Clubbing of Income under Income Tax Act, 1961 with FAQs

The principle of clubbing of income dictates that in specific, legally defined situations, an individual taxpayer is taxed not only on their own earnings but also on the income of another person. This framework, contained in Sections 60 to 64 of the Income-tax Act, is designed to counter the practice of diverting income to related persons to lower the overall tax burden. Two basic mechanisms trigger clubbing: the transfer of income without the underlying asset (Section 60), where the income is still taxed to the transferor, and a revocable transfer (Section 61), where the transferor retains control or right over the asset or its income, leading to the income being taxed in their hands. Transfers not revocable during the life of the beneficiary or transferee are exceptions to the latter. A common example of clubbing is the inclusion of a minor child’s income with the income of the parent whose total income (excluding the minor’s income) is higher, although income derived from the minor’s skill or manual labor is exempt from clubbing. The parent can, however, claim a minor exemption of ₹1,500 or the clubbed income, whichever is less.

Clubbing provisions are particularly detailed regarding transfers involving a spouse or daughter-in-law. If an individual transfers an asset to their spouse without adequate consideration (e.g., as a gift), the income generated from that asset (other than house property, which is covered separately) is clubbed with the transferor-spouse’s income. This rule applies even if the transferee-spouse subsequently changes the form of the asset. Crucially, this clubbing is not applicable if the transfer is for adequate consideration, made in connection with an agreement to live apart, or if the husband-wife relationship did not exist at the time of transfer or income accrual. Similarly, income from an asset transferred without adequate consideration to a son’s wife (daughter-in-law) is clubbed with the transferor’s (father-in-law/mother-in-law) income. Furthermore, if an asset is transferred to any person or association for the benefit of the spouse or son’s wife without adequate consideration, the income arising from that asset is also clubbed with the transferor’s income.

The clubbing rules also address specific employment and HUF-related scenarios. Remuneration received by a spouse from a concern where the other individual has a substantial interest (holding 20% or more equity/profit) is clubbed with the individual’s income, unless the remuneration is justified by the spouse’s technical or professional knowledge and experience. If the spouse is employed solely due to the individual’s substantial interest, the income is clubbed. Finally, when a member of a Hindu Undivided Family (HUF) transfers property to the HUF without adequate consideration, the income from that property is clubbed with the transferor member’s income before partition. Post-partition, the income derived from such property by the transferor’s spouse remains clubbed with the transferor member’s income. These rules collectively ensure that individuals cannot use legal structures or transfers to close relatives as a means to artificially lower their taxable income and corresponding tax liability.

Q.1 What is the meaning of clubbing of income?

​​​​​​​​​​​​Ans Normally, a person is taxed in respect of income earned by him only. However, in certain special cases income of other person is included (i.e. clubbed) in the taxable income of the taxpayer and in such a case he will be liable to pay tax in respect of his income (if any) as well as income of other person too. The situation in which income of other person is included in the income of the taxpayer is called as clubbing of income. E.g., Income of minor child is clubbed with the income of his/her parent. Section 60 to​ 64​ contains various provisions relating to clubbing of income.​

Q.2 Do any clubbing provisions exist in case of transfer of income without transfer of asset?

​​​​​​​​​​​​Ans As per section 60​​, if a person transfers inco​me from an asset owned by him without transferring the asset from which the income is generated, then the income from such an asset is taxed in the hands of the transferor (i.e., person transferring the income).

E.g., Mr. Raj has given a bungalow owned by him on rent.  Annual rent of the bungalow is Rs. 84,000. He transferred entire rental income to his friend Mr. Kumar. However, he did not transfer the bungalow. In this situation, rent of Rs. 84,000 will be taxed in the hands of Mr. Raj.​

Q.3 Do any clubbing provisions exist in case of a revocable transfer?

​​​​​​​​​​​​Ans ​​​​​​​Revocable transfer is generally a transfer in which the transferor directly or indirectly exercises control/right over the asset transferred or over the income from the asset.

As per section 61​, if a transfer is held to be a revocable, then income from the asset covered under revocable transfer is taxed in the hands of the transferor. The provisions of section 61 will not apply in case of a transfer by way of trust which is not revocable during the life time of the beneficiary or a transfer which is not revocable during the lifetime of the transferee.​

Q.4 Can remuneration received by spouse of an individual be clubbed with his/her income?

​​​​​​​​​​​​Ans ​​​​​​​​​Under certain circumstances as given in section 64(1)(ii), remuneration (i.e., salary) received by the spouse of an individual from a concern in which the individual is having substantial interest is clubbed with the income of the individual. Provisions in this regard are as follows:

• The individual is having substantial interest in a concern (*).
• Spouse of the individual is employed in the concern in which the individual is having substantial interest.
• The spouse of the individual is employed without any technical or professional knowledge or experience (e.,remuneration is not justifiable).
  

