Gift Money to Spouse: Pay ₹0 Tax on Returns?

Income tax rules say returns on money gifted to your spouse get added to your income. But a little-known exception lets you legally reduce your family's total tax bill if you plan the gift carefully.

Here's what happened: Under Section 64 of the Income Tax Act, income earned from money gifted to a spouse is 'clubbed' back into the giver's taxable income.. However, if that gifted money earns income which is then reinvested, the returns on the reinvested amount belong to the spouse — not the giver.. A recent tax tribunal ruling reaffirmed this second-level income exception, giving families a legal path to split investment returns and lower overall tax..

What you should do: Gift a lump sum to your spouse now — ensure it is a genuine gift with no repayment condition, documented via a simple gift deed.. Invest the gifted amount in your spouse's name in FDs, debt mutual funds, or stocks — track first-level income (clubbed) vs reinvested returns (spouse's own).. Consult a CA to structure the gift before March 31 so the correct year's income is split — missing the financial year means losing one full year of tax benefit..

Pro tip: Once gifted money earns income and that income is reinvested, ALL future returns on the reinvested corpus belong solely to your spouse — clubbing stops at the first level. This is called the 'accretion rule' and most people never use it.