Clubbing of income

Income transferred to an assesse is clubbed in the hands of transferor assessee who transferred such
income / asset.

Clubbing is a concept where under present system of law in order to evade tax or to escape from
income chargeable to tax, assessees will transfer their income/ assets generating income to their
relatives , friends or trust to avoid payment of tax on such income, provisions of section 60 to 64
have been incorporated to include others income in the income of the assessee is the concept of
clubbing.

Clubbing of income

Transfer of income without Transfer of Asset along with income

transferring assets u/s 60

Person transfers the income

without transferring the assets is
Revocable transfer u/s 61 Irrevocable transfer of assets u/s
taxable in the hands of transferor
62
Mr.X transfers the House
Eg: Mr.X transfers the rental
property to Mr.Y for 7 years Mr.X transfers house property to
income from house property to
and such income from house Mr.Y for lifetime and shall be
Mr.Y for life time without
property for 7 years shall be recovered only after Mr.Y death
transferring the house, taxable in
clubbed in the hands of
the hands of Mr.X Income from house property
Mr.X.
shall be included in the hands of
Mr.Y till his death

After Mr.Y death house property

income shall be included in
hands of Mr.X

Note: As per section 63, The asset transferred is revoked / Re-transferred during the life time of
transferee (Mr.Y) by the transferor (Mr.X); OR

Right to re-transfer is reserved by way of contract or otherwise between parties during

lifetime of transferee

Such income shall be clubbed in the hands of transferor

SAGAR NAGARAJ 1
Clubbing of salary income of spouse in individual income u/s 64(1)(ii)

 Income by way of salary, remuneration or fees earned by the spouse of individual;

 From the entity in which the individual holds substantial interest (Holds 20% or more voting
power);
 In such case, salary income of spouse shall be clubbed in the hands of individual ;

In computing total income of individual (Mr Narayan Murthy), income by way of remuneration or
salary earned by his spouse (Mrs Sudha Narayan Murthy) from entity in which he holds substantial
interest shall be clubbed.

Provided the spouse must not be employed based on his/her professional, Technical qualification
or experience.

Eg: Mr.Z holds substantial interest in Infosys Ltd and his spouse is employed for salary of Rs.
5,00,000 per annum

In the given case Mrs.Z (spouse of Mr.Z) salary income of 5 Lakhs shall be clubbed in the hands of
Mr.Z u/s 64(1)(ii)

In case Mrs.Z is employed as a appointed as M.D with professional experience/ based on Technical
or professional qualification, in such case income of Mrs.Z 5 lakhs will not be clubbed in hands of
Mr.Z.

Income from assets transferred to spouse without adequate consideration u/s 64(1)(iv)

 Individual transfers an asset to his spouse;

 Transfer is for inadequate consideration or without consideration;
 Income arising/generated from such asset (except House Property);
 Clubbed in the hands of individual.

Eg: Mr. Nikhil Kittane transferred his assets (Land) to his spouse Mrs. XYZ for inadequate
consideration, rental income from such Land even after transfer shall be clubbed in the hands of Mr.
Nikhil Kittane.

Note: Income from house property transferred to individual spouse shall not be covered under this
chapter /section because such transfer amounts to deemed owner u/s 27 (of house property
chapter).

Income from assets transferred to sons wife without adequate consideration u/s 64(1)(vi)

 Individual transfers an asset to his sons wife;

 Transfer is for inadequate consideration or without consideration;
 Income arising/generated from such asset (except House Property);
 Clubbed in the hands of individual.

SAGAR NAGARAJ 2
Income of individual to include income of any person or AOP from assets transferred for the
benefit of spouse without adequate consideration u/s 64(1)(vii)

Income of individual to include income of any person or AOP from assets transferred for the
benefit of sons wife without adequate consideration u/s 64(1)(viii)

Income of Minor child u/s 64(1A):

 Income earned by a minor;

 Earned not earned by applying his skill, talent, specialized knowledge and experience;
 Minor child not suffering from any disability u/s 80U;
 Clubbed in the hands of parents (if both are dead then his legal guardian).

Eg: Mr. Varun invested in debenture of BMS ltd worth 3 Lakhs yielding 10% interest per annum, he
invested in the name his son Vishnu

In the given case debenture interest will be earned by Vishnu of Rs 30,000 who is still a minor (not
competent to file return of income and incompetent to contract);

Minor Vishnu’s income will be clubbed with his father Mr.Varun’s income.

Suppose, Mr. Varun is earning: Rs 5,00,000

Minor son’s debenture interest clubbed u/s 64(1A): Rs 30,000

Total income of Mr. Varun: Rs 5,30,000

SAGAR NAGARAJ 3