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Generally an assessee is taxed in respect of his own income. But there are some cases where assessee has to pay tax in respect of income of another person. In the case of individuals, income tax is levied on a slab system on the total income. The tax system is progressive, i.e. as soon as income increases, the applicable rate of tax also increases. Some taxpayers in the higher income bracket have a tendency to divert some portion of their income to their spouse, minor child etc. to minimize tax burden. In order to stop this all tax non-payments, clubbing provisions have been incorporated in income tax act.  In this clubbing method, all income which arises to spouse, minor child etc. have to be added to the income of the assessee.     

Section 60- if any person transfers the income from any assets without transferring the assets, then that income will be deemed to be income of the transferor. It is not relevant if such transfer is revocable or irrevocable.

Section 61- all the income which arises to any person (transferee) from a revocable transfer of asset, is to be included in the income of transferor. The transfer is called as revocable, if it contains any provision for the retransfer of of income directly or indirectly to the transferor. Once transfer is revocable, the entire income from the transferred asset is to be included in the total income of the transferor.

Section 62- if there is a transfer of asset, which is not revocable during the life time of the person to whom income/asset is transferred, then such income not to be clubbed in the hands of transferor. But the transferor should not get direct or indirect benefit from such transfer. Otherwise whole income will be taxable in the hands of transferor.

Section 64 (1)- clubbing of income arising to spouse

All income which arises to spouse directly or indirectly by way of salary, commission etc. by virtue of any employment or otherwise from a concern in which assessee has substantial interest shall be included in assesses total income. But this is not applicable if the spouse if such individual possesses technical or professional qualification and income to spouse is attributed solely to the application of his/her own knowledge or experience. Where both husband and wife have substantial interest in a concern and both are in receipt of salary from the same concern, then then such income will be includible in the total income of that spouse whose total income excluding such income is higher.

If there is a transfer of an asset directly or indirectly from one spouse to another, for inadequate consideration or in connection with an agreement to live separately, any income arising to transferee either directly or indirectly from the asset shall be included in the income of the transferor. But here income arising from transferred assets have to be clubbed. In other words, income earned by investing such income is not to be clubbed. Natural love and affection, care do not constitute adequate consideration. So when income/asset is transferred without adequate consideration, then income from such asset will be included in the hands of the transferor.

Where the assets transferred directly or indirectly, by an assessee to his spouse are invested by spouse in the business, then proportionate income arising from such investing activity is to be clubbed in the income of the transferor.

All income which arises directly or indirectly to any persons or association of persons, from the assets transferred without adequate consideration is includible in the income of the transferor to the extent such income is used by the transferee for the immediate or deferred benefit of the transferors spouse.

Section 64(1A)- clubbing of minors income-

All the income of a minor is to be clubbed in the total income of his parents. However, income earned by minor from manual work or from any activity which includes his own skill, or specialized knowledge or experience will not be clubbed with the income of the minor. The income of the minor will be clubbed in the income of that parents whose total income is more.

Where the income of an individual is included with minor’s income, then he will be entitled to exemption of such income max Rs.1500/- per child. [sec. 10(32)]. But income of any child suffering from any disability of the nature specified u/s 80U shall be assessed in his own hands. These clubbing provisions are applicable even in case of minor married daughter.

Cross Transfers-in the case of cross transfers, the income from the assets transferred would be included in the hands of deemed transferor, if the transfers are so intimately connected as to form part of a single transaction, and each transfers constitute consideration for the other  by being mutual or otherwise. Example-X making gift of Rs. 2 lakhs to the wife of his brother Y and Y making gift to X’s minor son of shares of a foreign company worth Rs.2 lakhs.


Pooja S Chandak

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Category Income Tax, Other Articles by - POOJA CHANDAK