Can a husband pay salary to his wife?
The question of whether a husband can pay salary to his wife has been a matter of debate for many years While there is no legal restriction to the payment of salary, the Income Tax Act does provide some guidelines
Section 64 (1) (ii) of the Income Tax Act states that if the payment is made to a spouse not having technical or professional qualifications, the amount paid shall be clubbed with the income of the said proprietor This means that the salary paid to the wife will be treated as the income of the husband and taxed accordingly
However, there are certain exceptions to this rule For instance, if the wife is working as a partner in the husband’s business, the salary paid to her is not considered as the income of the husband and is not subject to tax Similarly, if the wife is working as an employee in the husband’s business, the salary paid to her is also not considered as the income of the husband and is not subject to tax
In addition, if the wife is working as a professional or technical expert in the husband’s business, the salary paid to her is not considered as the income of the husband and is not subject to tax This is because the wife is considered to be an independent contractor and is not subject to the same tax rules as an employee
It is important to note that the salary paid to the wife should be reasonable and commensurate with the services rendered This is to ensure that the salary paid to the wife is not considered as a form of tax avoidance
Furthermore, the salary paid to the wife should be supported by documentary evidence such as invoices, receipts, etc This is to ensure that the salary paid to the wife is not considered as a form of tax evasion
Finally, it is important to note that the salary paid to the wife should be reported to the income tax authorities This is to ensure that the salary paid to the wife is not considered as a form of tax evasion
In short, while there is no legal restriction to the payment of salary to a wife, it is important to ensure that the salary paid to the wife is reasonable and commensurate with the services rendered, and is supported by documentary evidence Furthermore, the salary paid to the wife should be reported to the income tax authorities This is to ensure that the salary paid to the wife is not considered as a form of tax evasion