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

• Clubbing of Income earned by Spouse

• Clubbing of Income earned by Son's Wife

• Income liable for Clubbing from assets transferred to Spouse of Son's Wife - Determination

• Clubbing of Income of Minor Child

• Clubbing of Income of Property thrown into HUF

Clubbing of Income In the hands of any Person

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 concern	Are entitled to not less than 20% of the profits of such 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.

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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 -

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).

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Clubbing of Income from Properties thrown into HUF Common Stock

Where an individual, being a member of a Hindu Undivided Family, after 31.12.1969, converts his separate property into the property of the family, otherwise than for adequate consideration, then: -

• The income derived from the converted property or any part thereof shall be deemed to be the income of the individual and not the family;

• Where the converted property has been the subject matter of a partition (whether partial or total) amongst the members of the family then the income derived from such converted property as is received by the spouse of the individual converting the property shall be deemed to income of the individual.

The clubbing of income in the hands of the individual is applicable, irrespective of the fact, whether the asset has been held by the HUF in the same form or not.

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