INTRODUCTION

Under the Income Tax Act there is clubbing of income when an individual transfers an asset to
his spouse and there is income that arises on account of this asset. This entire process ensures
that the individual has to ensure that they are able to take a careful look at the situation because
the income that actually arises to the spouse would have to be included in their own income.
There is however a condition that needs to be fulfilled for this kind of clubbing to be applicable
so it is better to check about the position on this front.1

Generally an assessee is taxed in respect of his own income. But sometimes in some exceptional
circumstances this basic principle is deviated and the assessee may be taxed in respect of income
which legally belongs to somebody else. Earlier the taxpayers made an attempt to reduce their
tax liability by transferring their assets in favour of their family members or by arranging their
sources of income in such a way that tax incidence falls on others, whereas benefits of income is
derived by them . So to counteract such practices of tax avoidance, necessary provisions have
been incorporated in sections 60 to 64 of the Income Tax Act Hence, a person is liable to pay tax
on his own income as well as income belonging to others on fulfillment of certain conditions.
Inclusion of others Incomes in the income of the assessee is called Clubbing of Income and the
income which is so included is called Deemed Income. It is as per the provisions contained in
Sections 60 to 64 of the Income Tax Act.

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Clubbing of income, singhnia, p-120
CLUBBING-
The entire process of ensuring that there is no avoidance of income by transfer of assets to a
spouse comes under the overall heading of clubbing. The effort behind clubbing is to ensure that
there is no avoidance of tax by an individual who has a lot of assets and hence is looking to
spread this across different names. Usually what happens is that when there is one working
member in the family then there is income in one name but the other person does not have
taxable income. The idea then is that the asset will be transferred to the partner or spouse so that
the income in the future will arise to the other person. This leads to a division of the income
among different names but when this actually happens then the person transferring the asset will
not be able to escape the tax net as the provisions of clubbing will come into effect .2

Main concern for clubbing:-

Circumstances when income of some other person is included in the income of Assessee
Provisions when these sections will be applicable
Under what head and in whose income it will be included.

Cases under which Clubbing can be done

Under the following circumstances, the income of other person is included in the income of
the assessee. We will be discussing each one of them in the pages to follow.

A. Transfer of Income without Transfer of Asset (Sec. 60)

Section 60 is applicable if the following conditions are satisfied:
The taxpayer owns an asset
The ownership of asset is not transferred by him.
The income from the asset is transferred to any person under a settlement, or agreement.
If the above conditions are satisfied, the income from the asset would be taxable in the hands of
the transferor.
Example: Mr. A owns Debentures worth Rs 2,000,000 of ABC Ltd., (annual) interest being Rs.
200,000. On April 1, 2012, he transfers interest income to Mr. S., his friend without transferring
the ownership of these debentures. Although during 2012-13, interest of Rs. 100,000 is received
by Mr. S, it is taxable in the hands of Mr. A as per Section 60.3

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B. Revocable Transfer of Assets (Sec 61)
If the following conditions are satisfied section 61 will become applicable.
An asset is transferred under a revocable transfer,
The transfer for this purpose includes any settlement, or agreement 4

Then any income from such an asset is taxable in the hands of the transferor and not the
transferee (owner).
Note:-In the case of irrevocable transfer of asset, the income from such assets will be deemed to
be the income of the transferee (To whom the asset has been transferred), provided that the
transfer is not for the benefit of the spouse of the transferor.
Revocable transfer, means the transferor of asset assumes a right to re-acquire asset or income
from such an asset, either whole or in parts at any time in future, during the lifetime of
transferee. It also includes a transfer which gives a right to re-assume power of the income from
asset or asset during the lifetime of transferee.

C. Income of Spouse
The following incomes of the spouse of an individual shall be included in the total income of the
individual:
(i) Remuneration from A Concern In Which Spouse Has Substantial Interest [Sec 64 (1) (ii)]
Concern - Concern could be any form of business or professional concern. It could be a sole
proprietor, partnership, company, etc.
Substantial interest An individual is deemed to have substantial interest, if he /she (individually
or along with his relatives) beneficially holds equity shares carrying not less than 20 per cent
voting power in the case of a company or is entitled to not less than 20 percent of the profits in
the case of a concern other than a company at any time during the previous year.
If the following conditions are fulfilled this section becomes applicable.
If spouse of an individual gets any salary, commission, fees etc. (remuneration) from a
concern
The individual has a substantial interest in such a concern
The remuneration paid to the spouse is not due to technical or professional knowledge of the
spouse.
Then such salary, commission, fees, etc. shall be considered as income of the individual and not
of the spouse.
Example: - X has a substantial interest in A Ltd. and Mrs. X is employed by A Ltd. without any
technical or professional qualification to justify the remuneration. In this case, salary income of
Mrs. X shall be taxable in the hands of X.
When both husband and wife have substantial interest
Where both the husband and wife have a substantial interest in a concern and both are in receipt

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of the remuneration from such concern both the remunerations will be included in the total
income of husband or wife whose total income, excluding such remuneration, is greater.

