Can a husband be paid a salary for services provided ? e.g., Share Trading, etc?

Question

I have a scenario where a husband generates income for his wife by trading online. Now can the wife pay a salary to husband for the service provided by the husband.

Also if the husband includes this income in his tax return, can the wife expense the salary from her income ?

Finally if the husband generated Rs 1 Lakh in profits, what is a reasonable amount to pay as salary to Husband ? 5% of profit (= Rs 5000) or 10% profit = Rs 10,000 ? What is the MAXIMUM possible salary possible in this case ?

Mahesh:

Can you please explain what

Yes, Yes, No is for

I cannot understand which particular part of the question is YES and which one is NO.

helpaneed:

I have purposely framed the term percentage (%) of profit only for illustration purpose. In real terms we are only looking at Salary between wife and husband.

For a Rs 1 lakh income, if the wife pays Rs 50,000 etc, then it is clear case of tax evasion. But if the salary is around Rs 10,000 then I am feeling that since the salary is performance linked then 10% of profits as paid salary seems fairly reasonable.

Answer 1

Having read you whole question, I have a question before answering. What do you mean by salary? You are talking of salary and quoting example in percentage of profits! Percentages of profits have become salaries since when? Are they not be called commission (on profits) - which entirely different from a salary?

Now, as an ITO, can't I interpret that to evade income tax, you are routing your profits back home through % of commission to your husband in the mask of salary?!

Well there are also genuine ways & means. Consult a professional to help you out in your case specific - studying and understanding your requirements and recommending proper planning with supporting methodology.

In response to your supplementary comments addressed to me: Please appreciate that certain matters are revenue sensitive for exchequer - and it is advisable to work within the framework of law. As a professional, I prefer to study each case on its own merits before giving any opinion. To me, hypothetical examles for practical matters are irresponsible statements.

Answer 2

my dear friend, you have put an imaginary question but i will term it as a strange rather interesting question.
the first part of your quetion says of salary to husbend for generating income to wife through online trading, this situation give rise to two possible conditions-
1. salary can only be paid by the employer to employee. if in your case the trading is being done by the husband then he should be employer or the owner of the business, and the wife will be merely a client of his to whom he is providing the online trading services. and in no case a client will pay salary to its consultant though she will/can pay consultancy fee to him. so there is no question of salary being paid by the wife to its husband.
2. let the second situation be that the wife is carrying the online trading in securities and the husband is employee then the wife can pay salary to the husband. in such situation according to general trade norms or a reasonable salary can be paid to the husband. and the wife can obviously claim such salary as her business expense. but if an excess salary is paid to husband in comparision to other staff of same responsibility and qualification then you have to justify the payment so made. otherwise it will be deemed as unreasonable and will be disallowed by the assessing officer and you will have to bear the tax liabilty on the disallowed amount.
and also there is no standard % for salary or any other expense.
hopefully i have helped you in clearing the issue...
bye ..

Answer 3

Yours is case of speculative business & so u can pay salary to your husband but ultimtely your & your husbands income will be clubbed in the return of any one of you having higher income so ultimately ther will be no tax saving as such.
However u can claim rebate u/s 88E

Answer 4

mr. mahesh is clear. including the main question, there are four questions, and he has given four answers. where is the doubt.

but then, the employer-employee relationship and the basis for renumeration needs to be proved to the income tax assessment officer. and generally, they donot accept.

in case the investment was from your husbands funds, you may be asked to make more taxes than otherewise

Answer 5

Yes.
Yes.
No.
No limits. To be mutually agreed and decided.