Clubbing of Income under the Income Tax Act, 1961
- Monday, December 5, 2011, 0:44
- Income Tax
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Clubbing of income means Income of other person included in assessee’s total income, for example: Income of husband which is shown to be the income of his wife is clubbed in the income of Husband and is taxable in the hands of the husband. Under the Income Tax Act a person has to pay taxes on his income. A person cannot transfer his income or an asset which is his one of source of his income to some other person or in other words we can say that a person cannot divert his income to any other person and says that it is not his income. If he do so the income shown to be earned by any other person is included in the assessee’s total income and the assessee has to pay tax on it.
| SECTION | NATURE OF TRANSACTION | CLUBBED IN THE HANDS OF |
CONDITIONS/EXCEPTIONS | RELEVANT REFERENCE |
| 60 | Transfer of Income without transfer of Assets. | Transferor who transfers the income. | Irrespective of: 1. Whether such transfer is revocable or not. 2. Whether the transfer is effected before or after the commencement of IT Act. |
1. Income for the purpose of Section 64 includes losses. [P. Doriswamy Chetty 183 ITR 559 (SC)] [also see Expl. (2) to Section 64] 2. Section 60 does not apply if corpus itself is transferred. [Grandhi Narayana Rao 173 ITR 593 (AP)] |
| 61 | Revocable transfer of Assets. | Transferor who transfers the Assets. | Clubbing not applicable if: 1. Trust/transfer irrevocable during the lifetime of beneficiaries/transferee or
2. Transfer made prior to 1-4-1961 and not revocable for a period of 6 years. Provided the transferor derives no direct or indirect benefit from such income in either case. |
Transfer held as revocable 1. If there is provision to re-transfer directly or indirectly whole/part of income/asset to transferor;
2. If there is a right to reassume power, directly or indirectly, the transfer is held revocable and actual exercise is not necessary. 3. Where no absolute right is |
| 64(1)(ii) | Salary, Commission, Fees or remuneration paid to spouse from a concern in which an individual has a substantial* interest. | Spouse whose total income (excluding income to be clubbed) is greater. | Clubbing not applicable if:Spouse possesses technical or professional qualification and remuneration is solely attributable to application of that knowledge/qualification. | 1. The relationship of husband and wife must subsist at the time of accrual of the income. [Philip John Plasket Thomas 49 ITR 97 (SC)]
2. Income other than salary, |
| 64(1)(iv) | Income from assets transferred directly or indirectly to the spouse without adequate consideration. | Individual transferring the asset. | Clubbing not applicable if: The assets are transferred; 1. With an agreement to live apart.2. Before marriage. 3. Income earned when relation does not exist. 4. By Karta of HUF gifting co-parcenary property to his wife. 5. Property acquired out of pin money. R.B.N.J. Naidu vs. CIT |
1. Income earned out of Income arising from transferred assets not liable for clubbed. [M.S.S. Rajan 252 ITR 126 (Mad)]2. Cash gifted to spouse and he/she invests to earn interest. [Mohini Thaper vs. CIT 83 ITR 208 (SC)] 3. Capital gain on sale of 4. Transaction must be real. |
| 64(1)(vi) | Income from the assets transferred to son’s wife. | Individual transferring the Asset. | Condition: The transfer should be without adequate consideration. |
Cross transfers are also covered [C.M.Kothari 49 ITR 107 (SC)] |
| 64(1)(vii),(viii) | Transfer of assets by an individual to a person or AOP for the immediate or deferred benefit of his: (vii) – Spouse. (viii) – Son’s wife. |
Individual transferring the Asset. | Condition: 1. The transfer should be without adequate consideration. | 1. Transferor need not necessarily have taxable income of his own. [P. Murugesan 245 ITR 301 (Mad)] 2. Wife means legally wedded |
| 64(1A) | Income of a minor child [Child includes step child, adopted child and minor married daughter]. | 1. If the marriage subsists, in the hands of the parent whose total income is greater; or;2. If the marriage does not subsist, in the hands of the person who maintains the minor child.
3. Income once included in the total income of either of parents, it shall continue to be included in the hands of some parent in the subsequent year unless AO is satisfied that it is necessary to do so (after giving that parent opportunity of being heard) |
Clubbing not applicable for:— 1. Income of a minor child suffering any disability specified u/s. 80U.2. Income on account of manual work done by the minor child.
3. Income on account of any activity involving application of skills, talent or specialized knowledge and experience. |
1. Income out of property transferred for noconsideration to a minor married daughter, shall not be clubbed in the parents’ hands. [Section 27] 2. The parent in whose hands |
| 64(2) | Income of HUF from property converted by the individual into HUF property. | Income is included in the hands of individual & not in the hands of HUF. | Clubbing applicable even if: The converted property is subsequently partitioned; income derived by the spouse from such converted property will be taxable in the hands of individual. |
Fiction under this section must be extended to computation of income also. [M.K. Kuppuraj 127 ITR 447 (Mad)] |
* An individual shall deemed to have substantial interest in a concern for the purpose of Section 64(1)(ii)
IF THE CONCERN IS A COMPANY IF THE CONCERN IS OTHER THAN A COMPANY Person’s beneficial shareholding should not be less than 20% of voting power either individually or jointly with relatives at any time during the Previous Year. (Shares with fixed rate of dividend shall not be considered) Person either himself or jointly with his relatives is entitled in aggregate to not less than 20% of the profits of such concern, at any time during the previous year. Note :The clubbed income retains the same head under which it is earned.
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When income of spouse is being clubbed and accordingly taken into consideration of income of assessee, whether the return of income of assessee needs to be filed whose income is clubbed.
I require clarification regarding clubbing provisions. Jewellery received as Gift from “a Relative” on the occassion of marriage. Later when it is sold and capital gains arises whether that Capital Gains will be taxable in the nads of the receipient or to the relative who has gifted at the time of marriage
Capital gain would arise in the hands of ‘do nee’
Bhavik,
The spouse whose income is getting clubeed need not file a return, provided he/she do not have other taxable income.
Let’s take a case if Mrs. A has a taxable income of Rs. 5 L and the whole Rs. 5 L is getting clubbed as income of Mr. A by virtue of clubbing provision, as she is not left with any other taxabkle income, she need not file a return.
CA Rajkamal Tiwari
(rajkamal0402@yahoo.com)
If an individual gifts certain bond listed on stock exchange to his daughter who is adult, what are the provisions related to clubbing of income of interest earned by the daughter i.e. donee?
Is clubbing applicable for subsequent years also?
Mr Gandhi,
In case if an individual gift certain Bonds/Shares etc to his Daughter (who is not minor), income earned on the same would be taxed in the hands daughter at the respective slab rates.
In such situations, clubbing provisions do not get attracted.
However, I would advice to contact your CA. with complete details, before you proceed with the prposed gifting transaction.
Regards,
CA. Rajkamal Tiwari
(rajkamal0402@yahoo.com)
are the income earned via dividend and capital gains received by an american who is also a resident of india is taxable in india? -he receives in his profits and income in american bank a/c in usa..
Income of an person earning in dubai…he is an NRI…
his money is invested in india by her wife
…
will the return s on the amount be clubbed in the hands of the husband…
An Individual invested in any trust and get interest. He utilised it for the benefit of his son’s son(who is miner).is income clubbed of that person income or not?