(ii) Income From Assets Transferred To Spouse [SEC. 64(1) (iv)]

Income from assets transferred to spouse becomes taxable under provisions of section 64 (1) (iv)
as per following conditions:-
The taxpayer is an individual
He/she has transferred an asset (other than a house property) The asset is transferred to his/her
spouse
The asset is transferred without adequate consideration. Moreover there is no agreement to
live apart.
If the above conditions are satisfied, any income from such asset shall be deemed to be the
income of the taxpayer who has transferred the asset.
Example X transfers 700 debentures to his wife without adequate consideration. Interest
income on these debentures will be included in the income of X.
When Section 64(i) (iv) is not applicable
On this basis of the aforesaid discussion and judicial pronouncements, section 64 is not
applicable in the following cases:
If assets are transferred before marriage.
If assets are transferred for adequate consideration.
If assets are transferred in connection with an agreement to live apart.
If on the date of accrual of income, transferee is not spouse of the transferor.
If property is acquired by the spouse out of pin money (i.e. an allowance given to the wife by
her husband for her dress and usual household expenses).
In the aforesaid five cases, income arising from the transferred asset cannot be clubbed in the
hands of the transferee.

D. Income From Assets Transferred To Sons Wife [SEC. 64 (1) (VI)]

Income from assets transferred to son,s wife attract the provisions of section 64 (1) (vi) as per
conditions below:-
The taxpayer is an individual.
He/she has transferred an asset after May 31, 1973. The asset is transferred to sons wife.
The asset is transferred without adequate consideration.
In the case of such individuals, the income from the asset is included in the income of the
taxpayer who has transferred the asset.

E. Income from Assets Transferred To A Person For The Benefit Of Spouse [SEC. 64(1)
(VII)]
Income from assets transferred to a person for the benefit of spouse attract the provisions
of section 64 (1) (vii) on clubbing of income. If:
The taxpayer is an individual.
He/she has transferred an asset to a person or an association of persons. Asset is transferred for
the benefit of spouse.
The transfer of asset is without adequate consideration.
In case of such individuals income from such an asset is taxable in the hands of the taxpayer who
has transferred the asset.

F. Income from Assets Transferred To A Person For The Benefit Of Sons Wife [Sec. 64 (1)
(VIII)]
Income from assets transferred to a person for the benefit of sons wife attract the provisions
of section 64 (1) (vii) on clubbing of income. If,
The taxpayer is an individual.
He/she has transferred an asset after May 31, 1973.
The asset is transferred to any person or an association of persons. The asset is transferred for
the benefit of sons wife.
The asset is transferred without adequate consideration.
In case of such individual, the income from the asset is included in the income of the person who
has transferred the asset.
G. Income of Minor Child (SEC. 64 (1A)
All income which arises or accrues to the minor child shall be clubbed in the income of his
parent (Sec. 64(1A), whose total income (excluding Minors income) is greater. However, in
case parents are separated, the income of minor will be included in the income of that parent who
maintains the minor child in the relevant previous year.

Exemption to parent [Sec 10(32)]

An individual shall be entitled to exemption of Rs. 1,500 per annum(p.a.) in respect of
each minor child if the income of such minor as included under section 64(1A) exceeds that
amount. However if the income of any minor child is less than Rs. 1,500 p.a. the aforesaid
exemption shall be restricted to the income so included in the total income of the individual.

When Section 64(1A) is not applicable

In case of income of minor child from following sources, the income of minor child is not
clubbed with the income of his parent.
Income of minor child on account of any manual work.
Income of minor child on account of any activity involving application of his skill, talent or
specialized knowledge and experience.
Income of minor child (from all sources) suffering from any disability of the nature specified
in sec 80U.
Other Points for Clubbing

IMPACT OF CLUBBING-

The impact of clubbing is that the person who is looking to have the income reduced from their
calculations and then including it in the figures of the spouse will actually not be able to do so.
The figure would have to be included in the tax working of the original holder itself so the entire
effort to avoid the tax or reduce the impact would be ineligible. This is something that the
individual would want to avoid whenever they are making any gifts and hence this is something
to pay attention to.

