Income Tax Department can send income tax notice even on cash transactions between husband and wife, know rules
Income tax notice for giving cash to wife? Know the rules for cash transactions between husband and wife, Section 269SS/269T, ways to avoid tax on investment and penalty. Are you also making this mistake?
Income Tax Notice Rules: Cash transactions between husband and wife are very common. Sometimes money is given and taken for household expenses, sometimes as a gift, or for any other need. But do you know that if this transaction is done without thinking and without keeping in mind the income tax rules, then you can get a notice from the Income Tax Department? Yes, even though the Income Tax Act does not directly ban cash transactions between husband and wife, there are some rules and circumstances which are very important to understand. If you are unaware of these rules, then you may not only have to face financial problems, but you can also unknowingly come under the purview of tax evasion. Today we will tell you about these rules in detail so that you can avoid any kind of trouble in future.
Tax experts also believe that if the husband gives some money to his wife for household expenses or as a gift, then that amount is considered the husband’s income and the wife does not have any tax liability on it. Under the Indian Income Tax Act, certain rules apply to the money transactions between husband and wife. The husband can give money to his wife in cash or in some other way, but it is very important to follow the income tax rules, especially the provisions of section 269SS and 269T.
Cash transactions between husband and wife and tax rules – what does the law say?
1. No tax on household expenses or gifts:
If a husband gives cash to his wife, whether it is for daily household expenses or as a gift on a special occasion, then there is no direct income tax notice on it. According to the law, this amount is considered a part of the husband’s income and the wife is not responsible for any tax on this amount.
2. Case of investment and income from it:
The real problem arises when the wife repeatedly invests the money received from the husband in some place (like fixed deposit, shares, mutual funds etc.) and she gets any income from that investment.
3. Wife’s tax liability:
In such a situation, the wife may have to pay tax on the income from that investment, if her total income falls in the taxable slab. The wife will have to show this income in her Income Tax Return (ITR).
4. Risk of clubbing of income:
In some cases, if it is proved that the main purpose of the investment was to save tax or divert income, then the Income Tax Department can add this income of the wife to the total income of the husband under the provisions of “clubbing of income”. This can increase the tax liability of the husband. Therefore, it is very important to know what is the end use of the money.
These two important rules of Income Tax on cash transactions – Section 269SS and 269T
There are two sections in the Income Tax Act which regulate large cash transactions, so that black money can be stopped and transparency is maintained in transactions. These are Section 269SS and 269T.
1. Section 269SS – Limit on accepting cash:
According to this section, no person can accept cash of ₹ 20,000 or more from another person at one time or in total as any kind of loan, deposit or any other specified transaction. If a transaction of more than ₹ 20,000 is to be done, then it should be done only through banking channels (such as account payee cheque, account payee bank draft, NEFT, RTGS or other electronic means).
2. Section 269T- Limit on cash repayment:
Similarly, this section prohibits repayment of loans or deposits of ₹20,000 or more in cash. That is, if you have borrowed ₹20,000 or more from someone, then you cannot return it in cash, you have to return it only through banking channels.
3. Special exemption in case of husband and wife:
The good thing is that due to the close relationship between husband and wife, usually there is no penalty for violation of these sections, if the transaction is genuine and bona fide. But, this does not mean that these rules should be completely ignored. Large cash transactions should always be avoided and it is better to use banking channels to maintain transparency.
How much cash can I give to my wife? Is there any limit?
It is a common question that how much cash can a husband give to his wife.
1. No limit for household expenses:
If the husband gives money to his wife for general household expenses (such as ration, bills, children’s fees etc.), then there is no upper limit. This amount is considered a part of the husband’s income and the wife does not have to pay any tax on it.
2. Keep an eye on the money given for investment:
If the wife uses the money given to her for any investment (such as fixed deposit, stock market, mutual fund, gold or buying property), then the income from that investment may be taxable.
3. Example:
Suppose the husband gave Rs 5 lakh to the wife, which the wife invested in a fixed deposit and earned an annual interest of ₹30,000. This ₹30,000 income will be considered as the wife’s income and if her total income is more than the taxable limit, she will have to pay tax on it. In certain circumstances, as mentioned earlier, it can also be clubbed with the husband’s income.
