It may seem very normal to invest for a non-earning spouse by way of FDs, RDs Bonds, Shares & Securities, or other income-generating assets or other modes of investments for children to meet their future needs. In general, an individual is taxed for his income, but under certain specified circumstances some incomes are ‘clubbed’ together with his income and he might be liable to pay income tax on such clubbed income.
The government intends to ensure that no income escapes income tax, in case an individual is transferring any asset or incomes between the family members. In a situation where an individual incurred a loss, such loss (wherever allowed to be adjusted against an income) incurred by the individual is also not allowed to be transferred to anyone and will be ‘clubbed’ to your income.
Transfer to son’s wife [Section 64(1)(vi) of the IT Act]
In computing the gross total income of an individual after 31.05.1973, income arising whether directly or indirectly from the assets transferred to son’s wife for inadequate consideration shall be clubbed in the income of that individual. However, the aforesaid relationship must exist on the date of such transfer of assets as well as on the date of accrual of income. Where the asset has been transferred before marriage then no income will be clubbed even after the marriage, since the relation of mother-in-law/ father-in-law and daughter-in-law should exist at the time of transfer of asset and also at the time of accrual of income. For example, Ravi transfers 10,000 10% bonds of Rs. 10 each of Fortune India to his son’s wife without adequate consideration. Fortune India declares Rs.10,000 as interest. Although the interest income of Rs.10,000 is received by his son’s wife, this amount shall be clubbed in the income of Ravi under the head of ‘Income from Other Sources’.
In the case where an asset is being transferred by the individual to other person or an AOP (association of persons) after 31.5.1973) for inadequate consideration, for an immediate or deferred benefit of son’s wife, then income arising on such asset so transferred shall be clubbed in the income of the transferor (to the extent income from such asset is for the immediate or deferred benefit of son’s wife).
|Asset transfer to Son’s Wife|
|Without adequate consideration||Clubbing provisions will be applicable|
|With adequate consideration||No applicability of clubbing provisions|
However, the relationship of Mother-in-Law/ Father-in-law and daughter-in-law should be existing at the time of transfer of asset as well as at the time of accrual of income. It simple means where any asset is transfer before the son’s marriage by an individual to his would be daughter-in-law is outside the scope of clubbing provisions even if said income is accrued after the marriage. Transfer also includes any indirect transfer.
|S. No.||Provisions of Set of and Carry Forward of Losses under Income Tax Act, 1961|
|1||Clubbing of Your Income with Income of your Spouse|
|2||Clubbing of income from assets transferred to Son’s Wife|
|3||Clubbing of income from the asset transferred to Spouse|
|4||Clubbing of Income on Revocable Transfer of Asset|
|5||Clubbing of remuneration income of Spouse from a Concern in which other Spouse has Substantial Interest|
|6||Set Off & Carry Forward of Loss under the head House Property|
|7||Clubbing of income of a Minor Child with Income of parent|
|8||Clubbing of Income from Self-acquired Property converted to Joint Family Property & subsequent Partition|
|9||Clubbing of Income from assets transferred to a person for benefit of spouse|
|10||Clubbing of Income from Assets Transferred to a Person for the Benefit of Son’s Wife|
|11||Carry forward & set off of Business Losses other than Speculation Loss|
|12||Set off and Carry Forward of Capital Loss|
|13||Set-off and carry forward of Speculative Business Loss|
|14||Set-off & carry forward of Loss from owning & maintaining racehorses|
|15||Set off and carry forward of losses of Specified Business | Section 73A|