Engineer
48 Points
Joined July 2016
Hi,
Thanks everyone for your response.
1) Based on your reply, I searched Google about loans to spouse. Some articles suggest that it should be given at a reasonable interest- around 6%. What if it is given as an interest-free loan?
2) If it is true that interest has to be charged, wouldn't the lender end up paying taxes on the interest received from spouse? To me it sounds like a lot of additional taxes.
Case 1: Rs. 100 given as gift from husband (30% tax bracket) to wife (20%). So the profits are taxed at husband's tax bracket of 30%.
Case 2: Same 100rs given as loan at 6%. Assume wife makes 10% profit on which she pays 15% STCG. So post-tax she has Rs.108.5. But she also has to pay 6rs as interest to husband. So she is left with only 102.5rs.
Husband pays 1.8rs as tax (30% of 6rs) on the interest received. So he gets to retain only 6-1.8 = 4.2rs. So total amount with the couple = 102.5+4.2 = 106.7rs. In other words, the effective tax paid out on the profits is (110-106.7)/10= 33%!!
Summary: This shows that if the spouse (wife) needs money to invest in stocks, it is better to buy stocks in the name of husband with husband's money, by the wife, without involving any transfer of money between them. This way only STCG/LTCG needs to be paid at flat 10/15%. Am I correct?
CAclubindia
