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Clubbing Provisions

The document discusses various sections of the Indian Income Tax Act related to "clubbing provisions" which require including the income of other persons in an assessee's total income. It summarizes sections 60, 61, 64(1)(ii), 64(1)(iv), 64(1)(vi), 64(1)(vii), 64(1)(viii), 64(1A), and 64(2) which deal with situations where income transferred without asset transfer, revocable asset transfers, income from a spouse's employment or transferred assets, income from assets transferred to relatives, and income of minor children, are clubbed with the assessee's income for tax purposes.

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Nihali Vartak
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26 views

Clubbing Provisions

The document discusses various sections of the Indian Income Tax Act related to "clubbing provisions" which require including the income of other persons in an assessee's total income. It summarizes sections 60, 61, 64(1)(ii), 64(1)(iv), 64(1)(vi), 64(1)(vii), 64(1)(viii), 64(1A), and 64(2) which deal with situations where income transferred without asset transfer, revocable asset transfers, income from a spouse's employment or transferred assets, income from assets transferred to relatives, and income of minor children, are clubbed with the assessee's income for tax purposes.

Uploaded by

Nihali Vartak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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INCOME OF OTHER PERSONS INCLUDIBLE IN ASSESSEE’S TOTAL INCOME

(Also known as - CLUBBING PROVISIONS under the Income Tax Act)

Sec. 60 Deals with instances where assessee transfers income without transferring
asset to the transferee.

The Tax payer i.e. assessee owns the asset. The assessee does not transfer the
ownership of asset to the transferee. Retaining ownership of asset with him/her the
transferor only transfers only the income earned/generated from that asset to
transferee. Or the income is transferred to any person under a settlement, trust,
covenant, agreement or under an arrangement. Under such circumstances, the
income so transferred is taxed in the hands of assessee i.e. transferor.

Sec.61 deals with Revocable transfer of assets by transferor to the transferee.


Revocable transfer means asset is transferred by transferor to transferee keeping
option open to call back for the asset. Say for example if an asset is transferred in
favour of a Trust and the Trust Deed has a provision for reverting the asset back to
the transferor i.e. author of the Trust within the life time of Beneficiaries under the
Trust then such a transfer is called Revocable Transfer.

Similarly, if the asset is transferred by transferor to transferee and the transferor


retains power with him to resume power over the asset directly or indirectly, fully or
partially within the lifetime of the transferee, then such a transfer will be treated as
Revocable Transfer.

In case of “Revocable Transfers” the income earned by the transferee from such
asset (though retained & enjoyed by transferee) is clubbed in the hands of transferor
for levy of Income Tax.

Sec. 64(1)(ii) deals with a situation wherein an Individual is assessable in respect of


Remuneration paid to his spouse. The conditions in which clubbing in respect of
remuneration paid to spouse in the hands of another spouse is applicable – a) If Tax
payer/assessee is an Individual, b) He/she has a substantial interest in the Concern
which pays remuneration to the spouse – say a Proprietor or Partner or a Director
having beneficial holding of 20% or more shares in the Company, c) If the spouse i.e.
husband or wife of the tax payer is employed in the concern, d) the employed
spouse does not have any technical or professional knowledge/qualification and
relevant experience. If all the aforesaid conditions are satisfied then the payment
made by the concern to such an employee is clubbed in the hands of it’s spouse.

If the spouse is having requisite technical knowledge or qualification and relevant


experience then even all the conditions (a to c above) are satisfied clubbing
provision would not be applicable for the taxpayer/assessee.
Sec.64(1)(iv) deals with a situation where an individual is assessable in respect of
income from assets transferred to spouse.

An assessee is an Individual, he/she has transferred an asset to his/her spouse, the


transfer may be direct or indirect, the transfer is without consideration and the asset
is held by transferee in the same form or in some other form. If all these conditions
are satisfied, then the income earned by the transferee (from such asset) is clubbed
in the hands of transferor –spouse.

If the house property is transferred by the transferor in favour of his/her spouse in


consideration of “an agreement to stay apart but not separate” then the clubbing
provisions under this section are not applicable.

Likewise, if the transferee is not a spouse of the transferor on the date of transfer of
the assets, then clubbing provisions would not be applicable. (say asset is
transferred by Mr. X to Miss Y on a particular date and then at a later date the said
Miss Y become Mrs. X, then clubbing provisions are not applicable).

Sec. 64(1)(vi) deals with a situation where an individual is assessable in respect of


income from assets transferred to son’s wife.

Sec. 64(1)(vii) deals with a situation where an individual is assessable in respect of


income from assets transferred to a person for the benefit of the spouse (of the
transferor).

Sec. 64(1)(viii) deals with a situation where an individual is assessable in respect of


income from assets transferred to a person for the benefit of the son’s wife (i.e.
daughter-in-law of the transferor).

Sec. 64(1A) deals with taxability of income earned by a minor child. Generally, the
income due to a minor child is assessed in the hands of either father or mother of
that child, that too in the hands of the parent who is having higher total income
(excluding the income includible u/s 64(1A) – which is in question). However, if the
income is earned by the minor child by his own efforts or exertion or by exploiting his
own skill or talent, then such income can not be taxed in the hands of the parents.
(say for example if child is acting in a film/drama/or by participating in a musical
event etc.)

Sec. 64(2) deals with a situation where an individual converts his/her self acquired
property in to a joint family property and a subsequent partition thereof. In this
situation, the income attributable to the assets that would be distributed to the
transferor individual and his/her spouse and to the minor children of such an
individual immediately upon partition of the said HUF, will only be clubbed in the
hands of the transferor.

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