Income Tax is levied on the slab system on the total income in case of the individuals. The tax system is progressive i.e., as the income increases, the applicable rate of tax increases. Some taxpayers in higher income slab may tend to divert some portion of their income to their spouse, minor child etc to minimize the tax burden. To prevent such tax avoidance, clubbing provisions have been incorporated in the tax.
An assessee is generally taxed in respect of his own income. However, there are certain cases where the assessee has to pay tax in respect of income of another person. The provisions of the same are contained in sections 60 to 65 of the act.
If a person transfers income from the asset without transferring the asset, such income will be included in the total income of the transferor
All income arising to any person by virtue of the revocable transfer of assets is included in the income of transferor.
a) Any income such as salary, commission, fees or any other remuneration arising to the spouse of the individual from the concern in which such individual has a substantial interest will be taxable in the hands of individual who has substantial interest.
b) When there is a transfer of an asset (other than house property) from one spouse to other otherwise than for adequate consideration, any income arising to the transferee from the transferred asset shall be included in the total income of the transferor.
c)If both husband and wife have substantial interest in a concern and both are in receipt of salary, such income will be taxable in the hands of spouse whose income is higher
Example : Mr Krishna has transferred his TCS shares to his wife Rukmini on 31/12/2021. Later Mrs Rukmini has sold these shares on 14/09/2022 for a gain of Rs 1,00,000. This gain of Rs 1,00,000 is taxable in the hands of Mr.Krishna
Example : Mr Rama has transferred his house property to his wife Sita on 31/12/2021. Mrs Sita is getting rental income from 01/01/2022 to 31/05/2022 and she sold the property on 30/06/2022. Now, the rental income and capital gains from sale of property is taxable in the hands of Mr Rama.
Note : If the investment is in the nature of capital, proportionate interest is taxable in the hands of transferor
If any assets are transferred by In-laws to son’s wife without consideration, the transferor (in-laws) is deemed to be owner of the property and the income is also taxable in the hands of In law’s
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