RELATIONSHIP-
One main factor that has to be present when this kind of working or check is undertaken is that
the relationship of husband and wife has to be present at specific occasions. This is important
because there cannot be a position wherein the tax authorities are able to reduce the benefit just
because the asset is transferred to a spouse. The main condition here needs some attention which
is that the relation of husband and wife has to be present both at the time of giving of the asset
and when the income actually arises from this asset. This is important because it will cover one
important condition which is when there is a gift of an asset before marriage and then the spouse
is earning income on this after marriage. Under the normal condition since the asset was gifted
by the spouse the income would have to be clubbed with the giver. However the situation is
different in this case as there was not relationship of marriage when the asset was actually
transferred and this is the key part of the whole situation. There cannot be any clubbing here and
hence the assets have to be separated to see the time period when they have actually been given
so that the real position is determined. There are a lot of assets that might have been transferred
before a wedding and these would have to be completely set aside and not enter any clubbing
calculation for tax purposes.

Can negative income be clubbed?

If clubbing provisions are applicable and income from such a source is negative it will still be
clubbed in the income of assessee.
Head of income under which an income belonging to somebody else would be clubbed?
The other persons income is taxable under the head under which it would have been taxable if
it is the income of the asses see himself.
For example Mr. X gifts Mrs. X Rs 1 lakhs from which she starts a business. Now as per
clubbing provisions whatever is the profit from this business it will be taxable in the hands of
Mr. X. Since it is an income taxable under the head Profits & gains of Business & profession,
that is why it will be taxable under the same head and income will be calculated as if it is the
business of Mr. X.

Clubbing of Income under the Income Tax Act, 1961

Clubbing of Income under the Income Tax Act, 1961

Clubbing of income means Income of other person included in assessees total income, for
example: Income of husband which is shown to be the income of his wife is clubbed in the
income of Husband and is taxable in the hands of the husband. Under the Income Tax Act a
person has to pay taxes on his income. A person cannot transfer his income or an asset which is
his one of source of his income to some other person or in other words we can say that a person
cannot divert his income to any other person and says that it is not his income. If he do so the
income shown to be earned by any other person is included in the assessees total income and the
assessee has to pay tax on it.

CLUBBE
NATURE OF
D IN THE CONDITIONS/EXCEPTION RELEVANT
SECTION TRANSACTIO
HANDS S REFERENCE
N
OF

1. Income for
the purpose of
Section 64
includes
Irrespective of: losses. [P.
Transfer of Transferor 1. Whether such transfer is Doriswamy
Income without who revocable or not. Chetty 183 ITR
60
transfer of transfers 2. Whether the transfer is 559 (SC)] [also
Assets. the income. effected before or after the see Expl. (2) to
commencement of IT Act. Section 64]
2. Section 60
does not apply
if corpus itself
is transferred.
 [Grandhi
Narayana Rao
173
ITR 593 (AP)]

Transfer held
as revocable
1. If there is
provision to re-
transfer directly
or indirectly
whole/part of
income/asset to
transferor;
2. If there is a
right to
reassume
Clubbing not applicable if: power, directly
1. Trust/transfer irrevocable or indirectly,
during the lifetime of the transfer is
beneficiaries/transferee or held revocable
Transferor
Revocable 2. Transfer made prior to 1-4- and actual
who
61 transfer of 1961 and not revocable for a exercise is not
transfers
Assets. period of 6 years. necessary.
the Assets.
Provided the transferor derives [S. Raghbir
no direct or indirect benefit Singh 57 ITR
from such income in either 408 (SC)]
case. 3. Where no
absolute right is
given to
transferee and
asset
can revert to
transferor in
prescribed
circumstances,
transfer is held
revocable.
[Jyotendrasinhj
i vs. S. I.
 Tripathi 201
ITR 611 (SC)]

1. The
relationship of
husband and
wife must
Salary, subsist at the
Commission, Spouse time of accrual
Fees or whose total Clubbing not applicable of the income.
remuneration income if:Spouse possesses technical or [Philip John
paid to spouse (excluding professional qualification and Plasket
64(1)(ii)
from a concern in income to remuneration is solely Thomas 49 ITR
which an be attributable to application of 97 (SC)]
individual has a clubbed) is that knowledge/qualification. 2. Income other
substantial* greater. than salary,
interest. commission,
fees or remune-
ration is not
clubbed under
this clause

