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(Sec 60- 65 of the Income Tax Act)
• Generally only assessee’s income is charged to tax. • To lighten their tax burden, transfer huge portions of their taxable income. • Sec 60 - 65 enacted • Provisions apply to income as well as loss
Income arising from asset not transferred or from revocable transfer of asset
• Transfer of income without transfer of asset is deemed to be the income of the transferor • Does not matter if such transfer is revocable or irrevocable
Income arising out of revocable transfer of assets is taxed in the hands of the transferor
• Provisions of Sec 61 do not apply: a) Transfer by way of trust – not revocable during the lifetime of transferee b) Transfer was made before 1.4.61 – not revocable for a period exceeding 6 yrs.
Section 63: : Definitions
•Transfer •Revocable transfer
Income arising to spouse, son’s wife, minor child and HUF to be clubbed • Sec 64(1) —spouse and son’s wife Any remuneration in cash or kind from a concern in which the assessee has substantial interest Asset transferred to spouse/son’s wife without consideration Transfer without consideration for immediate/future benefit of spouse/son’s wife
Income got from transferred income that is invested in a business by spouse/son’s wife is still transferor’s income. If there is accretion to the asset, any income or such accretion shall not be clubbed. When transferred asset is converted to another form, income derived from such conversion shall be clubbed.
Income of minor child : Income of minor child clubbed with assessee Exceptions: Manual work done by him or Activity involving application of his skill, talent or specialized knowledge or experience Income of minor child suffering disability specified in Sec 80 However income earned on investment made out of the not clubbed income of the minor child has to be clubbed Income is clubbed with that of the parent whose income is higher Exemption given up to Rs.1500 per child or the clubbed income whichever is lower.
Child includes step child and an adopted child of the assessee and minor married/unmarried daughter If minor child earns only agricultural income it is not clubbed with the parent’s total income for rate purposes If minor child earns agricultural/non agricultural income then his income shall be aggregated to determine tax rate applicable to the minor.
Income of HUF : When a member converts/transfers self acquired property without consideration into the HUF property, it is taxed as income of the transferor member If converted property is partitioned among members of the HUF the income derived from it and received by the spouse of the transferor will be taxed in the hands of the transferor .
• Levy and collection of tax • The person in whose name the asset stands shall be liable to pay tax if the assessing officer demands. • When an asset is held by more than one person, each of them will be held jointly and severally liable to pay tax on the income derived from such asset.