Income Tax: Husband deposits ₹71 lakh into wife's account—does she have to pay tax?

Income Tax Rules: Do you know whether you are liable to pay tax if your husband deposits money into your account? Let’s look at what the rules say.

Income Tax Rules: In many households, the husband earns while the wife is a homemaker. Often, husbands deposit money into their wives' accounts. Does the wife have to pay tax on this money? This question arose in a recent tax case where the Pune ITAT ruled in favor of the wife. Let’s understand the verdict and the details of the case.

What is the case about?

This case originated in Pune, where a husband deposited ₹71.56 lakh into his wife's bank account. The Income Tax Department viewed this sudden deposit with suspicion, treating it as the wife's undisclosed income and bringing it under the tax net. In response, the wife, Gauri, explained that the funds deposited in the account had come from her husband, Jayendra Navale. According to her, the money was derived from her husband's earnings.

Why did the ITAT grant relief?

Income tax officials were not satisfied with the wife's explanation. They classified the amount as undisclosed money under Section 69A of the Income Tax Act. The matter subsequently reached the ITAT. During the hearing, it was revealed that the husband had already declared this income in his income tax return. His records showed sales/commission income of approximately ₹91.74 lakh and a total income of around ₹93.67 lakh. The ITAT acknowledged that the husband possessed sufficient financial capacity to transfer such an amount.

Consequently, the tribunal ruled that since the source of the funds was clearly traced to the husband's declared income, it was inappropriate to tax the same amount again by treating it as the wife's undisclosed income. The ITAT set aside the tax addition of ₹71.56 lakh made against the wife. The Tribunal also set aside the tax addition made in the husband's case.

A lesson for the general public

This case does not imply that a husband can simply deposit any amount into his wife's account and have it remain tax-free. The most crucial aspect is that the source of the funds must be clear. If the husband's income has already been declared and there are adequate records of the transfer, the mere fact that the money was deposited into the wife's account should not lead to it being treated as her undisclosed income.