1. Income
Clubbing not applicable if: earned out of
The assets are transferred; Income arising
1. With an agreement to live from
apart. transferred
Income from 2. Before marriage. assets not liable
assets transferred 3. Income earned when relation for clubbed.
directly or Individual does not exist. [M.S.S. Rajan
64(1)(iv) indirectly to the transferring 4. By Karta of HUF gifting co- 252 ITR 126
spouse without the asset. parcenary property to his wife. (Mad)]
adequate L. Hirday Narain vs. ITO 78 2. Cash gifted
consideration. ITR 26 (SC) to spouse and
5. Property acquired out of pin he/she invests t
money. o earn
R.B.N.J. Naidu vs. CIT interest.
29 ITR 194 (Nag.) [Mohini Thaper
vs.
CIT 83 ITR
 208 (SC)]
3. Capital gain
on sale of
property which
was received
without
consideration
from
spouse
[Sevential M.
Sheth
vs. CIT 68 ITR
503 (SC)]
4. Transaction
must be real.
[O.N.
Mohindroo 99
ITR 583
(Delhi)]

Cross transfers
are also
Income from the Individual Condition:
covered
64(1)(vi) assets transferred transferring The transfer should be without
[C.M.Kothari
to sons wife. the Asset. adequate consideration.
49 ITR 107
(SC)]

1. Transferor
Transfer of assets need not
by an individual necessarily
to a person or have taxable
AOP for the income of his
Individual Condition: 1. The transfer own.
64(1)(vii),(viii immediate or
transferring should be without adequate [P. Murugesan
) deferred benefit
the Asset. consideration. 245 ITR 301
of his:
(vii) Spouse. (Mad)]
(viii) Sons 2. Wife means
wife. legally wedded
wife.
[Executors of
 the will of
T.V. Krishna
Iyer 38 ITR
144
(Ker)]

1. If the
marriage
subsists, in
the hands
of the
parent 1. Income out
whose total of property
income is transferred for
greater; or; no
2. If the consideration
marriage to a minor
does not married
Clubbing not applicable for:
subsist, in daughter, shall
1. Income of a minor child
the hands not
Income of a suffering any disability
of the be clubbed in
minor child specified u/s. 80U.
person who the parents
[Child includes 2. Income on account of
maintains hands. [Section
64(1A) step child, manual work done by the minor
27]
adopted child and the minor child.
child. 2. The parent in
minor married 3. Income on account of any
3. Income whose hands
daughter]. activity involving application
once the minors
of skills, talent or specialized
included in income is
knowledge and experience.
the total clubbed is
income of entitled to an
either of exemption up
parents, it to Rs. 1,500
shall per child.
continue to [Section
be included 10(32)]
in the
hands of
some
parent in
the
 subsequent
year unless
AO is
satisfied
that it is
necessary
to do so
(after
giving that
parent
opportunity
of being
heard)

Fiction under
Income is this section
Clubbing applicable even if:
included in must
Income of HUF The converted property is
the hands be extended to
from property subsequently partitioned;
of computation of
64(2) converted by the income derived by the spouse
individual income also.
individual into from such converted property
& not in [M.K.
HUF property. will be taxable in the hands
the hands Kuppuraj
of individual.
of HUF. 127 ITR 447
(Mad)]

* An individual shall deemed to have substantial interest in a concern for the purpose of Section
64(1)(ii)

IF THE CONCERN IS OTHER THAN A

IF THE CONCERN IS A COMPANY
COMPANY

Persons beneficial shareholding should

not be less than 20% of voting power
either individually or jointly with relatives
at any time during the Previous Year.
(Shares with fixed rate of dividend shall
not be considered)
Person either himself or jointly with his
relatives is entitled in aggregate to not less
than 20% of the profits of such concern, at
any time during the previous year.

Note :The clubbed income retains the same head under which it is earned.
 TRANSFER OF INCOME WHERE THERE IS NO TRANSFER OF ASSETS
[ Sec. 60]

U/s Sec60, where the assessee transfers to another person some income but without the transfer
of assets producing that income, such an income shall not be the income of the transferee but it
shall be chargeable to income tax as the income of the transferor and shall be included in his
gross total income.

Such a transfer of income may be revocable or irrevocable and whether effected before or after
the commencement of this Act.5

6.2. REVOCABLE TRANSFER OF ASSETS [Sec. 61]

All income by virtue of a revocable transfer of assets arising to any person shall be chargeable
to income-tax in the hands of the transferor and shall be included in his total income. The
transferor includes any settlement, trust, agreement or arrangement.

