Under Which Circumstances Income of Spouse, Minor Child, Etc Is Included in The Income of An Individual

In the pursuit of minimizing tax burdens, taxpayers often engage in strategic planning to optimize savings. One common approach involves transferring assets to family members. However, this seemingly straightforward strategy is subject to regulations outlined in Section 64 of the Income Tax Act, 1961. This section addresses instances where the income of a spouse, minor child, and others is clubbed in an individual’s total income.

Section 64 (1)

In computing the total income of any individual, there shall be included all such income as arise directly or indirectly-

  • To the spouse of such individual by way of salary, commission, fees, or any other form of remuneration whether in form of cash or in kind from a concern in which such individual has a substantial interest.

This clause shall not apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience.

If husband and wife both are Professionals i.e. Chartered Accountants, Doctors, Advocates and doing practice together, this clause shall not be applicable.

  • An individual who transfers otherwise than for adequate consideration any property to his or her spouse shall be deemed to be the owner of such property. Any income earned from such property will be considered as income of individual, who transfer the property,
  • An individual who transfer the any assets, to his son’s wife directly or indirectly on or after 1st Day of June, 1973, by such individual otherwise than for adequate consideration,

As per Section 64(1), under the following circumstances, income is to be considered as an income of Individual.

(1) Any kind of salary, commission, fee or remuneration paid to spouse from the concern where in any one is having the owner of the concern, except the spouse having a technical or professional knowledge.

In the case of a Company a person holding minimum 20% of shares which include the shareholding of his relatives, like brother, sister, father, mother, son and daughter.

(2) Any person transfer assets without adequate consideration to his wife or her husband or to his son’s wife, the income earned from that assets.

(3) Any person transfer any assets without adequate consideration to any person or association of persons to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse, or his son’s wife.

Section 64(1A):

As per Finance Act 1992, with effect from 1st April, 1992, this section 64(1A) has been added, according to which, income arises or accrues to his minor child (not being a minor child suffering from any disability of the nature specified in Section 80U). Under following circumstances, this sub section will not apply:

(i) Minor child himself or herself earn income by manual work done by him/her. e.g. labor work

(ii) Any kind of activities involving application of his/her skill, talent or specialized knowledge and experience. e.g. child artist acting in any serial or picture. Taking part in different competition or games.

As per this section minor child’s income is to be included in the income of his father or mother whose income is higher. Where the marriage of his parents does not subsists, in the income of that parent who maintain the minor child in the previous year.

And where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard.

Section 64(2):

According to this sub section, in the case of an individual being a member of Hindu Undivided Family, any property having been the separate property of an individual has, at any time after the 31st day of December, 1969, been converted by an individual in to property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it in to the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for herein after referred to as the converted property, then notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st Day of April, 1971,-

(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly;

(b) the income received from the converted property or any part thereof, shall be deemed to arise to the individual and not to the family.

To prevent individuals from transferring personal property to the HUF to escape taxation, an anti-avoidance provision was introduced. As of the assessment year 1980-81, gifting personal property to the HUF results in the income from that property being added to the individual’s income.

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February 2024