(*) An individual shall be deemed to have substantial interest in any concern, if such individual alone or along with his relatives beneficially holds at any time during the previous year 20% or more of the equity shares (in case of a company) or is entitled to 20% of profit (in case of concern other than a company).

Relative for this purpose includes husband, wife, brother or sister or lineal ascendantor descendent of that individual [ section 2(41)].

Illustration A

Mr. Raja is beneficially holding 21% equity shares of Essem Minerals Pvt. Ltd. Mrs. Raja is employed as Manager (in accounts department) in Essem Minerals Pvt. Ltd. at a monthly salary of Rs. 84,000. Mrs. Raja is not having any knowledge, experience or qualification in the field of accountancy. Will the remuneration (i.e., salary) received by Mrs. Raja be clubbed with the income of Mr. Raja?

**

In this situation, Mr. Raja is having substantial interest in Essem Minerals Pvt. Ltd. and remuneration of Mrs. Raja is not justifiable (i.e., she is employed without any technical or professional knowledge or experience) and, hence, salary received by Mrs. Raja from Essem Minerals Pvt. Ltd. will be clubbed with the income of Mr. Raja and will be taxed in the hands of Mr. Raja.

Illustration B

Mrs. Kumar is beneficially holding 25% equity shares of SM Construction Pvt. Ltd. Mr. Kumar is an architect and he is employed as site observer of one of the construction sites of the SM Construction Pvt. Ltd. at a monthly salary of Rs. 28,400. The remuneration received by Mr. Kumar is justifiable considering his knowledge, experience and qualification. Will the remuneration received by Mr. Kumar be clubbed with the income of Mrs. Kumar because she is having substantial interest in SM Construction Pvt. Ltd.?

**

In this situation, Mrs. Kumar is having substantial interest in SM Construction Pvt. Ltd., but Mr. Kumar is deputed on the basis of his knowledge, experience and qualification and, hence, remuneration paid to him is justifiable. The clubbing provisions of section 64(1)(ii)​​ apply only in a case where spouse is deputed without any technical or professional knowledge or experience. In this case, the remuneration of spouse is justifiable, hence, salary received by Mr. Kumar will not be clubbed with the income of Mrs. Kumar but will be taxed in his hands. ​

Q.5 Can income from assets transferred to spouse without adequate consideration be clubbed with the income of transferor-spouse?

​​​​​​​​​​​​Ans ​​​​​​​​As per section 64(1)(iv), if an individual transfers (directly or indirectly) his/her asset (other than house property) to his or her spouse otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e., transferor). Income from transfer of house property without adequate consideration will also attract clubbing provisions, however, in such a case clubbing will be done as per sec​tion 27​ and not under section 64(1)(iv).  The clubbing provisions of section 64(1)(iv) will apply even if the form of asset is changed by the transferee-spouse. There are certain situations in which the  clubbing provisions of section 64(1)(iv) are not applicable (refer next FAQ for these situations).

Illustration C

Mr. Soham holds 8,400 debentures of Shyamal Minerals Ltd. He gifted these debentures to his wife. Will the income from debentures be clubbed with the income of Mr. Soham?

**

In this situation, the debentures are transferred to spouse. Transfer is via gift (i.e., without any consideration) and, hence, income generated from the transferred asset, i.e., interest on such debentures will be clubbed with the income of Mr. Soham.

Illustration D

Mr. Kapoor gifted Rs. 8,40,000 to his wife. The said amount is invested by his wife in debenture of a company. Will the income from the debenture purchased by Mrs. Kapoor from gifted money be clubbed with the income of Mr. Kapoor?

**

Rs. 8,40,000 is transferred to spouse. Fund is transferred via gift (i.e., without adequate consideration) and, hence, the provisions of section 64(1)(iv) will be attracted. The provisions of clubbing will apply even if the form of asset is changed by the transferee-spouse.

In this case asset transferred is money and, subsequently, the form of asset is changed to debentures, hence, income from debentures acquired from money gifted by her husband will be clubbed with the income of her husband. Thus, interest on debenture received by Mrs. Kapoor will be clubbed with the income of Mr. Kapoor. ​

Q.6 Are there any situations in which the clubbing provisions do not apply in case of income from assets transferred to spouse?

​​​​​​​​​​​​Ans ​​​​​​​​The clubbing provisions of section 64(1)(iv)​ are not applicable in the following situations:

• If the transfer of asset is for adequate consideration;
• If the transfer of asset is in connection with an agreement to live apart;
• If the asset is transferred before marriage, no income will be clubbed even after marriage, since the relation of husband and wife should exist both at the time of transfer of asset and at the time of accrual of income;

If on the date of accrual of income, transferee is not spouse of the transferor (i.e. the relation of husband and wife does not exist).​

Q.7 Can income from assets transferred to son’s wife without adequate consideration be clubbed with the income of transferor, i.e., father-in-law/mother-in-law?

