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Clubbing of Income FAQs AY2018-2019

A comprehensive list of frequently asked questions on Clubbing Income provisions under Income Tax Act in India.

1.What is the meaning of Clubbing of Income ?

The situation in which income of other person is included in the income of the taxpayer is called as clubbing of income. Normally, a person is taxed in respect of income earned by him only. However, in certain special cases income of other person is included (i.e. clubbed) in the taxable income of the taxpayer and in such a case he will be liable to pay tax in respect of his income (if any) as well as income of other person too.

E.g., Income of minor child is clubbed with the income of his/her parent. Section 60 to ​64​ give various provisions relating to clubbing of income.

2.Do any clubbing provisions exist in case of transfer of income without transfer of asset ?

​​​​​If a person transfer’s income from an asset owned by him without transferring the asset from which the income is generated, then the income from such an asset is taxed in the hands of the transferor (i.e., person transferring the income).

Conditions:

  1. The taxpayer owns an asset
  2. The ownership of asset is not transferred by him.
  3. The income from the asset is transferred to any person under a settlement, or agreement
3.Do any clubbing provisions exist in case of a revocable transfer ?

Revocable transfer is generally a transfer in which the transferor directly or indirectly exercises control/right over the asset transferred or over the income from the asset.

Conditions:

  1. An asset is transferred under a “revocable transfer”,
  2. The transfer for this purpose includes any settlement, or agreement
  3. Then any income from such an asset is taxable in the hands of the transferor and not thetransferee (owner).
4.Can remuneration received by spouse of an individual be clubbed with his/her income ?

Remuneration (i.e., salary) received by the spouse of an individual from a concern in which the individual is having substantial interest is clubbed with the income of the individual.

Conditions:

  1. If spouse of an individual gets any salary, commission, fees etc (remuneration) from a concern
  2. The individual has a substantial interest in such a concern
  3. The remuneration paid to the spouse is not due to technical or professional knowledge of the spouse.
5.Can income from assets transferred to spouse without adequate consideration be clubbed with the income of transferor-spouse ?

Income from transfer of house property without adequate consideration will also attract clubbing provision

If an individual transfers (directly or indirectly) his/her asset (other than house property) to his or her spouse otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e.,�transferor).

Conditions:

  1. Conditions: The taxpayer is an individual
  2. He/she has transferred an asset (other than a house property)
  3. The asset is transferred to his/her spouse
  4. His asset is transferred without adequate consideration. Moreover there is no agreement to live apart.
6.Can income from assets transferred to son’s wife without adequate consideration be clubbed with the income of transferor, i.e., father-in-law / mother-in-law ?

If an individual transfers (directly or indirectly) his/her asset to his/ her son's wife otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e., transferor being father-in- law/mother-in- law). The provisions of clubbing will apply even if the form of asset is changed by the transferee-daughter- in-law.

If the asset is transferred before marriage of son, no income will be clubbed even after marriage,since the relation of father-in- law/mother-in- law and daughter-in- law should exist both at the time of transfer of asset and at the time of accrual of income.

If on the date of accrual of income, the relation of father-in- law/mother-in- law and daughter-in- law does not exist, then the provisions of clubbing will not apply

7.Can income from assets transferred to any person for the benefit of spouse or for the benefit of son’s wife without adequate consideration be clubbed with the income of transferor ?

If an individual transfers (directly or indirectly) his/her asset otherwise than for adequate consideration to a person or an association of persons for the immediate or deferred benefit of his/her spouse, then income arising from the asset so transferred will be clubbed with the income of transferor.

If any individual transfers (directly or indirectly) his/her asset otherwise than for adequate consideration to a person or an association of persons for the immediate or deferred benefit of

his/her son's wife, then income arising from the asset so transferred will be clubbed with the income of transferor.​

8.Is minor child’s income clubbed with the income of parent ?

Income of minor child is clubbed with the income of his/her parent. Income of minor child earned on account of manual work or any activity involving application of his/her skill, knowledge, talent, experience, etc. will not be clubbed with the income of his/her parent. However, accretion from such income will be clubbed with the income of parent of such minor.

Income of minor will be clubbed along with the income of that parent whose income (excluding minor's income) is higher.

If the marriage of parents does not sustain, then minor's income will be clubbed with the income of parent who maintains the minor.

In case the income of individual includes income of his/her minor child, such individual can claim an exemption under of Rs. 1,500 or income of minor so clubbed, whichever is less.

9.Are monetary gifts received from friends liable to tax ?

Friend is not a relative as defined in the relative list and hence, gift received from friends will be charged to tax (if other criteria of taxing gift are satisfied).​


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