These precautions are important in cash transactions
While making cash transactions between husband and wife, some other things should be kept in mind.
1. Rental income:
If the money given to the wife is used to buy a property that is rented out and generates rent, then this rent will be considered the wife’s income and she will have to pay tax on it in her ITR.
2. Gift tax rules:
There is no gift tax on any amount or property gifted by the husband to the wife, because the husband and wife fall under the category of ‘close relatives’ under the Income Tax Act. But if the amount gifted is very large and its source is not clear, then the Income Tax Department may raise questions.
How to avoid income tax notice?
You can avoid the hassle of income tax notice by adopting some simple measures.
1. Avoid cash transactions of more than ₹ 20,000
Try not to make cash transactions of more than ₹ 20,000 at a time, especially in the form of loan or advance.
2. Use banking channels
For large amounts, always use cheque, NEFT, RTGS, UPI or other digital banking means. This keeps a record of the transaction.
3. Give correct information in ITR
If the wife invests the money received from the husband and earns income from it, then enter the information of that income correctly in your income tax return.
4. Tax on income from property
If the wife has purchased any property (such as property, fixed deposit) with the money received from the husband, then ensure timely payment of tax on the income from it.
5. Keep all documents safe
Keep all documents related to any major transaction or investment such as bank statements, gift deed (if any), purchase bills etc. safe.
When can an income tax notice come?
The Income Tax Department can issue a notice if it suspects that the husband has used the amount given to the wife only to save tax or to under-report his income. The investments made by the wife or the income from them have not been disclosed properly in the ITR. There have been very large cash transactions for which there is no satisfactory explanation. Any discrepancy is found based on the information received from a third party (such as a bank).
What is the real purpose of Income Tax Section 269SS and 269T?
As mentioned earlier, Section 269SS and 269T are important provisions of the Indian Income Tax Act. Their main purpose is to control cash transactions, curb the flow of black money and bring transparency in the economy.
1. Section 269SS:
This section prohibits the acceptance of cash of ₹20,000 or more as a loan, deposit or in any other specified form. This means that you cannot accept such a huge amount in cash from anyone (barring some exceptions).
2. Section 269T:
This section prohibits the repayment of a loan or deposit of ₹20,000 or more in cash.
Failure to comply with these sections can lead to a hefty penalty.
What is the penalty for breaking the rules?
If a person violates the provisions of section 269SS or 269T, i.e. transacts more than ₹20,000 in cash (and the transaction does not fall in the exempted category), then the Income Tax Department can impose a penalty.
Penalty under section 271D (for violation of 269SS):
The penalty can be imposed for the amount taken in cash.
Penalty under section 271E (for violation of 269T):
The penalty can be imposed for the amount returned in cash.
Who is exempted from these rules?
Although these rules are very strict, there are exemptions in certain circumstances and relationships:
Transactions between close relatives:
Genuine cash transactions between blood relations or close familial relations such as husband and wife, parent and child, brother and sister are generally not subject to penalty, provided the purpose of the transaction is legitimate and there is no intent to evade tax.
Gifts and essential expenses:
If the money is given as a gift, or for essential household expenses, then there is no penalty under these sections.
Agricultural income:
These provisions do not apply even if the transaction relates to agricultural income (as agricultural income is tax-free under certain conditions).
Other specified exemptions:
Certain other entities or transactions specified by the Government or RBI from time to time may also be exempted from these rules.
Avoid notices and penalties
Financial transactions between spouses are based on trust and mutual understanding, but it is equally important to follow income tax rules. A little awareness and caution can save you from any kind of tax notices and penalties in the future. Always try to make large transactions through banking channels, disclose all your income and investments correctly and consult a tax advisor if in doubt.
Disclaimer:
This article is for general information and awareness purposes only. It should not be taken as tax or legal advice. Consult a qualified chartered accountant or tax advisor for tax matters. Income tax rules may change from time to time.
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