​​​​​​​​​​​​​​​​​​​Ans As per section 64(1)(vi)​​, if an individual transfers (directly or indirectly) his/her asset to his/ her son’s wife otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e., transferor being father-in-law/mother-in-law). The provisions of clubbing will apply even if the form of asset is changed by the transferee-daughter-in-law.

If the asset is transferred before marriage of son, no income will be clubbed even after marriage, since the relation of father-in-law/mother-in-law and daughter-in-law should exist both at the time of transfer of asset and at the time of accrual of income.

If on the date of accrual of income, the relation of father-in-law/mother-in-law and daughter-in-law does not exist, then the provisions of clubbing will not apply. ​

Q.8 Can income from assets transferred to any person for the benefit of spouse or for the benefit of son’s wife without adequate consideration be clubbed with the income of transferor?

​​​​​​​​​​​​​​​​​​​​​Ans As per section 64(1)(vii), if an individual transfers (directly or indirectly) his/her asset otherwise than for adequate consideration to a person or an association of persons for the immediate or deferred benefit of his/her spouse, then income arising from the asset so transferred will be clubbed with the income of transferor.

As per section 64(1)(viii)​, if any individual transfers (directly or indirectly) his/her asset otherwise than for adequate consideration to a person or an association of persons for the immediate or deferred benefit of his/her son’s wife, then income arising from the asset so transferred will be clubbed with the income of transferor.​

Q.9 Is minor child’s income clubbed with the income of parent? |How can parent claim TDS deducted on his minor’s child income?​

​​​​​​​​​​​​Ans ​​​​​​​​​As per section 64(1A) , income of minor child is clubbed with the income of his/her parent (*). Income of minor child earned on account of manual work or any activity involving application of his/her skill, knowledge, talent, experience, etc. will not be clubbed with the income of his/her parent. However, accretion from such income will be clubbed with the income of parent of such minor.

Income of minor will be clubbed with the income of that parent whose income (excluding minor’s income) is higher.

If the marriage of parents does not sustain, then minor’s income will be clubbed with the income of parent who maintains the minor.

In case the income of individual includes income of his/her minor child, such individual can claim an exemption under section 10(32)) of Rs. 1,500 or income of minor so clubbed, whichever is less.

(*) Provisions of section 64(1A) will not apply to any income of a minor child suffering from disability specified under section 80U. In other words income of a minor suffering from disability specified under section 80U will not be clubbed with the income of his/her parent.

Illustration F

Mr. Raja has two minor children, viz., Master A and Master B. Master A is a child artist and Master B is suffering from diseases specified under section 80U. Income of A and B are as follows:

• Income of A from stage shows: Rs. 1,00,000
• Income of A from bank interest: Rs. 6,000
• Income of B from bank interest: Rs. 1,20,000.

Will the income of minor children be clubbed with the income of their parent (Mrs. Raja is not having any income)?

**

As per section 64(1A) , income of minor children is clubbed with the income of that parent whose income (excluding minor’s income) is higher. In this case, Mrs. Raja is not having any income and, hence, if any income is to be clubbed then it will be clubbed with the income of Mr. Raja.

Income of minor child earned on account of manual work or income from the skill, knowledge, talent, experience, etc., of minor child will not be clubbed with the income of his/her parent. Thus, income of A from stage show will not be clubbed with the income of Mr. Raja but income of A from bank interest of Rs. 6,000 will be clubbed with the income of Mr. Raja.

Income of a minor suffering from disability specified under section 80U​ will not be clubbed with the income of his/her parent. Hence, any income of B will not be clubbed with the income of Mr. Raja.

The taxpayer can claim an exemption under section 10(32)). Thus, in respect of interest income of Rs. 6,000 clubbed in the income of Mr. Raja, he will be entitled to claim exemption of Rs. 1,500 under section 10(32)), hence, net income to be clubbed will be Rs. 4,500 (i.e., Rs. 6,000 – Rs. 1,500). ​ Deductee files a declaration with the dedu​ctor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1) of rule 37BA​.​

Q.10 Will any clubbing provision apply in case of transfer of asset to Hindu Undivided Family (HUF) by its member?

Ans ​​​​​​​As per section 64(2)​, when an individual, being a member of HUF, transfers his property to the HUF otherwise than for adequate consideration or converts his property into the property belonging to the HUF (it is done by impressing such property with the character of joint family property or throwing such property into the common stock of the family), then clubbing provisions will apply as follows:

• Before partition of the HUF, entire income from such property will be clubbed with the income of transferor.

After partition of the HUF, such property is distributed amongst the members of the family. In such a case income derived from such property by the spouse of the transferor will be clubbed with the income of the individual and will be charged to tax in his hands.​

(Republished with amendments)