Moment guide · FY 2026-27

I am considering lending money to my spouse

Can I avoid clubbing by lending money to my spouse instead of gifting?

A genuine arm's-length loan to your spouse — at the prevailing SBI MCLR with a written agreement and actual repayment — keeps the income from the borrowed funds in your spouse's hands, unclubbed. You must report the interest you receive as your own income. A sham loan with no interest or repayment is a gift in substance, and section 64(1)(iv) clubs the income back, with GAAR risk.

The #1 trap

Signing a 'loan agreement' with no interest, no repayment and no movement of funds — that is a gift in substance, and section 64(1)(iv) clubs the income back to you anyway. The arm's-length loan works only when it is real: prevailing interest (SBI MCLR), a written agreement, actual repayment, and the interest reported as your income. GAAR lurks for sham arrangements.

Mehak and Arjun, planning her investments

Mehak lends ₹10,00,000 to her husband Arjun under a written loan agreement at the prevailing SBI MCLR of 9%, with quarterly interest and a repayment schedule. Arjun invests the ₹10,00,000 in a fixed deposit earning 7.5%, so his interest income is ₹75,000 a year. Under section 64(1)(iv), income from assets transferred to a spouse without adequate consideration clubs back to the transferor — but a genuine loan with market-rate interest and documented repayment is not a transfer without consideration, so Arjun's ₹75,000 of FD interest is his own income and is not clubbed with Mehak's. Mehak, in turn, reports the ₹90,000 of interest she receives from Arjun on the loan as her income from other sources, so the family's tax is on the full economic income, split between two taxpayers. If Mehak had instead 'lent' the money with no interest and no repayment, the arrangement would be a gift in substance, and section 64(1)(iv) would club Arjun's entire ₹75,000 back to Mehak, defeating the purpose. The loan agreement, the bank transfers and the quarterly interest payments are all documented, which is what makes the difference in scrutiny. If the structure looked purely tax-driven, the GAAR provisions could recharacterise it, so the commercial reality must stand on its own. Mehak keeps the loan agreement, the EMI ledger and the interest receipts, and both spouses file consistent returns. A quick call with us dials in the final figure. Mehak also documents the loan in a written agreement stamped as applicable, with the interest rate, the repayment schedule and the default clause, because an unwritten loan is indistinguishable from a gift for tax purposes. The interest she charges must be at the prevailing market rate — the SBI MCLR or a comparable benchmark — and a rate far below the market suggests inadequate consideration. If the spouse repays the loan early or takes a top-up, the agreement is amended in writing, and the bank transfers are recorded for each payment. If the spouse invests the loan proceeds in an asset that generates income, the income is the spouse's, but if the loan is used to repay the spouse's personal debts or for consumption, there is no investment income to attribute. A quick call with us dials in the final figure.