Do you know, how marriage can save tax for you?

When you get married, you are not only combining families together, but possibly tax liabilities as well. Will marriage help you save your taxes or will it increase your tax liability? It is very common to have this kind of questions. But don’t worry, we are here to help you understand the tax impact of the same.

Gifts received are exempt:

First thing that comes to mind when someone says marriage is  a celebration, happy times, blessings and gifts. No need to worry about the gifts received because under Income Tax Act, any gift received on the occasion of marriage will not be taxed irrespective of the amount. Gifts can be in any form be it in kind or cash, not taxable. On the occasion of marriage, gifts received from non-relative will also be exempt. Therefore, if anyone is planning to give you a gift, occasion of marriage would be the perfect time to do it. Because it will save you from tax implications as well.

Create an HUF to save tax:

One advice that is given by every financial advisory once you get married is to create an HUF. An HUF automatically comes into existence when a person gets married and starts a family. It is not necessary that this new family should also have kids. Although it is always advisable to have a written agreement as the banks and Income Tax Department ask for the HUF Deed.

It is not compulsory to create an HUF on the day of marriage itself. It can be created at any point of time in future. The logic behind forming an HUF is to avail tax benefits with an extra PAN card legally.
Because under Income Tax Act, HUF is considered as a separate entity and is therefore taxed separately. Hence income of the family will not be taxed in the hands of any family member individually. The family can pay taxes using the PAN card provided to HUF.

Concept of Clubbing:

Another issue faced by an individual post marriage is Clubbing of Income. It comes into picture on transferring any asset(shares, debentures, FD etc) to spouse and  consideration is not paid by one spouse to another than any income arising out of such asset will be clubbed and taxed to the transferal. Provided, relationship must subsist both on the date of transfer as well as on the date of Income. Only any accretion to asset is not clubbed to transferor. Which means, transferring the asset before marriage will not result in clubbing to transferor.

Let’s take an example to understand: Mr. A and Miss. Y’s marriage was on 5-4-2015. And right after that Mr. A transferred one Fixed Deposit to Mrs. A(Miss. Y) amounting to Rs. 2,00,000. In the next year Mrs. A deposits Rs. 2,16,000 in Fixed Deposit again.

Then in that case, even though Mrs. A is earning interest on such deposit it will be clubbed to Mr.A and taxed to Mr.A for financial year 2015-16. Because, Mr. A transferred the asset post marriage and not before it. If Mr. A would have transferred the asset pre marriage than in that case income of interest would not be clubbed and taxed to Mrs. A(Miss Y) because the relationship of Husband and Wife was not there on the date of transfer.

For the next year, only income of interest from Rs. 2,00,000 will be clubbed and taxed to Mr. A and not income earned on Rs. 16,000. It will not be clubbed since it was accretion to asset. Hence, interest income earned on Rs. 16,000 is taxable to Mrs. A and not Mr. A.

Any asset transferred to daughter-in-law by father-in-law or mother-in-law is taxable in the same manner as above. Any asset transferred by one spouse to outsider for the benefit of other spouse is taxable after clubbing the two.

Following are the situations where provisions of clubbing will not apply:

1. If the transfer of the asset is for adequate consideration.
2. If the transfer of the asset is in connection with an agreement to live apart.