TaxTMI 
TaxTMI 
I loan my wife at 4%, she puts it in fd at 7%
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.... loan my wife at 4%, she puts it in fd at 7%<br> Query (Issue) Started By: - Kiran Kumar K Dated:- 5-7-2026 Last Reply Date:- 8-7-2026 Income Tax<br>Got 1 Reply<br>Income Tax<br>Husband 55yr, no source of income, only 3cr in savings acc and FDs, 3 land plots worth 2cr. wife 50yr, home maker, no source of income To build capital for my wife 50yr I have 3cr in account, I loan my wife 2cr @ 4%,....
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.... she puts it in fd at 7% I invest remaining 90 Lkh in Arbitrage fund for 3+ years, rest 10lkh for expenses (enough for 2 year expense) ***will the the 4% be picked up for scrutiny. loaning to my wife at 4-5% interest justifiable Reply By Sanjeev Agarwal: The Reply: Yes, you can lend money to your wife at 4-5%, but the tax consequences are not what most people expect. The main issue is n....
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....ot scrutiny because of the low interest rate; it is the clubbing provisions under the Income-tax law. Your proposed structure • Husband (55): Rs. 3 crore in bank/FDs, no salary/business income. • Wife (50): Homemaker, no income. • Husband lends Rs. 2 crore to wife @ 4%. • Wife invests Rs. 2 crore in FD @ 7%. • Husband invests Rs. ....
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....90 lakh in an arbitrage fund (>3 years) and keeps Rs. 10 lakh for expenses. Will 4% interest invite scrutiny? By itself, no. There is no provision requiring loans between spouses to be at market interest merely because they are relatives. A 4% or even 0% loan is legally possible if: • it is a genuine loan, • there is a written loan agreement, • in....
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....terest is actually paid, • bank trail exists, • repayment terms exist. So 4% is not automatically suspicious. However... The much bigger issue: Clubbing of income Under the clubbing provisions, if an individual transfers an asset to the spouse without adequate consideration, the income arising from that transferred asset is clubbed back in the transferor's....
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.... income. A loan is generally considered consideration only if it is genuine and enforceable. However, when a spouse receives funds at a concessional rate (4% when commercial deposits earn about 7%), the tax department could argue that: • part of the economic benefit is effectively a transfer, • especially where the sole purpose is income splitting. Although there....
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.... is no specific rule saying interest must equal market rate, a below-market loan creates a more debatable position than a market-rate loan. More important practical issue Suppose: FD return = 7% Loan interest = 4% Spread = 3% Husband Interest received = Rs. 8 lakh Wife Interest earned = Rs. 14 lakh Interest paid = Rs. 8 lakh Net income = Rs. 6 lakh If the Assess....
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....ing Officer concludes that clubbing applies, the FD interest (or at least the income attributable to the transferred funds) may still be clubbed in the husband's hands, defeating the objective. So the tax benefit becomes uncertain. Litigation risk assessment Structure Litigation risk Gift to wife FD Very High (clear clubbing) Interest-free loan High Loan @ 4% Mode....
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....rate Loan @ prevailing market FD rate (6.75-7%) Low Commercial documented loan with repayments Lowest<br> Discussion Forum - Knowledge Sharing ....