clubbing of income

1. Clubbing of Income
Section 60: Transfer Of Income Without Transfer Of Asset
This section 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

2. Section 61: Clubbing of income in case of revocable transfer of assets
All income arising to any person by virtue of a revocable transfer of assets shall be
included in the total income of the transferor and taxed accordingly.
Section 62: Exceptions to revocable transfer
• If the transfer is by way trust or otherwise and is not revocable during the life time
of the beneficiary or transferee, or
• If the transfer is made before 1/4/1961 and such transfer is not revocable for a
period exceeding six years.
In both the above cases the income shall be charged to tax in the hands of the
transferee provided the transferor does not derive direct or indirect benefit from such
income.

3. Section 63: Definition of “Transfer” and ”Revocable Transfer”
• A transfer shall be deemed to be revocable 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 or it gives the transferor a right to re-assume power directly or indirectly
over the whole or any part of the income or assets.
• Transfer include any settlements, trust, covenant, agreement or arrangement

4. Income of Spouse
a) Income received by the spouse will be included in individual’s income when:
i. Salary, commission, fees, etc. in cash / kind from a concern in which such
individual has substantial interest
ii. Where asset (other than house property) is transferred to spouse by that
individual otherwise than for adequate consideration or in connection with an
agreement to live apart
b) Remuneration solely attributed to application of technical / professional
qualification, knowledge & experience of spouse cannot be clubbed
c) When both husband & wife have substantial interest in a concern and both are in
receipt of income by way of salary, etc. from the said concern, such income will
be included in the case of husband / wife whose total income excluding the
income to be clubbed is greater.
Section 64(1): Clubbing of income arising to spouse & son’s wife

5. Income of Son’s Wife
• Income will be included when asset is transferred otherwise than for adequate
consideration
Assets transferred by individual to his spouse / son’s wife are invested by transferee:
a) In any business (not as capital contribution), proportionate income arising to the
transferee attributable to such investment, and
b) As capital contributions in any firm, any interest receivable by transferee
attributable to such investment
Shall be included in the total income of the individual.
Section 64(1): Clubbing of income arising to spouse & son’s wife

6. Section 64(1A): Clubbing of income arising to minor child
1. All income arising / accruing to minor child
2. No clubbing if income accrues / arises to minor child on account of any:
a)Manual work done by him, or
b)Activity involving application of his skill, talent or specialised knowledge &
experience
c)If the minor child is suffering from disability specified u/s 80U
3. If the marriage subsists, in the hands of the parent whose total income is greater
4. If the marriage does not subsist, in the hands of the person who maintains the
minor child.
5. Income once included in the total income of either of parents, it shall continue to
be included in the hands of same parent in the subsequent year unless AO is
satisfied that it is necessary to do otherwise (after giving the other parent an
opportunity of being heard).

7. Other points:-
1. Income out of house property transferred for no consideration to a minor married
daughter, shall not be clubbed in the parents’ hands. [Section 27].
2. The parent in whose hands the minor’s income is clubbed is entitled to an
exemption up to Rs. 1,500 per child. [Section 10(32)]
3. Even though income derived by the minor from manual work or from any activity
involving skill and talent cannot be clubbed, there is no provision to avoid clubbing
of income earned on investment made out of such income.
4. Clubbing of income does not arise when the minor attains majority. In computing
the total income of any individual, income arising to any trust from assets
transferred otherwise than for adequate consideration to extent to which the income
from such assets is for the immediate or deferred benefit of beneficiaries(being
minor child of the assesse) shall not be clubbed, if the trust stipulates that income of
such trust is to be used for the benefit of beneficiaries only after they attain
majority.
SECTION 64(1A)