Clubbing Provisions in Income Tax and their Exception
There are provisions in the Income Tax Act where income of one person is clubbed in the hands of other, refer sections 60 to 64. The various circumstances are where income of individual Includes other incomes:
- There is transfer of income without Transfer of Asset or by Revocable Transfer of Asset the corresponding income is clubbed in hands of individuals.
- Income of individual includes income of Spouse from a concern in which individual has substantial interest.
- Income of individual includes income of Spouse from assets transferred to spouse without adequate consideration.
- Income of individual includes income of Son’s Wife from assets transferred to her without adequate consideration.
- Income of individual includes income of any person or AOP to which assets are transferred for the benefit of Spouse/ Son’s Wife.
- Income of Minor Child
- Converting the property of individual into the property of HUF.
- Voluntary Diversion of income by the assessee shall be included in the income of person who diverted the same.
Exceptions to the above provisions
- No clubbing provision will be applied if there is irrevocable transfer of asset, however the exception says that Income shall be clubbed in the hands of transferor as and when the power to revoke arises, actual revocation is immaterial. The right to revoke may arise on death of beneficiary.
- In case of clubbing of Spouse’s income from a concern in which individual has substantial interest the provision will not be applied in case the spouse possesses technical or professional qualification.
- Income of minor child will not be clubbed if
- he/she is suffering from disability specified under section 80U.
- If the income earned by minor is on account of manual work or activity involving application of skill, talent, specialised knowledge and experience.
- In case of minor no clubbing of income if both mother and father are deceased. In such case minor child shall file return through the legal guardian.
- Diversion of Income by overriding Title is not clubbed because of the legal obligation of the same.
NOTE: The liability to pay tax is with the transferee in respect of clubbed income, Section 65.