Clubbing Provisions on the income from the asset transferred to Spouse
Clubbing of income means the inclusion of income of a person in the gross total income of the major earner while computing his/her taxable income. In general, these clubbing provisions are applicable among family members. The income of a spouse, child are clubbed together with the income of major earner of the family.
Relationship of Husband and Wife
The relation between the transferor and transferee as husband and wife must subsist at the time of transfer of the asset and at the time when income is accrued. Therefore, if the asset is transferred before marriage, then such transfer is outside the scope of this section.
For instance, Ms Sweta transfers 1,000 Debenture of RIL without adequate consideration to her would-be husband Mr Amar on Feb 20, 2020. Interest income arising from such debentures will not be clubbed in the hands of Ms Sweta even after their marriage.
In a situation where the transferor-spouse dies, income, though continued to be enjoyed by the transferee, cannot be clubbed in the hands of the deceased transferor’s heir, as a widow or widower is not a spouse.
In computing the Gross Total Income (GTI) of an individual, all the income arising (direct or indirect), subject to the provision stated under section 27(i) of Income Tax Act, to the spouse of such individual from assets transferred directly or indirectly without adequate consideration or in connection with an agreement to live apart shall be included in the total income of the said individual.
Where a husband (being the major income earner) transfers any of its assets to his wife, then the income generated from such transferred asset shall be clubbed together in the income of the transferor (husband) to the extent of the inadequacy of consideration. Let’s take an illustration to understand this situation, Mr Amar transferred any of his assets to his wife without any consideration but the actual consideration for the same was Rs. 15,00,000/-. The said asset is fetching a rent of Rs. 10,000 per month. Now, in this case, the rental income of Rs. 10,000 shall be clubbed in the total income of Mr Amar.
Section 64(1)(iv) of the Income Tax Act is applicable only if the following conditions are satisfied:
1st Condition: The status of the assessee is being an individual.
2nd Condition: The assessee has transferred an asset (other than a house property).
3rd Condition: The asset is transferred by the assessee to his/her spouse.
4th Condition: The transfer of the asset may be direct or indirect.
5th Condition: The asset is transferred for inadequate consideration, or in connection with an agreement to live apart.
If the abovementioned conditions are satisfied, any income arising from such transferred asset shall be clubbed to the income of the transferor and the same shall be deemed to be the income of the transferor.
However, the income arising from transferred asset must be computed in the same way as it would be if the asset has not been transferred. All the Exemption and Deduction available under the Income Tax Act in respect of such income can be claimed by the transferor.
The provisions contained U/s section 64(1)(iv) is not applicable in the following cases:
1. Where the assets are being transferred before marriage.
2. Where the assessee transfers the assets for adequate consideration.
3. Where the assessee transfers the assets in connection with an agreement to live apart.
4. Where on the date of accrual of income, there is no husband and wife relationship exists between the transferor and the transferee.
5. Where the asset is acquired by the spouse out of pin his/her money
In the abovementioned five cases, income-generating from the transferred asset cannot be clubbed in the hands of the transferor.
|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|