2. How to do it for Kid, As you said if we put it on the paper with our signatures that will do. Will my minor kid’s signature is valid? or As a gaurdian can my wife sign on it on behalf of my kid? How we can show the interest payment for IT records?


4 replies on this article “How to save maximum without falling into clubbing provisions?”

  1. Sohil says:

    One more practice you can do is via route for gifting wife without tax concern.Gift someone like your father,mother.And they can their daughter in law.

    This is the surprise of this world.You can gift others wife(50k per annum max to any person in this world) but not to yours.

    1. Chakri says:


      Thanks for your comments.

      I’ll consult a CA and will update here about the plans.


      1. Jigs says:

        Hi Chakri,

        Can you please post the details of your discussion with your CA. I am also analyzing that GIFT option.


  2. Sohil says:

    Since you are in HNI category i think a CA could easily be under your reach and if you ask him frank at point blank range he will let you know the details.But i know CA language is sometimes not so user friendly as the way MAnish explains as if you understand all what will be their use.

    Anyways for loan its just that you give cheque to your wife say 25 lakhs worth take an entry in your profit-loss statement of balance-sheet of both(yours and your-wife).ANd just on plain paper or stamp (any will do) write an undertaking that you giving a loan to your wife and you can give it interest free as mutual affection and whenever she wants she can pay the amount.CLose relative can have interest free understanding amongst them.If by any chance you get a scrutiny which i dont think will happen you can always say she will pay your money after 7 years from today date with interest at 5% pa.No officer waits for that term it just trick of trade.But just make sure no where its mentioned as gift but as loan.

    For kid sorry you cant practice the same but there are other opportunities if i come across them ill forward.As i am not sure whether a father can gift her son daughter who is minor same about loan stuff.

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