6.3 INCOME OF INDIVIDUAL TO INCLUDE INCOME OF SPOUSE, MINOR

CHILD, ETC. [ Sec. 64]

Apparently the following incomes belong to persons other than the assessee but these are
included in the assessees gross total income under Sec.64. These incomes are :

(i) Any Salary, Commission, Fee or any other Remuneration received by Spouse
[Sec.64(1)(ii)] :

Any income accrued to spouse by way of salary, commission, fee or any other form of
remuneration whether in cash or in kind from a concern in which such individual has a
substantial interest, shall be considered to be the income of such individual.

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, it shall not be included with the income of Individual. 6

(ii) Income of Spouse from Assets transferred [ Sec. 64 (1)(iv)]

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

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If the assets are purchased from the income of the transferred assets any income to a spouse or
from such assets shall not be included in the total income the transferor.

(iii) Income from Assets transferred to sons wife without adequate consideration
[Sec.64(1)(vi) ]

Any income accruing from asset which is transferred after 1-6-1973 to daughter-in-law without
adequate consideration shall be considered to be the income of transferor w.e.f. assessment year
1976-77.

(iv) When an individual is assessable in respect of income from assets transferable to a

person for the benefit of Spouse [ Sec. 64(1)(vii)]

The provisions of section 64(1)(vii) are given below with conditions ---

1. The taxpayer is an individual and had transferred an assets which may be direct or
indirect.
2. The asset is transferred to a person or an association of person.
3. It is transferred for the immediate or deferred benefit of his/her spouse.
4. The transfer is without adequate consideration.

(iv) When an individual is assessable in respect of income from assets transferable to a

person for the benefit of Sons Wife [ Sec. 64(1)(viii)]

The provisions of section 64(1)(vii) are given below with conditions ---

1. The taxpayer is an individual and had transferred an assets after May 31, 1973 and which
may be direct or indirect.
2. The asset is transferred to a person or an association of person.
3. It is transferred for the immediate or deferred benefit of his/her Sons Wife.
4. The transfer is without adequate consideration.

(v) When an Individual is assessable in respect of income of his minor child

[Sec.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 on account of any

(a) manual work done by him ; or

(b) activity involving application of his skill, talent or specialized know-ledge and experience.

Clubbing provisions of section are not applicable--- when a minor child suffering from any
disability of the nature specified in section 80U.
CASE I: When an Individual is assessable in respect of Remuneration of his Spouse [Sec.
64(1)(ii)]

Condition Description

I The Taxpayer is an Individual.

II The Taxpayer has a Substantial Interest in a concern.

Husband/ Wife of the Taxpayer is employed in the above mentioned

III
concern.

Husband/ Wife of the taxpayer is employed without having requisite

IV
Qualification/ Experience/ Knowledge for the concerned position.

If the above conditions are satisfied then Salary income of the spouse will be taxable in
the hands of the taxpayer.

PLEASE NOTE:

Salary referred here is the total income derived by an individual from Salaries, subject to
adjustments being made as per the provisions of the Income tax Act.

Substantial Interest is defined as a situation wherein a person is the beneficial owner of

at least 20% or more Equity Voting Power (in case of Company) or is entitled to 20% or
more of the profits. (in any other case).

Where Husband & Wife both have substantial interest in a concern & they are also in
receipt of Salary from such concern then such salary will be clubbed in the income of
either Husband or Wife who has higher income excluding remuneration.

ILLUSTRATIONS.. For Your better understanding

Mr. A is the Managing Director of a company XYZ Pvt. Ltd. Mrs. A is working as
Marketing Development head in XYZ Pvt. Ltd & is in receipt of remuneration of Rs. 10,
59,000/- p.a (calculated as per the provisions of the Income tax Act). Mrs. A however is
only HSC passed and also does not have any prior working experience. In such case
whole remuneration received by Mrs. A will be solely taxed in the hands of Mr. A.

Case II: When an Individual is assessed in respect of Income from assets transferred to
Spouse [Sec. 64(1)(iv)]

Condition Description
 I The taxpayer is an Individual.

The Taxpayer has transferred an asset to his/ her Spouse. (Other than a
II
House Property)

The asset is transferred without Adequate Consideration (other than a

III
case of an agreement to live apart.)

The asset may be held by the Transferee (Spouse) in the same/ altered
IV
form after the transfer.

If the above conditions are satisfied then Income from such asset will be taxable in the
hands of the TRANSFEROR

NOTE:

Spouse means to include Husband or Wife of the Taxpayer.

Income from the asset is to be calculated after considering all relevant provisions of the
Income Tax Act 1961.

