Clubbing of

income

(Sec 60- 64 of the Income Tax Act)

 GLOSSARY
The key words in the chapter are explained below:-

 Transferor- The person who transfers any of his belongings, specifically his
assets/income to another person is known as Transferor.

 Transferee-The person to whom the transferor transfers his / her assets is

known
as transferee.

 Revocable- he right to reacquire or take back anything legally which was

given earlier under an agreement or settlement.

 Minor- A person who is below the age at which he or she legally becomes an
adult. In India at present a person becomes adult at the age of 18 years.
 Introduction

Generally, an assessee is taxed in respect of his own income. In some cases,

however, the Income-tax Act deviates from this principle & the assessee
may be taxed, under section 60 to 64, in respect of income which legally
belongs to some other person. Provisions incorporated in these sections
deal with cases where taxpayer make an attempt to reduce their tax bill by
transferring their assets in favour of their family members or by arranging
their sources of income in such a manner that tax incidence falls on others,
whereas benefit of income, directly or indirectly, is derived by them.
 Transfer of income without transfer of asset – When
income therefrom is regarded as that of transferor
(Sec. 60)
Condition – 1 The taxpayer owns an asset.

Condition – 2 The ownership of asset is not transferred by him. In other

words, he has retained the ownership of the asset.

Condition – 3 The income from the asset is transferred to any person under
a settlement, trust, covenant, agreement or arrangement.

Condition – 4 The above transfer may be revocable or may not be

revocable.

Condition – 5 The above transfer may be effected at any time ( may be

before the commencement of the Income-tax Act or
otherwise.)
 Revocable transfer of assets – When income therefrom
is regarded as that of transferor
• What is revocable transfer-----
Situation - 1 If an asset is transferred under a trust & it is revocable during
the lifetime of the beneficiary.

Situation – 2 If an asset is transferred to a person & it is revocable during the

lifetime of transferee.

Situation – 3 If an asset is transferred before April 1, 1961 & it is revocable

within 6 years.

Situation – 4 If the transfer contains any provision to re-transfer the asset ( or

income there from ) to the transferor directly or indirectly,
wholly or partly.

Situation – 5 If the transferor has any right to reassume power over the asset (
or income there from ) directly or indirectly, wholly or partly .
 Conclusions of above situations

1. There is an asset which is transferred under a “ revocable transfer “ ( i.e. in one of

the situations given in the table above ).

2. Income from the aforesaid asset is taxable in the hands of transferor.

3. Such income is taxable as and when the power to revoke arises.

4. The above rule is applicable even if the power to revoke has not been exercised so
far.
When an individual is assessable in respect of
remuneration of spouse [Sec. 64(1)(ii)]
Condition :- Section 64(1)(ii) is applicable if the following conditions
are satisfied-
. Condition 1 The taxpayer is individual.

Condition 2 He/She has a substantial interest in a concern.

Condition 3 Spouse of the taxpayer (i.e., husband/wife of

the taxpayer) is employed
Condition 4 Spouse is employed in the concern without
any technical or professional knowledge or
experience.
Cont…

• Other Points –
1) Salary – How computed
2) Concern
3) Substantial Interest
4) Relatives
5) When both husband and wife have substantial interest
I) Both husband and wife have a substantial interest in a concern
II) Both are in receipt of the remuneration from such concern
III) Remuneration is received without any technical and professional
qualification.
IV) Remuneration will be included in the total income of husband or wife
whose total income, excluding such remuneration, is grater.
When an individual is assessable in respect of
income from assets transferred to spouse [Sec.(1)(iv)]

Conditions- The following conditions should be satisfied-

Condition 1 The taxpayer is an individual.

Condition 2 He/She has transferred an asset (other than a house

property).
Condition 3 The asset is transferred to his/her spouse.

Condition 4 The transfer may be direct or indirect.

Condition 5 The asset is transferred otherwise than (a) for adequate

consideration, or (b) in connection with an agreement
to live apart.
Condition 6 The asset may be held by the transferee-spouse in the
same for m or in a different form.
Cont…
• Other Points
1) Capital gain on sale of transferred assets
2) Appropriation when transferred asset in invested in business
3) When transferred asset is invested in a firm
4) Income arising from accretions to transferred assets.

