Can a non-resident Indian (NRI) from Dubai transfer his income to his wife’s Indian account and can she invest this amount in mutual funds?
—Name withheld on request
It is perfectly legal to send money to your wife in India but the nature of transfer from your account to that of your wife needs to be determined—whether it is given as loan or gift or income, as there are different FEMA (Foreign Exchange Management Act) rules for each type of transaction.
Let’s assume you wish to transfer the amount as gift to your wife. In that case, she will not incur any tax on such transfer since it will be covered under the definition of transfer to ‘specified relative’ as per the Income Tax Act of 1961.
She is allowed to use the funds transferred to her account for investments in mutual funds. However, do note that, as per section 64(1)(iv) of the income tax Act, any income arising from assets transferred by a person to their spouse for inadequate consideration, either directly or indirectly, shall be clubbed in hands of the transferor. Hence as per the above law, any income arising out of investing the money transferred by you to your wife may become taxable in your hands.
The amount can also be transferred as loan to resident spouse by NRI/OCI (overseas citizen of India) to resident individual in Indian or foreign currency on repatriable or non-repatriable basis, subject to some conditions.
Once you have transferred the amount to your wife, remember the following points.
The money will not be freely repatriable to your NRO (non-resident ordinary) /NRE (non-resident external) account. As per FEMA, the liberalized remittance scheme (LRS) rules will apply to the funds in resident account.
TCS (tax collected at source) provisions will come into play while you would wish to transfer the amount back to your account from your wife’s account.
Sidhant Agarwal is co-founder of India for NRI.
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Published: 26 Feb 2024, 10:20 PM IST