Spouse's Demat Account? ₹1.95Cr Loss Rule Explained

If you gift money to your spouse and they trade stocks with it, the income — and losses — are taxed in YOUR hands under India's clubbing rules. A real ITAT case just proved this matters big time.

Here's what happened: Under Section 64 of Income Tax Act, income earned by a spouse from money gifted by you is 'clubbed' into your taxable income — not theirs.. A husband gifted ₹1.15 crore to his wife, who used it to trade in stocks; the resulting ₹1.95 crore loss was treated as his by the Income Tax Appellate Tribunal.. ITAT Lucknow ruled in the husband's favour, allowing him to claim the trading loss — but only because clubbing rules were consistently applied both ways..

What you should do: Avoid gifting large sums to your spouse purely for stock trading — the income AND losses legally belong to you under clubbing provisions.. If your spouse already trades using gifted funds, consult a CA to ensure both gains and losses are correctly reported in YOUR ITR, not theirs.. Keep a clear paper trail of any fund transfers to a spouse's demat account — gift deeds and bank records are critical if tax authorities question the transaction..

Clubbing cuts both ways: if your spouse makes a profit from your gifted funds, that profit is added to your income and taxed at your slab rate — potentially pushing you into the 30% bracket.