CLUBBING OF INCOME
Income of Minor child is taxable in hands of the parent whose income is more before clubbing minor’s income.
Exception: In the following 3 cases minor’s income is taxable in the hands of minor only: –
NOTES:
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S.NO |
DESCRIPTION |
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A. |
If minor child’s income is clubbed in the hands of parent, then exemption u/s 10(32) of Rs. 1,500 p.a. per child is allowed for a maximum two children. |
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B. |
Once minor’s income is clubbed with one parent, it will continue to be clubbed with that parent only, in subsequent years. AO, may, club the minor’s income with other parent after giving an opportunity to be heard. |
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C. |
Where the marriage of the parents does not subsist, income of the minor will be includible in the income of that parent who maintains the minor child in the relevant P.Y. |
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D. |
Clubbing provisions are attracted even in respect of income of minor married daughter. |
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E. |
Child in relation to an Individual includes a stepchild and an adopted child of that individual. |
If any Individual transfers any assets to his or her spouse without consideration on for inadequate consideration the income from such asset is received by spouse but tax on such income is paid by transferor (Assessee).
NOTES:
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S.NO |
DESCRIPTION |
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A. |
The above provision is applicable only if relationship of husband & wife should exist at the time transfer of asset as well as at the time of generating the income. |
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B. |
This provision is not applicable if asset is transferred in connection with agreement to live apart. |
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C. |
If a house property is transferred by an individual to his spouse or minor child (not being a minor daughter) for without/ inadequate consideration, then such individual is treated as deemed owner as per Section 27 & Section 64 shall not apply. |
If any individual transfers any asset to his/ her son’s wife without consideration or for inadequate consideration, then income from such asset is received by son’s wife but tax on such asset is paid by transferor.
The provision of this section is applicable only if the relationship of mother/ father-in-law & daughter-in-law exists at the time of transfer of asset as well as at the time of generating the income.
If an individual transfers any asset to any person without consideration or for inadequate consideration for the benefit of son’s wife/ spouse, then income from such asset is received by any other person (transferee) but tax on such income is paid by transferor.
Income of spouse is taxable in hands of assessee if the following conditions are satisfied.
(Assessee+ substantial int. remuneration
Relative) Concern spouse
Substantial interest means 20% or more shareholding or profit-sharing ratio in a company/ firm.
Exceptions:
If an individual transfers any income without transfer of asset, then such income is taxable in the hand of the transferor.
In case of revocable transfer, income is received by transferee, but tax is paid by the transferor.
However, if the transfer is revoked after the death of beneficiary or transferee then the above provision is not applicable.
If any individual transfer any asset to his HUF without/ for inadequate consideration, the income from such asset is received by HUF but taxable in hands of transferor (member).
After Partition of HUF, Income from such asset received by spouse shall be clubbed in hands of transferor.
NOTES:
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S.NO |
NOTES |
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1. |
Income includes loss also, so, if there is any loss then also clubbing provision are applicable. |
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2. |
Where an asset transferred into any other form, income derived from such converted asset shall also be clubbed. |
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3. |
Natural love & affection may be a good consideration but it’s not adequate consideration. |
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4. |
If the asset transferred is sold by the transferee the capital gain is also treated as income and shall also be clubbed. |
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5. |
If there are two transactions and they are inter-related and part of same transaction, it shall be considered to be a device for evasion of tax and therefore clubbing provision shall apply.
Example: Mr. X gifted Rs. 12 lakhs to his brother’s wife (Mr’s Y) & his brother gifted Rs. 8 lakhs to Mrs. X (Mr. X’s wife). Gifted amount deposited in Banks @9% on 01/08/2024. Clubbing provision will be applicable only to the extent of income on the matching amount of cross gifts, in above example Rs. 8 lakhs is matching amount proportionately Rs. 48,000 will be clubbed. |
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6. |
Where any asset is transferred by Individual to his spouse/ son’s wife & such amount is invested in business by the transferee the proportionate profit of such business will be clubbed as per the following formula:
Income from business * gifted by assessee/ Capial of business on first day of P.Y
Clubbing provision shall be applicable only if gifted money is included in opening capital. |
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7. |
All the clubbing provisions are not applicable to second generation income i.e. income from accretion of transferred assets. |
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