The asset definition specifically excludes House Property from its purview considering
the fact that on satisfaction of the above mentioned conditions on a house property
transfer the transferor would considered to be the deemed owner of the property and
income from same would be taxed in hands of transferor.

In case of transfer of House property by the transferee, Capital Gains will first be
calculated in the hands of transferee, and then clubbed into the taxable income of the
Transferor of such House property.

The word Adequate Consideration here means any Monetary Consideration. Natural love
& affection may be an adequate consideration from the transferors view point but such
instance would still be considered as a transfer without Adequate Consideration.

ILLUSTRATIONS.. For Your better understanding

Mr. X transferred an asset worth Rs. 10, 00,000/- to his spouse for Rs.7, 50,000/-in which
case Rs. 2, 50,000 would be the inadequate consideration. Hence income from such asset
of Rs 25,000/- would be taxable in the hands of Mr. X to the extent of inadequacy of
consideration received, i.e., Rs. 6,250/- [25,000 (10,00,000 - 7,50,000) 10,00,000/-]

Case III: When Individual is assessable in respect of income from assets transferred to Sons
Wife [Sec. 64(1)(vi)]
 Condition Description

I The taxpayer is an Individual.

He/ She has transferred an asset after May 31 st 1973 to his/ her Sons
II
Wife

III The asset is transferred without Adequate Consideration.

The asset may be held by the Transferee (Spouse) in the same/ altered
IV
form after the transfer.

V The Transfer may be Direct or Indirect.

If above conditions are satisfied then income from the asset is included in the income of
the TRANSFEROR.

ILLUSTRATIONS

Mr. X transferred an asset worth Rs. 15, 00,000/- to his Elder sons wife without any
consideration, income earned from such asset will be taxable in the hands of Mr. X.

Case IV: When Individual is assessable in respect of income from assets transferred to a
Person for the benefit of Spouse [Sec. 64(1)(vii)]

Condition Description

I The taxpayer is an Individual.

He/ She has transferred an asset after May 31 st 1973 to his/ her Sons
II
Wife

III The asset is transferred to a Person or an Association of Persons.

IV It is transferred for the Present or Future benefit of the Spouse.

V The asset is transferred without Adequate Consideration.

VI The Transfer may be Direct or Indirect.

If above conditions are satisfied then income from the asset is included in the income of
the TRANSFEROR.

ILLUSTRATIONS
 Mr. Z transferred Govt. Bonds worth Rs. 27, 00,000/- to an Association of Persons
without any consideration with a view to utilize Interest income for benefit of Mrs. Z in
future, hence Interest income earned from such bonds will be taxable in the hands of Mr.
Z.

Case V: When Individual is assessable in respect of income from assets transferred to a

Person for the benefit of Sons Wife [Sec. 64(1)(viii)]

Condition Description

I The taxpayer is an Individual.

II The asset is transferred to a Person or an Association of Persons.

III It is transferred for the Present or Future benefit of the Spouse.

IV The asset is transferred without Adequate Consideration.

V The Transfer may be Direct or Indirect.

If above conditions are satisfied then income from the asset is included in the income of
the TRANSFEROR.

ILLUSTRATIONS

Mr. Ugly transferred Debentures worth Rs. 21, 00,000/- to an Association of Persons
without any consideration with a view to utilize Interest income for benefit of Mrs. C
(wife of his Younger Son) in future, hence Interest income earned from such Debentures
will be taxable in the hands of Mr. Ugly.

Case VI: When Individual is assessable in respect of income of his Minor Child [Sec. 64(1A)]

Taxability: In case an Income is earned by a child before his attainment of 18 years of

age, then such income of child will be included in the income of the parent whose taxable
income, excluding income includible u/s 64(1A), is GREATER .

Exemption u/s 10(32): In case of inclusion of income earned by a minor in the parents
income, exemption of Rs. 1,500/- per Child per Annum or Income earned by child
whichever is lower.

Non Taxability of Income in certain cases:

i. Income of a Minor Child suffering from any disability specified u/s 80U .

ii. Income of a Minor Child on account of any Manual work.

 iii. Income of a Minor Child on account of any activity involving his Skill, Talent or
Specialized knowledge & Experience.

NOTE:

Child herein includes both Step child as well as Adopted child.

If both the Parents of the minor child are not alive and such minor is maintained by a
guardian, then guardian of the minor child should file a return of income on behalf of the
minor. In no case will the income be clubbed in the hands of the Guardian.

Where child attains majority during the previous year part of the income earned by the
child during his minor stage shall be clubbed in the hands of the Parent.

