In today’s Finshots, we explain why the Institute of Chartered Accountants of India (ICAI) wants the government to let married couples file income tax returns jointly.

The Story

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 never made it onto the tax form. And that, more than anything else, explains why the government eventually pressed the reset button with 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 deductions. Others underreported income altogether.

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 importantly 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. 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 only from rent and you file your returns under the new tax regime, where the basic exemption limit is ₹4 lakh. For years, your rental income stays below that limit, so you pay no tax. But this year, it jumps to ₹5.5 lakh.

So as a workaround, you tell one of your tenants to deposit ₹1.5 lakh of the rent directly into your spouse’s bank account. When it’s time to file returns, you show an income of ₹4 lakh. Your spouse shows ₹1.5 lakh. 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 in tax (ignoring rebates if you earn up to ₹12 lakh, just to keep things simple).

Now, multiply this behaviour 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 exactly the problem the Institute of Chartered Accountants of India (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 ₹4 lakh, why not allow a married couple filing together, an exemption of ₹8 lakh? Then double the income tax slabs too, all the way up to 30%, since two people are being taxed as one unit. Do that, and the incentive to quietly split income across spouses disappears. There’s 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 realise that you’ve simply parked part of the rent in your spouse’s account, or even if you transferred 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 64 of the Income Tax Act. 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 this 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 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 behaviour 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 behaviour means audits, scrutiny notices, paperwork, and manpower. It’s costly and inefficient.

More importantly, Section 64 and joint taxation aren’t really trying to solve the same problem in the same way. Section 64 is more of a “catch you 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 in 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 1% are audited in India, whether Section 64 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. 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 ICAI’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 legitimises what people were anyway trying to do quietly.

Of course, none of this is easy to implement.

India’s tax system was built around individual taxpayers, not households. So moving to joint taxation would mean reworking quite a few moving parts such as new return forms, an option to file jointly, higher thresholds, slab tweaks, backend IT changes. All of that takes time, money, and administrative effort. 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 15–30%, 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 10–15% 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.

We’ve already seen how powerful this effect can be when the government came up with a ₹1 lakh crore 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 20% of any extra income and spent the remaining 80%. That translates into a consumption multiplier of around 5. In simple terms, every extra rupee of tax relief eventually creates ₹5 worth of spending across the economy.

If you apply that logic here and joint taxation leads to even ₹70,000–₹80,000 crore in additional disposable income, by a conservative estimate, the resultant effect could be ₹3.5–₹4 lakh crore in extra consumption. That money doesn’t just stop with households. It flows to retailers, suppliers, employees, and then keeps circulating through multiple rounds of spending.

But yeah, 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 wouldn’t be starting from scratch. Joint taxation has been around for decades in developed economies like the United States. 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.

Until then…

If this story helped you learn something new about taxation, forget to share it with your friends, family, or even strangers on WhatsApp, LinkedIn, and X.

Yup, that was an intentional error, just to check if you made it this far. Share Finshots with more people. Plis!

The #1 Financial Mistake Most Indians Make

Delaying buying a term insurance plan.

There could be many reasons for this, but for a lot of people, it's simply because they're unsure or just haven't had the right guidance.

The truth is, term insurance is one of the simplest and most affordable ways to protect your family financially if something were to happen to you. If you’re unsure where to begin, Ditto can help.  Book a FREE consultation with an advisor who’ll walk you through it.

PS: Ditto is rated 4.9 on Google (13,000+ reviews)!