What is Pin Money and how does a woman save taxes on the same

India has an estimated 25 crore households, most of them managed by versatile and dexterous women who weave the whole family into a single unit. The common thread of efficient financial management runs through each household, thanks mostly to her. Her source of funds, if she is a homemaker, is mostly the amount given by her husband every month to look after the household needs.

The financial competence is reflected in the fact that there must rarely be any woman who does not manage to save out of that monthly allowance. Some women have been known to save quite a sizable chunk over a period of time; this money has actually saved many families in times of distress. And we have seen this in abundance in the recent pandemic situation. Women have come to the rescue, when the spouse, or other earning members of the family, lost their jobs and sources of income.

What Income Tax says about Housewife Income:
The income tax laws provide for clubbing of income where the wife derives an income from the funds gifted by her husband or father in law, since it is construed as non- application of her skill. The same rule applies if she is a partner in a partnership firm with her husband and receives salary or profit without application of her skill. Clubbing applies where the wife does not have a professional qualification required to earn that income and it emanates out of the skill of her husband. These provisions have existed since the inception of the recent tax laws. The intent of the clubbing provision is to check tax evasion arising out of the transfer of assets and income to the spouse. Clubbing provisions also apply to assets or income transferred to the minor children from parents and from father in law to daughter in law, and to assets or income transferred to one’s HUF.

To understand clubbing better, we take an example of the gift given by a husband to his wife, let’s say Rs 5 lakhs, which she invests in a bank fixed deposit and generates interest @ 6% per annum (Rs 30,000). This amount of Rs 30,000 is considered as the husband’s income, despite the fact that the amount was willfully and seriously gifted to his wife and she is free to use the way she wants.

What is Pin Money?
Let’s go back to understanding in detail about the savings made by the lady of the house out of the monthly allowance she receives from her husband to run the household or to meet her own expenses. This is precisely known as Pin Money. In other words

it is the money saved out of whatever amount she gets every now and then for running the household, it is a sort of pocket money.

But calling it pocket money would be demeaning the authority and competence of a homemaker who commands tremendous respect in Indian society.

Pin Money & Correlation Provisions
Let’s understand the correlation between Pin Money and clubbing provisions. Pin Money is an exception to the clubbing provisions which imply that any return generated out of investing Pin Money would not be subject to clubbing provisions, the logic being this money is not a gift but factually saved out of her skill. This perspective is supported by a ruling of an appellate tribunal as the Income-tax does not specifically contain any provision in this regard.

How much amount can be claimed as Pin Money
Another question arises in relation to the quantum of money which is reasonable to be termed as Pin money to prevent the concept from being misused with a malicious aim to circumvent clubbing provisions. Considerations to be kept in mind would be the size of husband’s income, the total expenditure of the household, the extent of the contribution made for the household expense, justification for the quantum of savings being made by the house lady etc.

In other words, to be termed as Pin money it has to be a reasonable quantum of savings by the woman out of the monthly allowance she receives from her husband; such Pin Money can be freely invested by her without the husband fretting about the returns being clubbed to his income. Pin Money is therefore, treated at par with salary or any business she may have been running on her own.

Pin Money Similar to Stree Dhan
It is pertinent to note that such Pin Money should be considered similar to “Stree Dhan”, an amount collected by the bride out of the gifts and contributions to her by relatives and well-wishers. As per the Supreme Court, “Hindu married woman is the absolute owner of her Stree Dhan property and can deal with it in any manner she likes. “Stree Dhan '' also enjoys the privilege of being eligible for a reclaim if she decides to park this with a relative or a friend.

A person having custody of “Stree Dhan” is legally bound to return it to her as and when she needs without any conditions or lien.

A strange fact comes out of the Income Tax laws, that a gift received from the husband is clubbed, but a gift received from parents or siblings are not clubbed. Not sure if this is intended to glorify the institution of marriage. It is pertinent to note that the clubbing provisions are not just restricted to cash or bank transfers, but also apply to transfer of other asset classes like shares, mutual funds, property -- wherever there’s a whiff of tax evasion. It seems that several laws in India including Income Tax Act, 1961 have been weaved around the fabric of Indian society, in which a woman spends a major part of her life with her husband rather than with her parents and siblings.

To conclude, unless the lawmakers take a contrary view in future, women can safely keep her savings resulting from the amount given for household expenses or personal allowance as Pin Money, without passing on the tax burden to her husband.

(The writer is an economist, and finance & business expert. He is Founder-Chairman of KCC Group)