New Delhi, July 26 -- Many people assume that transferring money to their spouse who has little or no income and investing it in their name will help in reducing the family's tax liability, but the income tax department sees through it.

For example, if you gift money to your wife and she invests it in fixed deposits, mutual funds, gold, shares or other such assets, the income generated from those investments may still be taxed in your hands under the clubbing provisions.

However, there is an important detail here. Money gifted by one spouse to the other is exempt from tax under the Income-tax Act. The clubbing provisions come into play only when the gifted money is invested and starts generating income, such as interest, dividends or ca...