Income Tax: People who earn more have to pay a lot of tax. Therefore, they have to be careful in financial transactions. If your income also falls in the highest tax slab, then it is important for you to know some specific rules of income tax. This can help a lot in tax-saving. For example, if you give a loan to your wife instead of a gift, you can save a lot of tax.
Tax rates on high incomes
First of all, it is important to know how much income falls in the highest tax slab. If you use the old system of income tax and your annual income is more than Rs 10 lakh, you will have to pay 30 percent tax. In the new system, 30 percent tax is levied on income above Rs 24 lakh annually. This means that the tax rates are higher in the old system. However, it has to be kept in mind that the old system provides deduction benefits. The new system does not offer deduction benefits.
A gift or loan can be given to the wife.
Let’s say your annual income is Rs 30,00,000. This means you fall in the highest tax bracket. Your wife needs Rs 30,00,000 to open a shop. You want to give this money to your wife. There are two ways to do this. You can give this money to your wife as a gift. In the other way, you can give this money to your wife as a loan. From a tax perspective, giving this money to your wife as a loan can lead to huge tax savings.
There are different tax rules on gifts.
If you gift Rs 30,00,000 to your wife, different tax rules will apply. Section 64(1)(IV) of the Income Tax Act, 1961 states that if a husband gives money to his wife as a gift, the wife will not have to pay tax on the income earned from that money. That income will be added to the income of the person giving the gift (here the husband). Then the entire income will have to be taxed as per the slab.
The tax calculation on gifting in this way
can be easily understood with the help of an example. Suppose the Rs 30 lakh given to the wife gives an income of Rs 6 lakh in a year. Then this income will be added to the husband’s income. This will make the husband’s total income Rs 36 lakh annually. He will have to pay tax on the income of Rs 36 lakh instead of Rs 30.
Suppose your husband’s taxable income is Rs 28 lakh, then after adding the income from your gift, your total taxable income becomes Rs 34 lakh. On a taxable income of Rs 34 lakh, you will have to pay tax of Rs 8,58,000 under the old regime, while under the new regime you will have to pay tax of Rs 7,77,400.
Calculation of tax on loan
Now suppose that the husband gives a loan of Rs. 30,00,000 to his wife. He gives this loan at an annual interest rate of 10 percent. Using this loan money, the wife earns an income of Rs. 6 lakh. The wife gives 10 percent interest to her husband, which means that she gives Rs. 3 lakh to her husband. Now her profit decreases to Rs. 3 lakh.
Less tax on loan instead of gift Now the husband’s income becomes Rs 31 lakh (28+3). On this income of Rs 31 lakh, the husband’s tax in the old system will be Rs 7,64,400, while in the new system it will be Rs 6,83,800. This means that the husband is getting tax benefit by giving loan as opposed to gift. The wife’s income is Rs 3 lakh, on which no tax will be levied in the new income tax regime. A nominal tax will be levied in the old regime. It has to be kept in mind that this tax calculation is for the assessment year 2025-26.
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