Introduction to Clubbing of Income
- In a world where taxpayers try to outsmart the taxman by shuffling income like a deck of Uno cards, the Income Tax Department plays the ultimate reverse card – it’s called Clubbing of Income.
- This provision under the Income Tax Act, 1961, prevents individuals from reducing tax by shifting income/assets to close relatives.
Section 60 – Transfer of Income Without Transferring the Asset
🍎 You Gave the Fruit, Not the Tree? Tax Still Grows on You!
- If you transfer income to someone without transferring the asset, the income is still taxed in your hands.
- Example: Mr. X tells his brother Mr. Y to keep the rent, but the house remains in Mr. X’s name → rent is taxable to Mr. X.
🔁 Section 61 – Revocable Transfer of Assets (The Boomerang Asset)
- Income from a revocable transfer is taxed to the transferor.
- Revocable transfer: A transfer that can be undone during the transferee’s lifetime.
- Even if the fruit is enjoyed, if you can take the tree back, you pay the tax.
Section 62 – Irrevocable Transfer for Specified Period
- If revocation is not possible during transferee’s lifetime or via an irrevocable trust, income is taxed in transferee’s hands.
Section 64(1)(ii) – Spouse’s Salary in Your Empire
| Provision | Example |
|---|---|
| If your spouse receives income from a company where you have substantial interest (≥ 20%) and the income is not from their technical expertise, it’s clubbed with your income. | Mr. Sharma owns 30% of Sharma Ltd. His wife, with no qualifications, is paid ₹10L as “Financial Advisor” → taxed to Mr. Sharma. |
Section 64(1)(iv) – Asset Transfer to Spouse Without Adequate Consideration
| Provision | Example |
|---|---|
Assets given as a gift to a spouse lead to clubbing of income arising from them, except:
|
Rohit gifts ₹10L to wife Pooja, she earns ₹80K FD interest → taxed to Rohit. |
Section 64(1)(vi) – Transfer to Daughter-in-law
| Provision |
|---|
| Transfer of assets without consideration to daughter-in-law → income is clubbed with transferor. Reinvested income is not clubbed. |
Section 64(1)(vii) & (viii) – Asset Transfer for Benefit of Spouse/Daughter-in-law
| Provision |
|---|
| Transfer of asset for benefit of spouse or daughter-in-law → income is clubbed with transferor, even if indirect or deferred. |
Section 64(1A) – Minor Child’s Income
| Provision | Example |
|---|---|
Passive income of minor (like interest/dividend) is clubbed with parent (higher income). Exemptions:
|
₹5L FD in daughter’s name → ₹30K interest earned → ₹28.5K taxable after ₹1.5K exemption. Son earns ₹1.2L from YouTube (talent-based) → Not clubbed, taxed in his name. |
Section 64(2) – Property Converted to HUF
| Provision |
|---|
| If an individual converts personal property to HUF property without adequate consideration, the income arising from such property is clubbed with individual. |
Add comment