What Is Section 5A of the Income Tax Act?
Most taxpayers are unaware of Section 5A, a special provision that applies only in specific cases; however, when it does apply, it significantly changes how income is taxed.
Section 5A of the Income Tax Act deals with income apportionment between spouses, applicable primarily to individuals governed under the Portuguese Civil Code — especially those living in Goa, Daman & Diu. Under this unique civil code, a married couple shares income equally, irrespective of which spouse earns it.
Who Does This Apply To?
This provision is not for every Indian taxpayer. It’s specifically for those governed by community property laws, i.e., taxpayers whose marriage is registered under the Portuguese Civil Code.
This law treats married individuals as equal partners in income, assets & liabilities acquired during the marriage. As per Section 5A, any income earned by one spouse is deemed to be earned equally by both.
So if a husband earns ₹20 lakhs as business income, ₹10 lakhs each will be taxed in the hands of the husband & wife — even if the wife has no other source of income.
What’s the Tax Benefit Here?
This rule can be a massive tax-saving opportunity, especially if one spouse has a higher income & the other falls into a lower or zero tax slab.
By splitting the income under Section 5A, the couple can reduce their overall tax liability, claim deductions effectively & make use of individual basic exemption limits.
It’s almost like built-in tax planning that comes with marriage under a specific legal framework."
But Wait… There Are Conditions
Yes, you can’t randomly claim income division under Section 5A just because it sounds appealing.
Here’s what the Income Tax Department expects:
- Your marriage must be registered under the Portuguese Civil Code.
- You must be ordinarily residing in Goa, Daman, or Diu.
- Income must be community income, i.e., earned during the marriage.
Also, the return must be filed separately by both spouses. Each spouse has to declare half of the total community income on their individual return.
What Kind of Income Can Be Split?
✅ Business Income
✅ Salary (if governed by the community property rule)
✅ Rental Income from jointly held property
✅ Capital Gains
✅ Other Sources (if earned during marriage)
However, income from assets acquired before marriage or through inheritance stays individual & is not split under this section."
How Is This Different From Clubbing Provisions?
In usual tax scenarios, if one spouse transfers an asset to another without adequate consideration, clubbing provisions under Section 64 apply, meaning income will be taxed in the hands of the transferor.
But under Section 5A, the income gets divided equally between spouses by default, which overrides the clubbing provisions for applicable cases.
This protects taxpayers from being taxed on the entire amount & instead allows for income distribution.
Residential Status & Section 5A
If one spouse is a non-resident & the other is a resident, things can get a little tricky. Since income apportionment is automatic under the section, even the global income of the resident spouse might be attributed to the non-resident partner.
This could lead to double taxation or compliance issues, especially if the non-resident resides in a country without a tax treaty with India.
So, professional tax guidance becomes a must in cross-border cases.
Filing Income Tax Returns Under Section 5A
Income tax returns must be filed individually by both spouses, even if only one of them has income. Each return should show 50% of the total eligible income.
Not doing so can lead to discrepancies, mismatches & notices from the tax department. Make sure your CA understands the implications of Section 5A to avoid litigation or reassessment.
Common Mistakes to Avoid
❌ Claiming 5A benefits without proper marriage registration
❌ Filing only one return instead of both
❌ Splitting income that was earned before marriage
❌ Not understanding the implications of residential status
❌ Ignoring Section 5A during assessment
Even small mistakes in this area can lead to interest, penalties & disallowances.
Final Thoughts: A Lesser-Known Provision That Can Help You Save Big
Section 5A is one of those little-known tax secrets that, when applied correctly, can lead to massive benefits for eligible couples. But misuse or misunderstanding of this provision can have serious tax consequences.
So if you're married under the Portuguese Civil Code & residing in Goa or similar regions, understanding how Section 5A works is not just smart, it's essential.
💡 Want to check if you’re eligible to split your income under Section 5A & reduce your tax burden? Reach out to our experts at Callmyca.com for the right guidance — before the taxman calls you instead.
