regarding Planning of Tax

This query is : Resolved

jinesh (Querist)
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18 July 2011 Hi,
Dear Sir,

I want to Know about whether Tax is imposed under following Case.

A person is Retired Govt.Employee. He Got 20 Lacs in month of July.2009 and Invested the same in Construction Company( Route From bank) and He got Rs.1 Lac in Cash at the End of March that I have considered in the Return.( He Claimed Less Interest)

Now Construction Co.returned back the amount after 1.4.2010 20 Lacs principal Amount alongwith Rs.66000 as Previous Year's Interest. so this is considered as interest income for this year.

Now He has transferred Rs.20 Lac to his Wife and Daughters in this Way To Wife 8Lacs Both Daughters 6 Lacs to minimise his tax Liability.

all these are Routed through Banks

Interest Amount given By Constrution Co. to all 3 persons By ChequeRs.39000)

My point is that Clubbing Rule is applied or not.
if Clubbing Applied then Whole Interest (39000+39000+39000) Should be considered in Retired Person's Income or not?

Or I can File Separate returns for all of them and Consider in their income and File it Separately without Clubbing.

How i can Calculate Tax For all 4 persons?

Pls Explain That Retired Person has done right thing to transfer to their Wife and Daughter's Account.

What to Do to Save Him form tax.

Regards,
Jinesh

CA MANOJ GUPTA

CA MANOJ GUPTA (Expert)
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19 July 2011 CLUBBING WILL BE MADE ONLY IN RESPECT OF INTT RECD BY WIFE
I ASSUME THAT DAUGHTERS ARE NOT MINOR

CA MANOJ GUPTA
JODHPUR
09828510543

jinesh

jinesh (Querist)
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20 July 2011 Yes Daughters are Major and do i have to file return for Wife if i consider clubbing in Husband's income? and Filing to be done for Daughters because they are receiving interest but There is no dedcution of TDS by Construction Co.? is it advisable to file return of daughters they have only Interest income in their bank account.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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20 July 2025 Great question — this is a classic case involving clubbing provisions under Income Tax in India, specifically related to interest income and transfer of money within family members. Let me break down the key points for you:

1. Basic Facts:
Retired Govt. employee received Rs. 20 Lacs in July 2009.
Invested Rs. 20 Lacs in a Construction Company via bank.
Received Rs. 1 Lakh cash (interest) by March 2010 (considered in return).
Construction Company returned Rs. 20 Lacs principal + Rs. 66,000 interest after April 2010.
Retired person transferred Rs. 8 Lacs to wife and Rs. 6 Lacs each to two daughters (major).
Interest of Rs. 39,000 each received by wife and daughters from Construction Company by cheque.
Query: Whether clubbing applies and how to file returns.
2. Clubbing Provisions Overview:
Section 64(1)(iv) - Clubbing of Income of Spouse:

Income arising from assets transferred to spouse without adequate consideration is clubbed with the transferor’s income.
Exception: Income from asset transferred to spouse for actual consideration or by way of inheritance is not clubbed.
Section 64(1)(ii) - Income of Minor Child:

Income of minor child is clubbed with parent’s income (except income from manual work or from applying his own funds).
3. Application to Your Case:
Since the wife is adult, and amount (Rs. 8 Lacs) is transferred to her, interest income earned by her on this amount (Rs. 39,000) will be clubbed with retired person’s income.
For major daughters (both over 18 years), clubbing does NOT apply. They are separate taxpayers.
4. Tax Filing Implications:
Wife:
Income from interest on Rs. 8 Lacs is clubbed in retired person’s income.
Wife should ideally file return declaring this interest income to avoid notice/double taxation (though it’s clubbed, she received it and TDS may apply).
Alternatively, retired person discloses this income in his return under clubbing and pays tax.
Daughters:
Interest income Rs. 39,000 each is their income.
Since daughters are major, they must file separate tax returns if income exceeds exemption limit.
No clubbing applies for daughters.
5. TDS and Compliance:
Construction company should deduct TDS at 10% on interest payments above Rs. 5,000.
If TDS was not deducted on daughters' interest income, they should file returns and pay tax accordingly.
Daughters can claim credit for TDS (if any) or pay tax and file return.
6. Is Retired Person's Action Valid for Tax Saving?
Partly yes, by transferring money to major daughters, income earned by them is not clubbed, so it reduces his taxable income.
For wife, clubbing rules reduce tax-saving because interest is clubbed back.
The action is effective only to an extent (major daughters’ income not clubbed).
If daughters have little other income, their income tax liability would be minimal due to basic exemption.

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