Clubbing of Income

December 24, 2022

Aashish Singhal

Under the Income-tax Act, 1961, an assessee is generally taxed in respect of his own income. However, there are certain cases where as assessee has to pay tax in respect of income of another person.

Income Tax

Clubbing of Income

Under the Income-tax Act, 1961, an assessee is generally taxed in respect of his own income. However, there are certain cases where as assessee has to pay tax in respect of income of another person.

Sec 60: Transfer of income without transfer of asset

• If any person transfers the income from any asset without transferring the asset itself, such income is to be included in the total income of the transferor.
• It is immaterial whether the transfer is revocable or irrevocable and whether it was made before the commencement of this Act or after its commencement.

Sec 61: Income arising from revocable transfer of assets

All income arising to any person by virtue of a revocable transfer of assets is to be included in the total income of the transferor.

Sec 62: Exceptions where clubbing provisions are not attracted even in case of revocable transfer i.e.Sec 61 will not apply to any income arising to any person in the following two cases:

1. Transfer of asset is not revocable during the life time of the beneficiary or the transferee, provided the transferor derives no direct or indirect benefit from such asset.
2. Transfer made before April 1, 1961 and not revocable for a period exceeding six years.

Sec 63: Meaning of revocable transfer

Transfer is deemed to be revocable if-

1. it contains any provision for the retransfer, directly or indirectly, of the whole or any part of the income or assets to the transferor, or
2. it gives, in any way to the transferor, a right to reassume power, directly or indirectly, over the whole or any part of the income or the assets.

Sec 64: Income of Other Person includible in Individual’s Total Income

(1) Clubbing of income arising to spouse

Sec 64(1)(ii): Income by way of remuneration (Cash or Kind) from a concern in which the individual has substantial interest to be clubbed with Individual’s Income. No Clubbing will apply if remuneration is received for technical or professional qualifications possessed by spouse.

In Case, both husband and wife have substantial interest in a concern and both are in receipt of income by way of remuneration, such income will be includible in the hands of that spouse, whose total income, excluding such income is higher.

Sec 64(1)(iv): Income arising to the spouse from an asset transferred without adequate consideration or in connection with an agreement to live apart:

1. Transfer of asset (other than house property): any income arising to the transferee-spouse from the transferred asset, either directly or indirectly, shall be included in the total income of the transferor-spouse.
2. Transfer of house property: Such provisions are contained in Sec 27. In Such case, the transferor shall be deemed to be the owner of the house property and its annual value will be taxed in hands of transferor.
3. Income from accretion of the transferred asset is not to be clubbed with the income of the transferor. Income earned by investing such income (arising from transferred asset) cannot be clubbed.
4. If Transferred asset invested in business then proportionate income arising from such investment is to be included in the total income of the transferor. If the investment is in the nature of contribution of capital, proportionate interest on capital will be clubbed with the income of the transferor

Sec 64(1)(vi): Income arising to son’s wife from the assets transferred without adequate consideration by the father-in-law or mother-in-law, the income from such asset is to be included in the total income of the transferor.

If Transferred asset invested in business then proportionate income arising from such investment is to be included in the total income of the transferor. If the investment is in the nature of contribution of capital, proportionate interest on capital will be clubbed with the income of the transferor

Sec 64(1)(vii):Transfer of assets for the benefit of spouse

All income arising directly or indirectly to any persons or association of persons, from the assets transferred, directly or indirectly, to such person or association of persons by an individual without adequate consideration is includible in the income of the transferor to the extent such income is used by the transferee for the immediate or deferred benefit of the transferor’s spouse.

Sec 64(1)(viii): Transfer of assets for the benefit of son’s wife

All income arising directly or indirectly, to any person or association of persons from the assets transferred, directly or indirectly, without adequate consideration, to such person or association of persons by an individual will be included in the total income of the individual to the extent such income is used by the transferee for the immediate or deferred benefit of the transferor’s son’s wife

Sec 64(1A): Clubbing of Incomeof Minor Child

1. All income of a minor is to be included in the income of his parent, whose total income is greater except income derived by the minor from manual work or from any activity involving his skill, talent or specialized knowledge or experience.
2. Once clubbing of minor’s income is done with that of one parent, it will continue to be clubbed with that parent only, in subsequent years unless Assessing Officer is satisfied that it is necessary to club such income with income of other parent.
3. Where the marriage of the parents does not subsist, the income of the minor will be includible in the income of that parent who maintains the minor child in the relevant previous year.
4. However, the income of a minor child suffering from any disability of the nature specified in section 80U shall not be included in the hands of the parent but shall be assessed in the hands of the child.
5. It may be noted that the clubbing provisions are attracted even in respect of income of minor married daughter

Sec 64(2): Conversion of Self-Occupied HP into property of HUF

(1)Where an individual his individual property into property of the HUF of which he is a member or throws such property into the common stock of the family or otherwise transfers such individual property, directly or indirectly, to the family otherwise than for adequate consideration, the income from such property shall continue to be included in the total income of the individual.

Where the converted property has been partitioned, the income derived from such converted property as is received by the spouse shall also be included in the total income of the individual who effected the conversion of such property.