Should married couples be taxed together?

In today’s episode on 13th Jan 2026, we explain why the Institute of Chartered Accountants of India (ICAI) wants the government to let married couples file income tax returns jointly. ⁠Book a FREE call with Ditto for your health and term insurance needs⁠ https://ditto.sh/vx51ji https://ditto.sh/vx51ji

• 0:00Speaker 00

  Hello folks, you're tuned in to Finshots Daily. In today's episode, we explain why the Institute of Chartered Accountants of India, or ICAI, wants the government to let married couples file income tax returns jointly.

• 0:13Speaker 00

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• 0:55Speaker 00

  Back in 2018, a small but significant slice of Indian taxpayers was quietly shaving off a big chunk of their income while filing returns. Roughly 40% of personal income, in some cases, simply didn't made it on to the tax form. And that, more than anything else, explains why the government eventually pressed the reset button for the new tax regime in 2021. Think of it this way: under the old tax regime, you first declared your income and then lowered it using deductions such as life insurance premiums, home loan principal repayments, tuition fees for your kids and so on. Tax was calculated on whatever remained. It looked pretty neat, but in practice, it opened the door to creative tax avoidance. Some people stretched reductions, others under-reported income altogether.

• 1:39Speaker 00

  The end result: the government spent quite a bit of time and money auditing and arguing with taxpayers, often for revenue that wasn't worth the administrative headache. Trust between taxpayers and tax authorities was thin and voluntary compliance was more an exception than the norm. The new tax regime flipped that logic on its head. It came with lower tax rates, no deductions and apparently no complicated gymnastics. And surprisingly, many taxpayers were perfectly fine with that. As incomes rose, sticking to the old regime became harder anyway. You could only stretch deductions so far before the numbers stopped making sense. So, instead of juggling paperwork and risking scrutiny, people chose the simpler route. They filed under the new regime, skipped deductions altogether and enjoyed lower tax rates.

• 2:22Speaker 00

  The friction and disputes reduced and it was a system that was easier to live with for both taxpayers and the government. But even after the new tax regime kicked in, there was still one neat little loophole left open: marriage. This mostly played out in households where one spouse stayed at home while the other was the sole earner. Take a simple example. Say your income comes from rent and you file your returns under the new tax regime where the basic exemption limit is four lakh rupees. For years, your rental income stays below that limit, so you pay no tax. But this year it jumps to 5.5 lakh rupees. So as a workaround, you tell one of your tenants to deposit 1.5 lakh rupees of the rent directly into your spouse's bank account. And when it's time to file the returns, you show an income of four lakh rupees, your spouse shows 1.5 lakh rupees.

• 3:06Speaker 00

  Both numbers sit comfortably below the exemption limit and both of you pay zero tax. Had the income been declared honestly, the government would have collected about 7,500 rupees in tax, ignoring the rebates if you earn up to 12 lakh rupees just to keep things simple. Now, multiply this behavior across crores of married taxpayers and you can see how quickly the numbers add up. That's a serious leakage of potential tax revenue. And this is the exact problem the ICAI is trying to address. In its budget proposals, ICAI has floated an interesting idea: allow married couples to file joint tax returns. The logic is straightforward. If a single individual gets a basic exemption of four lakh rupees, why not allow a married couple filing together an exemption of eight lakh rupees?

• 3:47Speaker 00

  Then double the income tax lapse too, all the way up to 30% since two people are being taxed as one unit. Do that and the incentive to quite least split income across spouses disappears. There is no need for creative routing of rent or earnings anymore. You get an option to file jointly, pay fairly and move on. But here's the bit we didn't tell you earlier and you've probably already connected the dots yourself. Go back to that rental income example. If the tax authorities trace the money trail and realize that you've simply parked part of the Rent in your spouse's account or even if you transfer the property to your spouse for little or no consideration just to cut your tax bill. Things don't end there. In cases like these, the tax department can invoke section sixty four of the Income Tax Act.

• 4:27Speaker 00

  What it essentially says is if you try to reduce your tax burden by shifting income or assets to your spouse, the law can simply club that income back under your name and tax you as if nothing ever moved. So if the safeguard already exists, why do we even need something like joint taxation for married couples, you ask? Well, the answer is actually quite simple. Think back to the old regime. Think back to the old tax regime. The tax department spent an enormous amount of time and money checking who was exaggerating deductions and who was outright faking them. Policing behavior became more expensive than the tax collected itself. The same problem shows up here too. If a married couple is quietly shifting income to the lower earning spouse, catching that behavior means audits, scrutiny notices, paperwork and manpower. It's costly and inefficient.

• 5:11Speaker 00

  More importantly, section sixty four and joint taxation aren't really trying to solve the same problem in the same way. Section sixty four is more of a catch later rule. It kicks in only if an audit happens and the tax authorities spot income splitting. This means that an earning spouse can move assets to a non-earning spouse in ways that look perfectly legitimate through family businesses, partnerships and professional firms or other neatly documented arrangements and still end up splitting income while technically staying within the rules. And since only a small portion of tax returns, probably less than one person are audited in India, whether section sixty four is enforced often comes down to sheer luck. This creates an odd outcome. People with access to good advice and the ability to structure income carefully can legally reduce their tax burden.

• 5:55Speaker 00

  But salaried, single earner, middle-class households don't have any such option. They simply end up paying more tax with no workaround. And that's the heart of I C A I's argument. Instead of chasing income splitting after it happens, the tax system should remove the incentive to do it in the first place. Joint taxation does exactly that. It treats income at the household level, makes sharing income transparent and legitimizes what people were anyway trying to do quietly. Of course, none of this is easy to implement. India's tax system is built around individual Taxpayers, not households. So, moving to joint taxation would mean reworking quite a few moving parts, such as new return forms and option to file jointly, higher thresholds, lab tweaks, backend ID changes. Now, all of that takes time, money and admin effort.

• 6:39Speaker 00

  So, if the government eventually accepts the proposal, it's not a small switch. But here's the thing, that effort might actually be worth it because research by OECD shows that simpler tax systems improve compliance by anywhere between fifteen to thirty percent, while also cutting down enforcement costs. In India's case, that could mean pulling income that's currently being split or quietly diverted between spouses back into the formal net. So, even if just ten to fifteen percent of this income starts getting reported as combined household income, the government could recover thousands of crores every year. There's another upside too. Joint taxation would leave more money in the hands of families, especially single earner households, or those where one spouse earns far more than the other. And when households have more disposable income, they spend more.

• 7:23Speaker 00

  We've already seen how powerful this effect can be when the government came up with a one lakh crore rupees tax cut in last year's budget by cutting personal income tax. During the time, economists estimated that India's urban middle class saved about twenty percent of any extra income and spent the remaining eighty percent. That translates into a consumption multiplier of around five. In simple terms, every extra rupee of tax relief eventually creates five rupees worth of spending across the economy. If you apply that logic here, and joint taxation leads to even seventy to eighty thousand crore rupees in additional disposable income by conservative estimate, the resultant effect could be three point five to four lakh crore rupees in extra consumption. That money just doesn't stop with households. It flows to retailers, suppliers, employees and then keeps circulating through multiple rounds of spending.

• 8:08Speaker 00

  But yes, these are still just estimates and everything ultimately depends on whether the government believes the benefits outweigh the complexity and whether the long-term gains justify the upfront effort. That said, India won't be starting from the scratch. Joint taxation has been around for decades in developed economies like the US. The playbook already exists, so the sensible next step could simply be to study what's worked there, understand what hasn't and then adapt those lessons to India's own realities.

• 8:36Speaker 00

  Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.