• When clubbing is not applicable

1) If assets are transferred before marriage
2) If assets are transferred for adequate consideration
3) If assets are transferred in connection with an agreement to live apart
4) If on the date of accrual of income, transferee is not spouse of the
transferor
5) If property is acquired by the spouse out of pin money
When an individual is assessable in respect of
income from assets transferred to son’s wife[Sec.
64(1)(vi)]
Conditions- one has to satisfy the following conditions-

Condition 1 The taxpayer is an individual.

Condition 2 He/She has transferred an asset after May 31, 1973

Condition 3 The asset is transferred to his/her son’s wife

Condition 4 Transfer may be direct or indirect.

Condition 5 The asset is transferred otherwise than for adequate

consideration
Condition 6 The asset may be held by the transferee in the same
form or in a different form.
 When an individual is assessable in respect of income
from assets transferred to a person for the benefit of
spouse[sec.64(1)(vii)]
• Conditions
1. The tax payer is an individual.

2. He\She has transferred an asset.

3. Transfer may be direct or indirect.

4. The asset is transferred to a person or an association of persons.

5. It is transferred for the immediate or deferred benefit of his\her spouse

6. The transfer is without adequate consideration.

 When an individual is assessable in respect of income
from assets transferred to a person for the benefit of
son’s wife [sec.64(1)(viii)]
• Conditions
1. The tax payer is an individual.

2. He\She has transferred an asset after may 31,1973.

3. Transfer may be direct or indirect.

4. The asset is transferred to a person or an association of persons.

5. It is transferred for the immediate or deferred benefit of his\her spouse

6. The asset is transferred otherwise than for adequate consideration.

 When an individual is assessable in respect of
income of his minor child

All income which arises or accrues to the

minor child shall be clubbed in the
income of his parent under sec. 64(1A).

 Clubbing in the hands of father or

mother : The income of minor will be
included in the income of that parent
whose total income [excluding the
income including under sec. 64(1A)] is
greater. Three cases are given.
 Cont’d….

 When clubbing is not attracted : In some cases the clubbing provisions of

64(1A) are not applicable-

1. Income of minor child suffering from any disability of the nature specified
under sec. 80U.

2. Income of minor child on account of any manual work.

3. Income of minor child on account of any activity involving application of his

skill, talent or specialized knowledge & experience.

 Exemption under sec. 10(32) : Income of an individual included an income

of his or her minor child in term of sec. 64(1A), such individual shall be
entitled to exemption of Rs. 1500 in respect of each minor child.
 Tax implications of conversion of self-acquired
property into joint family property & subsequent
partition
[sec 64(2)]

• Case 1 : Where an individual (being member of

a HUF) converts (after Dec. 31, 1969) his self-
acquired property into property belonging to the
family. It is done by impressing such property
with the character of joint family or throwing
such property into common stock of the family.

• Case 2 : when such an individual transfers his

self-acquired property, directly or indirectly, to
the family otherwise than for adequate
consideration.
 Cont’d….

• Clubbing before partition: Income from the property or property

transferred for less than adequate consideration is chargeable to tax in the
hands of the transferor (before partition of the family).

• Clubbing after partition : If the property converted or transferred by an

individual is subsequently transferred amongst the member of the family,
the income derived from such converted property, as is received by the
spouse of the transferor will be included in the income of the transferor.
 Other points
• Income from accretion of property transferred or accumulated income
of such property- whether included in the hands of transferor :-

• Can negative income be clubbed :-

• Recovery of tax :-

• Head of income under which the clubbed income will be included :-

Step 1 :- First compute the income in the hands of the actual recipient under
the relevant head of income as if the actual recipient of income is liable to
pay tax.
 Cont’d….

Step 2 :-After computing the income under the relevant head of income in the
hands of actual recipient, it will be clubbed under the same head of
income in the hands of other person.

Step 3 :- Gross total income of the person in whose hands the income is
clubbed shall be calculated as if it is his own income. Provisions of set off
& carry forward of losses are applicable as are applicable in any other
case.

Step 4 :- Deductions under sec. 80C to 80U will be given to the person in
whose hands income is clubbed within the overall ceiling provided in the
sections. No separate deduction is available to actual recipient of income.
Thank you