Normally, a person is taxed in respect of income
earned by him/her only. However, in certain special cases, a person is also
liable to tax on income of other person i.e. said income is to be included
(i.e. clubbed) in the taxable income of the taxpayer. In such a case he/she
will be liable to pay tax in respect of his/her income (if any) as well as
income of other person too. The various scenarios which are covered for
clubbing of income are listed in below:
a) Transfer of income without transfer of asset
If an individual
transfers 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).
For example if a NRI has
given a bungalow owned by him on rent and annual rent of the said bungalow is
Rs. 84,000. NRI transferred entire rental income to his friend
Mr. A. However, he did not transfer the bungalow. In this
situation, entire rental income of Rs. 84,000/- will be taxed in the hands of
NRI.? This will be the
case of transfer of income (rent) without transfer of asset (bungalow).
of assets otherwise than for adequate consideration
Please note, there are specific clubbing provisions, when an individual
transfers any asset without adequate consideration to the spouse or son's wife.
Income from such an asset shall be clubbed with income of the individual, if
· Transfers an asset to his/her spouse directly or indirectly, otherwise
than for adequate consideration or in connection with an agreement to live
· Transfers an asset to the son's wife, directly or indirectly, without
· Transfers an asset to any other person or
association of persons, directly or indirectly, without adequate consideration,
for the immediate or deferred benefit of his/her spouse or son's wife.
E.g.:1 Mr. A, husband has gifted an amount of Rs. 1 lakh to his wife on the
occasion of her birthday. Further, wife has booked a FD in her name out of such
funds. In such case, interest received by wife from said will be taxed in
the hands of husband as per the clubbing provisions under the Act.
E.g.:2 Will the above answer
differs in case wife has invested money out of gift received from her father?
this case, the interest income will be taxable in wife’s hands only and will
not be clubbed in the hands of the father.
E.g.:3 A husband has bought a
house property jointly with his wife in the ratio 50:50 and now intends to sell
it. How will the capital gains arising on sale of such property be taxed?
capital gains will be taxed in the hands of husband alone, unless he is able to
substantiate that the share of 50% of his wife in the property is bought by her
out of her own earned funds. In case the property is bought out of funds gifted
by a husband to his wife, income will continue to be clubbed in the hands of
of Spouse's Income
When remuneration by way of salary/commission/fees or
any other form is received by the spouse of an individual from a concern in
which the individual is having substantial interest, then such income is
clubbed in the income of the individual, except in case the spouse of the
individual is employed on account of his/her technical or professional
knowledge or experience.
of term Substantial Interest:
Please note, an individual is deemed to have
substantial interest, if such person (individually or along with his relatives)
beneficially holds equity shares carrying not less than 20 per cent voting
power in the case of a company or is entitled to not less than 20 percent of
the profits in the case of a concern other than a company at any time during
the previous year.
of Income of Minor Child
income of minor is subject to tax in hands of parents, except in below cases:
· When the minor earns income by any activity
involving application of his skill, talent or specialized knowledge and
· When minor earned income by doing Manual Work
· Minor is suffering from any disability as
specified in Section 80U of the Income-tax Act, 1961
Further, income of minor will be clubbed 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.
The above mentioned provision can be better
explained by way of below examples:
A NRI has four minor children
consisting of 2 daughters and 2 sons. The annual income of 2 daughters is Rs.
9,000/- and Rs. 4,500/- and of sons is
Rs. 6,200/- and Rs. 4,300/- respectively. The daughter who has income of
Rs. 4,500/- was suffering from disability in the nature specified u/s 80U (viz.
blindness, low vision, hearing impairment, autism, cerebral palsy, mental
retardation, etc.). How and what amount of income shall be clubbed?
per the provisions of the Act, all income accruing or arising to a minor child
shall be included in the Income of the said minor’s mother or father,
whosevers, parent income is higher. However, income of a minor child suffering
from disability specified in the nature referred under Section 80U would not be
included in the income of the parent, but would be taxable in the hands of
minor child. Further, income of each minor child includible in the hands of the
parent would be exempt to the extent of Rs. 1,500/- each. Accordingly, in present case, income of minor child needs to
be clubbed as under:
Income of one daughter
Less: Income exempt
Income of 2 sons (4300+6200)
Less: Income exempt (1500+1500)
Total income to be clubbed (A+B)
In the above example, the above answer shall differ in
case if the sons have earned the income from their own skills and talent.
The income shall be taxed
in the hands of the minor sons as they have earned the income through
application of their own skills and
transfer of assets
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. If a transfer is held to be a
revocable, then income from the asset covered under revocable transfer is taxed
in the hands of the transferor.
Clubbing of losses
If clubbing provisions are applicable with respect to
a particular source of income then losses from such source are also allowed to
be clubbed in the income of the transferor.