ILLUSTRATIONS..

X a minor earned Rs. 1, 50,000/- from business income in PY 09-10. His Fathers tax
able income is Rs. 10, 00,000/- while that of his mother is Rs. 3, 50,000/-. In this case
income of Rs. 1, 50,000 of X will be taxable in the hands of his father.

what circumstances you may attract this clubbing of income

In the case of Assets Transfer to Anyone

Transfer of Income no transfer of assets: When you retain the ownership of an asset but
decide to transfer its income by doing an agreement or any other way, the Act will still consider
that income as your income and it will be added to your total income for taxation purposes.

Transfer of Asset which is revocable: When you transfer the ownership of an asset and make
such transfer revocable, income from such an asset will continue to be added to your income.

Clubbing of Spouses Income

Here are some situations when your spouses income will get clubbed to your income and youll
have to pay tax on it-

(1) Your spouse receives a salary from a company or a firm in which you have a substantial
interest, then such salary will be clubbed with your income. Substantial Interest means you alone
or with your relatives (husband, wife, brother, sister or your lineal ascendant or descendant) hold
equity or voting power of a company which is 20% or more. Or in case of a firm you are entitled
to 20% or more of the profits. Also, if both of your receive an income from such a firm or
company, it will get taxed in the hands of the person whose taxable income is higher. There is
one exception to this if your spouse receives the salary due to his/her application of technical
or professional knowledge & experience then such salary will be taxed in the hands of the person
receiving it and not clubbed.

(2) You transfer an asset to your spouse directly or indirectly without receiving adequate
consideration (does not include where asset is transferred as part of a divorce settlement)
income from this asset will be clubbed with your income. For example where the husband to
reduce his tax liability transfers an asset worth Rs 1,00,000 to his wife for Rs 25,000 .3/4 th of the
income from this asset will be taxed in the hands of the husband. If he receives no consideration,
in that case the entire income from this asset will be clubbed with the husbands income.
Although the clubbing provisions here exclude house property but in case you transfer a house
property to your wife and do not receive adequate consideration, as per the Act, you will still be
considered the deemed owner and the income from the asset will be clubbed with your income.

(3) You transfer an asset to a person or an association of persons, directly or indirectly,

without adequate consideration, so that the benefit arises to your spouse either now or on a
deferred basis, income from such an asset will be clubbed with your income.

(4) Assume a situation where you provide money to your spouse (who is non working) and
that money is invested by the spouse and a certain income is generated (from such money that
you gave your spouse).The income that arises from such investment done by her can be clubbed
to your income. However, if your spouse reinvests the income portion and earns further income
then such income may not be clubbed with your taxable income.

Clubbing of Income of Minor Child (less than 18 years old)

(1) Some families make fixed deposits in the name of a minor child. Income of a minor is
taxable in the hands of the parent whose total income is higher (before including the minors
income). If the parents are divorced it is clubbed with the person who is maintaining the child.
There is one exception to this rule if the minor has earned an income because of his own
manual work, or used his talent or specialized knowledge & experience OR in case of a minor
who is disabled (based on definition of disability in Section 80U) and earns an income, such
income will not be clubbed.

(2) When your minor childs income is clubbed to your income exemption is available up to
Rs 1500 for each such minor child. Which means if clubbed income is more than Rs 1500, Rs
1500 is the maximum exemption, however if clubbed income is say Rs 800 (less than Rs 1500)
exemption is limited up to such lesser amount, Rs 800 in this case.

Clubbing of Income of a Major Child (18 or more than 18 years old)

You may be giving over some money to your major child (who may not be earning), in this case
if the major child invests that money any income from these investments will not be taxable in
your hands but will be taxed in the hands of the major child. So therefore, there will be no
clubbing of income in case of a major child.

Clubbing of Income of a Sons Wife

You transfer an asset to your sons wife directly or indirectly without receiving adequate
consideration income from this asset will be clubbed with your income. Or you transfer an
asset to a person or AOP, for the immediate or deferred benefit of your sons wife, without
adequate consideration, directly or indirectly income from this asset will be clubbed with your
income

Gifts

On one hand are the clubbing provisions that club income that you may be trying to move within
family and there are some provisions that allow certain gifts. Even though Gift Tax Act was
abolished effective 1st October 1998, certain provisions in the Income Tax Act can tax the money
or assets you gift. In our next post we will look at what are the provisions that can tax the gifts
that you may be giving or receiving. Keep watching out for more! And reach out to us if you
have any queries.

