Summary: Section 64 of the Income Tax Act addresses the clubbing of income, wherein certain incomes of individuals like spouses, minor children, or others, are included in the taxpayer’s total income. Under Section 64(1), income earned by a spouse through salary, commission, or remuneration from a business in which the taxpayer has a substantial interest is considered the taxpayer’s income, unless the spouse has independent qualifications relevant to the business. However, if assets are transferred to a spouse or son’s wife without adequate consideration, the income from such assets will be taxed as the transferor’s income. Section 64(1A) includes the income of a minor child in the parent’s total income, with exceptions for earnings from personal skill or talent. In cases of divorce, the income is clubbed with the parent who has custody. Additionally, Section 64(2) prevents tax avoidance by transferring assets to a Hindu Undivided Family (HUF); income from such assets is considered the transferor’s income. The section aims to prevent tax evasion through indirect income distribution within families.
Section 64 of the Income Tax Act provides, Income of individual to include income of spouse, minor child etc.
Section 64(1): In computing the total income of any individual, there should be included all such income as arises directly or indirectly-
(ii) to the spouse of such individual, by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest:
While calculating the income of any individual, under following circumstances, income of other individuals will be included in the income of individual.
Where an individual provide, salary, commission, fee or remuneration to his/her spouse from his business or profession, the same amount will be considered as income of that individual.
Mr. Atul is running proprietary business and to show his income less, he may provide salary or commission to his spouse, he will not get deduction from his business but will be considered his income.
In case of a profession, if both person i.e. husband and wife are Doctor or Advocate or Chartered Accountant and husband provide salary or fee to his spouse this will not be considered as income of husband. Provision of Section 64(1) is not applicable. Commissioner of Income Tax vs. Smt. R. Jayalaxmi [240 ITR 773 (Madras High Court)] Even in business also spouse having a knowledge of business and attend the shop or factory or office regularly with deep knowledge, any salary or remuneration paid to spouse is his/her individual income and section 64(1) will not applicable.
In the case of a Company, minimum 20% shares held by souse or under other business spouse have right to get minimum 20% of profit from the firm or organization, section 64(1) will not be applicable.
(iv) subject to the provisions of clause(i) of section 27 to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart;
(vii) to the son’s wife of such individual, from assets transferred directly or indirectly on or after 1st day of June, 1971, to the son’s wife by such individual otherwise than for adequate consideration.
Any assets transfer to spouse otherwise than for adequate consideration, the difference will be consider as income of such individual. Supreme Court has held in the case of Tulsidas Kilachand Vs. Commissioner of Income Tax [42 ITR 1 (Supreme Court)] that Natural Love and Affection is not to be considered but adequate consideration is to be taken. Only the market value of that property is to be considered as transfer price. So be careful when you transfer any capital assets to your spouse or son’s wife.
Section 64(1A): In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child (not being a minor child suffering from any disability of the nature specified under section 80U). Following are the exceptions:
- Manual work done by him (labor)
- Activity involving application of his skill talent or specified knowledge and experience. (Singer, playing in any sports. Acting in film or drama or serial etc.)
From assessment year 1995-96, person covered u/s 80U is also exempt.
Under this section income of a minor childe will included in the income of his/her father or mother whose income is higher. If there is divorce of parent, the income will be included in the income of either father or mother with whom he/she is staying.
Section 64(2): After 31st December, 1969, transfer of any personal assets, to the assets of Hindu Undivided Family then, a person who has transferred the assets to assets of HUF income from that assets is to be considered as income of that person. If there is a partition of assets, share of his wife and minor children will club in his income u/s 64(1).
To avoid partition for clubbing of income, people are giving gift to HUF which was supported by Supreme Court, but from assessment year 1980-81, there was an amendment that income earned from gifted property will be the income of person who have given gift.
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