Clubbing of Income

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Clubbing of Income

Clubbing of income means including the income of any other person in


Assessee's total income.
The Income-tax Act has specified certain cases where income of one person
is statutorily required to be included in the income of another person if some
conditions are satisfied.
This inclusion is known as “Clubbing of Income”.

For Example, if a husband diverts some part of his income to his wife to
reduce his tax liability or tax burden.
Then, such transferred income of a wife is added and taxed as income of
husband only and not on his wife.
The following incomes of other persons are included in the total income of the
assessee.

1. Transfer of income without transferring assets [sec. 60]


Where an income is transferred without transferring the asset yielding such
income, then income so transferred shall be clubbed in the hands of the transferor.

2. Revocable transfer [sec. 61]


If an assessee transfers an asset under a revocable transfer, then income
generated from such asset, shall be clubbed in the hands of the transferor.

As per sec. 63(a), a transfer shall be deemed to be revocable if -


● It contains any provision for the retransfer (directly or indirectly) of any part
or whole of the income/assets to the transferor; or
● It, in any way, gives the transferor a right to re-assume power (directly or
indirectly) over any part or whole of the income/assets.

3. Income from asset transferred to spouse [sec. 64(1)(iv) & (vii)]


In computing the total income of an individual income arising from assets
transferred to spouse without adequate consideration, shall be included in the
income of that individual.
In the following cases clubbing provision shall not be attracted on transfer of
property to spouse -
■ When such transfer is for adequate consideration; or
■ The transfer is under an agreement to live apart; or
■ Where the asset transferred is house property
4. Income from assets transferred to son’s wife [Sec. 64(1)(vi) & (viii)]
5. Income of minor child [sec. 64(1a)]
Income of a minor child shall be clubbed with income of the parent whose
total income (excluding this income) is higher.
Exceptions
The above clubbing provision shall not apply in the following cases -
1. The income arises or accrues to the minor child due to any manual work done by
him; or
2. The income arises or accrues to the minor child due to his skill, talent,
specialized knowledge or experience; or
3. The minor child is suffering from any disability of nature specified u/s 80U.

6. Conversion of self-acquired property in to the HUF property [sec. 64(2)]


An individual, being a member of an HUF, has converted1 a property after
31/12/1969 (being self-acquired asset of the individual) into property of HUF of
which he is a member, otherwise than for adequate consideration.
For the purpose of computation of total income of such individual for any
assessment year commencing on or after 1/4/1971, the income derived from such
converted property (property so converted or transferred by individual to HUF) or
any part thereof shall be deemed to arise to the individual and not to the family.
Where the converted property has been the subject matter of partition
(whether partial or total) amongst the members of the family, the income derived
from such converted property as is received by the spouse shall be clubbed in the
hands of transferor.

7. Liability of the transferee [sec. 65]


The income from any asset (or from membership in a firm) of a person
other than the assessee, is included in the total income of the assessee.

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