Cases of tax implication of conversion of self acquired property into

joint family property and subsequent partition
The Commissioner Of Gift Tax, ... vs Jagdish Saran 7

according to the Tribunal's finding, the property involved was the self-acquired property
of the assessee. It was on that footing that the question of law has been referred to the
Court. We cannot, therefore, permit the assessee to take up the position that the property
involved was joint family property even before 31-3-1957. We have merely to investigate
the effect of conversion of self-acquired property into joint family property.

In R. Subramania Iyer v. Commr. of Income Tax, Madras, 8

it was pointed out by Madras High Court that no formalities are necessary in order to
impress upon self-acquired property the character of joint family property.

7
AIR 1971 All 101, 1970 75 ITR 529 All
8
AIR 1955 Mad 623
 V. N. Sarin v. Ajit Kumar,9
it was held that partition of joint family property does not constitute a transfer. As already
mentioned, we are not concerned in the present case with any partition of joint family
property.

9
1966 SC 432
ACKNOWLEDGEMENT
Saying that completing this project is solely my effort will be totally untrue. This project would
have never been completed without the help and support of my teacher ,classmates and friends.
So, first of all I would like to thank my teacher of Tax law Mam Dr. KEHKASHAN
DANIYAL , without whose support this would have never been completed.

I would also like to thank my classmates Haider Zoya, Sana Wasim and Kaynat for their help
and support throughout.
Last but not the least I would like to thank my hostel mates zoha ,Saba and Anam For their help.
PROJECT REPORT ON
CLUBBING OF INCOME
OF TAX LAW

-Submitted to-
Dr. kehkashan Daniyal

BY-
Hala Quamar
B.A.LLB(hons)
3rd year
Session-2014-15
 BIBLIOGRAPHY

BOOKS REFERRED-

1. DIRECT TAXES
-V.K SINGHANIA
2. TAX LAW
MONICA SIGHNIA

LEGISLATION REFERRED

INCOME TAX ACT (AS AMENDED IN 2014)

WEBSITES-

www.ssrn.com
www.indiankanoon.com
 CONCLUSION-
Under the Income Tax Act there is clubbing of income when an individual transfers an
asset to his spouse and there is income that arises on account of this asset. This entire
process ensures that the individual has to ensure that they are able to take a careful look
at the situation because the income that actually arises to the spouse would have to be
included in their own income.
There is however a condition that needs to be fulfilled for this kind of clubbing to be
applicable so it is better to check about the position on this front.10

Generally an assessee is taxed in respect of his own income. But sometimes in some
exceptional circumstances this basic principle is deviated and the assessee may be taxed
in respect of income which legally belongs to somebody else. Earlier the taxpayers made
an attempt to reduce their tax liability by transferring their assets in favour of their family
members or by arranging their sources of income in such a way that tax incidence falls on
others, whereas benefits of income is derived by them . So to counteract such practices of
tax avoidance, necessary provisions have been incorporated in sections 60 to 64 of
the Income Tax Act Hence, a person is liable to pay tax on his own income as well as
income belonging to others on fulfillment of certain conditions.
Inclusion of others Incomes in the income of the assessee is called Clubbing of Income
and the income which is so included is called Deemed Income. It is as per the provisions
contained in Sections 60 to 64 of the Income Tax Act.

10
Clubbing of income, singhnia, p-120
TABLE OF CONTENTS-

1. INTRODUCTION
2. CLUBBING- MEANING
3. MAIN CONCERNS FOR CLUBBING
4. CASES UNDER WHICH CLUBBING CAN BE DONE
5. IMPACT OF CLUBBING
6. TRANSFER OF INCOME WITHOUT TRANSFER OF
ASSET
7. REVOCABLE OF TRANSFER OF ASSETS
8. WHEN AN INDIVIDEUAL IS ASSESSABLE IN
RESPECT OF REMUNERATION OF SPOUSE
9. WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT
OF INCOME FROM ASSETS TRANSFERRED TO
SPOUSE
10. WHEN AN INDIVIDUAL IS ASSESSABLE IN
RESPECT OFINCOME FROM ASSETS TRANSFERRED
TO SONS WIFE
11. WHEN AN INDIVIDUAL IS ASSESSABLE IN
RESPECT OF INCOME OF HIS MINOR CHILD
12. TAX IMPLICATION OF CONVERSION OF SELF-
ACQUIRED PROPERTY INTOJOINT FAMILY
PROPERTY CASES
13. OTHER LEADING CASES OF CLUBBING OF
INCOME
14. PROBLEMS OF CLUBBING OF INCOME