My colleague suggested I should put my bond investments in my wife’s name since she is in the 10% tax bracket and I am in the 30% bracket. He said I could save a lot on TDS and the income tax on coupons. Is this actually legal? And if yes, how would I go about doing it?
It is legal but there is a complication that your colleague may not have mentioned. Section 64 of the Income Tax Act covers what is called the clubbing of income. If you transfer funds to your spouse and she invests those funds, the income from those investments is clubbed back with your income for tax purposes. Which means it is taxed at your slab, not hers. The tax benefit disappears entirely.
The intent of Section 64 is specifically to prevent this kind of income splitting between spouses.
Adding one important caveat to what Divishtha said. The clubbing provision applies only when the source of funds is from you. If your wife has independent income of her own — salary, business income, inheritance — and she uses those funds to invest in bonds, the income is hers and taxed at her slab. No clubbing in that case.
The problem only arises when you give her money and she invests it. Source of funds is the key question.