IF you go the extra mile, you can surely make the most of your money. wealth helped reader Mohit Sharma do just that.

My wife works in a bank where the staff get 1 per cent extra interest on the bank’s fixed deposits. So, I plan to invest in FDs in her name. We both fall into the highest tax bracket.

What is the best option for me?

1. I give her a loan and take minimal interest. In this case:
-- Will she have to pay tax on the entire interest earned on the FD or can she deduct the interest on loan and pay tax on net income?
-- Should I show the interest earned (on loan) by me when I file my returns?

2. I can give her the money as a gift and she will pay tax on interest earned. Also, the TDS certificate will be in her name.

-- Mohit Sharma

Option 1:

As per the Income-tax Act, expenses incurred to earn any income are deductible from that income.

Therefore, if your wife pays interest on loan to you, she can claim deduction on it from the interest income that she earns on the FD.

Does it make sense? NO
You will have to pay tax on the interest on loan given to your wife. Since both of you are in the highest tax slab, you will not gain anything by doing this.

Option 2:

As per the Income-tax Act, while a gift received is not taxable, any income from that gift is taxed.

Further, if the gift is from a spouse (and is made with an intention to evade tax), then the income from the gift will be taxed in the hands of the one who gives the gift. So in this case, since the gift will be made to your wife, the income from the gift will be clubbed with your own income.

Does it make sense? NO
The bank would deduct tax at source and issue the TDS certificate in your wife’s name whereas the income is taxable in your hands. This will unnecessarily complicate things.

Strategy

You can simply give an interest free loan to your wife and let her earn a higher interest on the FD. (Read: Women, Fixed Deposits and the big T )

On a regular basis, your wife can repay a part of the loan to you. You can do this to prove that this is a genuine loan and not a gift.

Calculate: Your tax liabilities

Read:

• Which income tax form should I use?
• FAQs on tax
• Post TDS, there's more tax to pay!
  

Photograph: Getty Images

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e-mail: Ameet Patel

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