No, Mere primary account holder does not constitute ownership and source of fund.
@CA_Anand_Thakor interest free loan or subsidised loan say at 3% to take care of expenses can be given rite…then clubbing will not apply…
- Lower interest rate loan allowed with proper documentation.
- Interest free loan MAY create some litigation as new development in case law.
@CA_Anand_Thakor
Say I give 50 lakh loan to wife for 30 yrs 2% simple interest. Since repayment amount is less than 20000/- per month it can be cash repayment no need bank trfr Rite…
Or should there b proof via bank transfer for both principle and interest repayment or just document is enough when asked
Also where to show 50 lakh interest in husbands itr and 50 lakh amount in wife’s itr
1. Can Repayment Be Made in Cash (Below ₹20,000/Month)?
- Not Allowed, 100% minimum penalty
- Hence, repayment (both principal & interest) should ideally be through bank transfers (NEFT/RTGS/UPI/Cheque) to maintain legal proof.
Best Practice:
Keep proper loan documentation (Loan Agreement with terms).
Ensure all repayments happen via bank transfer for clear proof.
2. Taxation Treatment for Loan & Interest
Husband’s ITR (Lender)
- ₹50 lakh loan given → Not shown as income (just a loan asset in books).
- 2% Interest received → Show under “Income from Other Sources” in ITR.
- If wife pays ₹1,00,000 annual interest (₹50L @ 2%), this should be reported in the husband’s ITR.
Wife’s ITR (Borrower)
- ₹50 lakh received → Not taxable (as it’s a loan, not income).
- 2% interest paid → Not deductible unless used for income-generating activity.
- Loan liability can be disclosed under Schedule AL (Assets & Liabilities) if applicable.
3. Where to Show ₹50 Lakh Loan in ITR?
Husband (Lender) – ITR Sections
| Income Type | ITR Section |
|---|---|
| Loan Given ₹50L (Asset) | Not required to report in ITR (only in books if maintaining) |
| Interest Income (₹1L per year @2%) | Income from Other Sources |
Wife (Borrower) – ITR Sections
| Loan Type | ITR Section |
|---|---|
| Loan Received ₹50L | Not shown as taxable income (Optional: Can be disclosed under Schedule AL) |
| Interest Paid (₹1L/year) | Not deductible unless used for business/investment |
Note: You must have source of fund ₹50 lakh, * If the source of ₹50 lakh is not explained, the IT department can treat it as unexplained income.
Penalty: 60% tax + 25% surcharge + 4% cess (Total 78% tax liability. refer section 68.
Disclaimer:
“This explanation addresses only the basic principles, it is essential to consult with your tax expert for personalized advice, as numerous other variables may apply.”
I have nsc maturing and have been paying tax for last 5 years on this nsc…so this is the source of income…I can show in the loan arrangement…
Principal repayment any proof needed or only for interest bank transfer is needed
Wife can trfr to joint account is that proof enough
Also if wife invests 50lakh in FD she can file in her itr1 rite?
Also the loan documents need not be shown…we should keep it ready only when asked rite?
Yes,
You MUST have documents ready now, whether ask or not. Follow strictly.
Principal and interest repayment to joint account possible
I am asking if loan documents need to be uploaded or not…just keep in hand only rite
- Not allowed.
- No need to upload
I am asking both husband and wife has joint account for expenses…if wife and husband transfers salary to the joint account for household expenses including loan and other expenses and at a fixed date every month from there to husbands account…is that possible
There are no restrictions on transferring funds from a salary account to a jointly held household account. However, if the intention behind such transfers is to reduce tax liability or evade taxes, it is not permissible under tax laws.
@CA_Anand_Thakor
I am asking if transfer from salary account to joint account is proof enough for loan interest payment
Or is transfer to husbands single account is needed
Also principle repayment also by bank transfer needed or cash?
@CA_Anand_Thakor can u reply
Hello @Dew
Transferring funds to a joint account is allowed, but for better tracking and clear proof of loan interest payments, it is recommended to transfer the payment directly to the beneficiary’s account. Also, principal repayment should be done via bank transfer to maintain a proper record.
I want to understand a scenario.
For example:
My wife is a homemaker and she does not file tax. I am salaried employee. So I transfer 4 lakhs to her and she invests it in a mutual fund.
After 5 years, she sells it for 4.3 lakhs and receives a profit of Rs 30000 (below 1 lakh per year (capital gains) and the income is also within 2.5 lakhs.)
Now my questions are
- Will I be taxed for 30000Rs profit.
- What if her profit exceeds 1 lakh per year
- What if her profit exceeds 2.5 lakh per year
- Is this a gift or not
Hello @Justin ,
When you transfer money to your spouse’s account, it is considered as gift and it is exempt from taxes. If the spouse invests the same amount and generates income from the same then that will be clubbed (combined) with your total income and will be taxable in your hands.
Now let’s answer your queries:
- Yes, the gains of ₹30k will be taxable in your hands as the provisions of clubbing are applicable.
- The provisions of clubbing will be applicable irrespective of the amount. If she earns anything on the gains of ₹30k then it shall be included in her ITR.
- The amount of ₹4L is a gift and shall be disclosed as exempt income in her ITR.