Clubbing of LTCG

In your scenario, the taxation and exemption of long-term capital gains (LTCG) depend on the concept of clubbing of income as per the Income Tax Act, 1961. Here’s how it works:

1. Income Tax Exemption for LTCG

• Every individual is entitled to an exemption of ₹1 lakh on LTCG under Section 112A (for equity-oriented investments). Any LTCG exceeding ₹1 lakh in a financial year is taxable at 10%.
• For other types of assets, there is no automatic exemption limit; LTCG is taxed at 20% after indexation.

2. Clubbing of Income Rules

Income earned by your wife through investments funded by you may be clubbed with your income under Section 64 of the Income Tax Act, 1961, if:

• The investments in her name were made from funds gifted by you or sourced from your income.

However, if the gains arise solely from her independent sources of investment (e.g., inherited property, gifts from her parents, or funds genuinely earned earlier), clubbing does not apply.

3. Implications for Your Case

• If clubbing applies:
  Since you are funding her investments and she is not earning an income, the LTCG arising in her name will be clubbed with your LTCG, and the total exemption will be ₹1 lakh for the combined LTCG under Section 112A.

• If clubbing does not apply:
  If the investments in your wife’s name come from sources that do not trigger the clubbing provisions (e.g., her savings, gifts from others), she can independently claim the ₹1 lakh LTCG exemption, resulting in a total exemption of ₹2 lakh (₹1 lakh each).

4. Clarification in Your Case

• You mentioned that your wife is a homemaker and does not have income. If the funds for investments in her name were provided by you, clubbing rules will likely apply, and her LTCG will be treated as part of your income. Hence, the exemption will be limited to ₹1 lakh for the combined LTCG.
• To claim exemptions separately (₹1 lakh each), her investments must come from non-clubbable sources, such as gifts received from others or independent savings.

5. Suggestion for Better Tax Planning

• 
  Document source of funds: If possible, ensure that investments in your wife’s name are funded from her non-clubbable sources.
• 
  Explore gifting options: Gifts received by your wife from relatives (other than you) or friends are not subject to clubbing, and income generated from such gifts would remain her independent income.
• 
  Plan investments separately: Consider ensuring that her future investments originate from sources not tied to your income, allowing both of you to claim exemptions independently.