CLUBBING OF INCOME

CLUBBING OF INCOME

1. Income of a Minor Child Section 64(1A)

Income of Minor child is taxable in hands of the parent whose income is more before clubbing minor’s income.

Exception: In the following 3 cases minor’s income is taxable in the hands of minor only: -

1. Income is due to manual work.
2. Income is due to Skill and Talent.
3. Minor child suffering from disability.

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2. Asset transferred to spouse u/s 64(1)(iv).

If any Individual transfers any assets to his or her spouse without consideration on for inadequate consideration the income from such asset is received by spouse but tax on such income is paid by transferor (Assessee).

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3. Asset transferred to Son’s wife u/s 64(1)(vi).

If any individual transfers any asset to his/ her son’s wife without consideration or for inadequate consideration, then income from such asset is received by son’s wife but tax on such asset is paid by transferor.

The provision of this section is applicable only if the relationship of mother/ father-in-law & daughter-in-law exists at the time of transfer of asset as well as at the time of generating the income.

4. Asset transferred to any other person for the benefit of spouse/ son’s wife u/s 64(1)(vii/viii)

If an individual transfers any asset to any person without consideration or for inadequate consideration for the benefit of son’s wife/ spouse, then income from such asset is received by any other person (transferee) but tax on such income is paid by transferor.

5. Income of spouse from a concern where assessee has substantial interest u/s 64(1)(ii).

Income of spouse is taxable in hands of assessee if the following conditions are satisfied.

1. Income is in the nature of Salary, Commission, Bonus (remuneration) &
2. Such remuneration should be received from a concern where assessee has substantial interest.                        

Substantial interest means 20% or more shareholding or profit-sharing ratio in a company/ firm.

Exceptions:

1. If remuneration is received by spouse due to technical & professional qualification & such remuneration is attributed to such qualifications, then the above provision is not applicable.
2. Where both husband and wife have substantial interest in a concern and both are in receipt of income by way of remuneration from concern, such income will be includible in the hands of that spouse, whose total income, excluding such income is higher. Where any such income is once included in the total income of either spouse, income arising in the succeeding year shall not be included in the total income of the other spouse unless the AO is satisfied, after giving that spouse an opportunity of being heard, that it is necessary to do so.

6. Income transfer without transfer of asset u/s 60.

If an individual transfers any income without transfer of asset, then such income is taxable in the hand of the transferor.

7. Revocable transfer of asset u/s 61.

In case of revocable transfer, income is received by transferee, but tax is paid by the transferor.

However, if the transfer is revoked after the death of beneficiary or transferee then the above provision is not applicable.

8. Asset transferred to HUF u/s 64(2).

If any individual transfer any asset to his HUF without/ for inadequate consideration, the income from such asset is received by HUF but taxable in hands of transferor (member).

After Partition of HUF, Income from such asset received by spouse shall be clubbed in hands of transferor.

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