Scenario:
Mr. A, a salaried individual, sells a residential house in FY 2024-25 for ₹80 lakh, which he bought in 2010 for ₹20 lakh.
The indexed cost (considering inflation) is ₹45 lakh.
LTCG = ₹80 lakh - ₹45 lakh = ₹35 lakh.
Tax Planning Steps:
Invest in Another Residential Property (Sec 54)
He purchases a new flat worth ₹40 lakh within 2 years.
Entire ₹35 lakh LTCG is exempt from tax.
Invest in 54EC Bonds
If he doesn’t want a new house, he can invest ₹35 lakh in REC/NHAI bonds within 6 months to claim exemption.
Outcome: Mr. A successfully avoids LTCG tax by reinvesting in eligible assets.
Clubbing Provisions (Section 64(1)(iv) of the Income-tax Act, 1961)
Any income arising from an asset transferred to a spouse without adequate consideration is clubbed with the income of the transferor.
Here, if the husband transfers ₹5 lakh to his wife and she invests it in an FD, the interest income from the FD will be taxable in the hands of the husband.
However, if the wife further invests the interest income in another FD, any income from such reinvestment (secondary income) will be taxed in the wife’s hands.
Showing ₹5 Lakh as Wife’s Tuition Income
Claiming that ₹5 lakh is her tuition income without actual tuition services being provided is legally incorrect and may be treated as tax evasion.
The Income Tax Department can ask for proof of tuition services, such as receipts, bank statements, or student details.
If the amount is found to be a gift from the husband, it cannot be treated as tuition income.
Correct Way to Reduce Tax Liability
Instead of gifting ₹5 lakh, the wife should genuinely start providing tuition services and earn her own income.
Alternatively, if the wife invests the money in business or other activities, the actual profits from such business would be taxable in her hands (subject to clubbing rules in the initial stage).
The husband can invest in tax-saving instruments (such as PPF, ELSS, or 5-year tax-saving FDs) in his own name to claim deductions.
The husband cannot claim ₹5 lakh as the wife’s tuition income unless she actually earns it.
Interest from FD made from the transferred ₹5 lakh will be clubbed with the husband's income.
A legitimate tax-saving strategy would be for the wife to earn her own income or invest in a business where profits (not interest from husband's gift) will be taxable in her hands.
This approach ensures compliance with tax laws and avoids scrutiny from the Income Tax Department.
