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I am starting a proprietorship firm, can I employ my wife? She is currently not working anywhere, but she is qualified and perfect for the position in my new company. Will there any limitation of how much salary I can hire her? And also is it possible she can work from home instead actially coming to office. Please advise?
You are the proprietor of your firm. You can appoint your wife in that organisation in any suitable position. Whatever question you asked, the answer will be available in the offer of employment and appointment order issued to her.
You can employ your wife in your firm in any suitable position you feel fit.
Salary can be decided by you also.
Will you have any other employee in similar position to the one you plan for your wife??
There is no limit on salary you can pay.
If the firm can afford it you can pay.
But remember that other employees will be watching the work of your wife.
Making her work from home will depend on what type of work is done by your firm.
One must be clear in the reason for employing your wife and then take a decision.

I must however add to the above post of mine by clarifying that you cannot breach certain fundamental norms in your efforts to minimise your tax outgo. First, the expenses should be legitimate. (Salary without limit may get question by IT officer under sec 40A(2) of the IT act.
Keep this aspect in mind while fixing salary"
Payment made should not be excessive or unreasonable compared to the fair market value of the services in connection with the legitimate needs of the business.(That is why I asked are you planning to employ some one else in position similar to your wife)
Pay salary by cheque and if wife falls in IT bracket, she has to file IT returns.
In conclusion while it is a good idea to pay your wife and reduce tax outgo,be reasonable and judicious in amounts being paid as salary etc.

@Nathrao I basically want to draw some amount for myself as salary, but it is not possible, so though it is better if I get it in my wife's name. But on paper she is well qualified and deserve the salary based on her qualification. So from that point of view it will be ok. And why my employees will know this, she will work from home. And I think work from home is all allowed even if a employee works 100% from home?
Please provide your feedback, or correct me if I am wrong anywhere as I am at starting point and if too much issue I cannot employee her and simply show everything as profit. Though that will surely increase the taxation a lot.

The sole proprietorship is the oldest, simplest, and most ubiquitous form of business entity. It is a business owned by a single person. For all tax and legal liability purposes, the owner and the business are one and the same entity
The income earned through operations can be taken by the proprietor’s pocket or reinvested as he/ she sees fit and proper.
Employ your wife and salary paid can be shown as business expense.
But as written above-wife may have tax liability.
Personally I feel wife should come to office and work for some time at least.
Your payment to wife should be seen as reasonable expenses for business activity.
There is no problem employing your wife.
However do take your tax consultant view on the subject also.

Having ones own wife or husband as an employee is not new in India for various, legal reasons at their own discretion. What I gather from your post is, this idea is engaging you for planning your tax implications. Whether your option would help you in achieving your purpose will depend on the quantum of your firm's profit and the so called 'salary pay out' to the spouse. Prima facie there is no harm in implementing your idea. But since you have not come out with the figs. I could not think of better ideas. As already pointed out Mr.Nath Rao, hefty/unreasonable 'salary payout' may pose problems at the time of assessment of your IT. In the circumstances it may be wise to discuss with your auditors and seek their advices which is only practical and would take care of future blues as well.
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