Clubbing of Income

Income Tax India AY 2008-09

Clubbing of Income is included in the Indian Income Tax Act to avoid any attempt to
reduce/avoid tax liability.

Topics Covered in this Page

• Clubbing of Income in the hands of any Person

• Clubbing of Income in the hands of an Individual
o Clubbing of Income earned by Spouse
o Clubbing of Income earned by Son's Wife
o Income liable for Clubbing from assets transferred to Spouse of Son's
Wife - Determination
o Clubbing of Income of Minor Child
o Clubbing of Income of Property thrown into HUF

Clubbing of Income In the hands of any Person

Clubbing of Income - Where there is no Transfer of Assets: -

Income arising to any person by virtue of a transfer (whether revocable or not),

where there is no transfer of the assets, will be chargeable to income tax as the
income of the transferor.

Clubbing of Income - Revocable Transfer of Assets: -

Income arising to any person by virtue of a "revocable transfer" of assets shall be

chargeable to income tax as the income of the transferor.

However, no clubbing is required in the following cases of transfers, which are not
treated as 'Revocable Transfers' -

* Transfer

• By way of trust, which is not revocable during the life-time of

the beneficiary, and
• In other cases, which is not revocable during the life-time of
the transferee.

* Transfer made before 01.04.1961

which is not revocable for a period exceeding six years

Note: - In both the cases, the transferor derives no direct or indirect benefit from
such income.

Income arising to any person by virtue of any such transfer, so exempted, shall be
chargeable to income tax as the income of the transferor as and when the power to
revoke the transfer arises.

Note: - Terms Explanations

What is 'Transfer'?

"Transfer" includes any settlement, trust, covenant, agreement or arrangement.

What is 'Revocable Transfer'?

The following transfers are treated as "revocable transfer" under section 63 -

• If it contains any provision for the re-transfer directly or indirectly of the

whole or any part of the income or assets to the transferor.
• If it, in any way, gives the transferor a right to re-assume power directly or
indirectly over the whole or any part of the income or assets.

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Clubbing of Income earned by Spouse of an

Individual[Section 64]

Clubbing of Income earned by Spouse

Clubbing of Salary Income of Spouse

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
should be clubbed to his Income.

Exception:

However, this provision 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
knowledge and experience.
 What is the meaning of 'having substantial interest'?

The individual shall be deemed to have substantial interest in a concern -

In the case of If such person or such person and one or more relatives
A Company Own beneficially not less than 20% of the voting power at any time
during the previous year.
Any other Are entitled to not less than 20% of the profits of such concern.
concern

Income from assets transferred directly or indirectly to the spouse

Income from assets transferred to the spouse is clubbed to the Individual's

total Income.

Exception:

Income from assets transferred to spouse need not be clubbed in the

following cases.

• Transfer is with adequate consideration, or

• in connection with an agreement to live apart.

Income from assets transferred directly or indirectly to any Person or AOP

Income from assets transferred directly or indirectly otherwise than for

adequate consideration to any person or AOP by such individual, to the extent
to which the income from such assets is for the immediate or deferred benefit
of his or her spouse is clubbed to the Individual's total Income.

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Clubbing of Income earned by Son's Wife of an Individual

Income from assets transferred directly or indirectly on or after 01.04.1973 to the

son’s wife by such individual otherwise than for adequate consideration is liable
for clubbing in the hands of the Individual.

Income from assets transferred, directly or indirectly, otherwise than for

adequate consideration to any person or AOP by such individual, to the extent to
which the income from such assets is for the immediate or deferred benefit of his
son’s wife, is liable for clubbing in the hands of Individual.
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Determination of Income liable for Clubbing from assets

transferred to Spouse or Son's Wife

When assets are transferred directly or indirectly by an individual to his spouse or

son's wife, the following amounts shall be taken for clubbing.

Nature of Business Quantum of Income to be Clubbed

In the nature of contribution of capital as a
partner, or being admitted into the benefits
of partnership.
In any other case.
[Interest Received X Amount received
from the Individual] / Total Investment
[Income from the business X Amount
received from the Individual] / Total
Investment

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Clubbing of Income of Minor Child

All income that accrues or arises to the minor child, not being a minor child suffering
from any disability of the nature specified in section 80-U.

Exception:

However, the following incomes earned by the minor child need not be clubbed: -

• Manual work done by him; or

• Activity involving application of his skill, talent or specialised knowledge and
experience.

The income is to be clubbed in the hands of -

Situation - Where the Marriage In the hands of

Subsists Parent who has greater Total Income.
Does not Subsists Parent who maintains the Minor Child.

Once the income is 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.
However, exemption is available to the extent of Rs.1,500/- per child per annum
under section 10(32).