Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Clubbing of Income (Section (60 to 65))
Clubbing of Income (Section (60 to 65)) | Fast Track Quick Revision Income Tax - Taxation PDF Download
| Section 60 |
| Transfer of income without transfer of assets: Clubbed in the hands of transferrer. |
| Section 64(1)(ii), (iv) & (vii). Clubbing provisions relating to Spouse | ||||||
| S 64(1)(ii) Remuneration to Spouse |
Condition : Remuneration received by spouse shall be clubbed in the hands of that individual who has substantial interest in a concern. If both husband and wife is having substantial interest in a concern then remuneration shall be clubbed in the hands of that spouse whose total income excluding the remuneration to be clubbed is greater. |
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| No clubbing: If spouse possess knowledge or experience and remuneration is attributable to such knowledge or experience then remuneration is not clubbed. | ||||||
| Substantial Interest : A person has substantial interest if he along with relatives holds atleast 20% voting power or 20% Profits in a concern | ||||||
| S 2(41). Relative : Lineal ascendant & Descendant |
Spouse/ Brother /Sister | Lineal ascendant --> |
Father Mother Grand father Grand mother |
Lineal descendant --> |
Son Daughter Grand son Grand daughter |
|
| S 64(1)(iv) Asset transferred to spouse |
Condition 1. Asset transferred by individual to his or her spouse, 2. without adequate consideration 3. then income arising to spouse from the transferred asset shall be clubbed in the hands of transferrer. |
Applicable : Clubbing provision shall be applicable only when marriage subsist both at the time of transfer of asset & at the time when income arises. Exception : Where the asset is transferred |
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| S 64(1) (vii) Asset transferred to for the benefit of spouse |
Condition 1. Asset transferred by individual to any person or AOP, 2. without adequate consideration 3. then income arising to spouse from the transferred asset shall be clubbed in the hands of transferrer to the extent benefit arises to spouse. |
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| Section 64(1)(vi) & (viii). Clubbing provisions relating to Son’s Wife | |||
| S 64(1) (vi) Asset transferred to son’s wife. |
Condition 1. Asset transferred by individual to his or her son’s wife, 2. without adequate consideration 3. then income arising to son’s wife from the transferred asset shall be clubbed in the hands of transferrer. |
Applicable if : | |
| Father in Law & | Daughter in Law | ||
| Mother in Law & | Daughter in Law | ||
| relationship subsists both at the time of transfer of asset & at the time of accrual of income. | |||
| S 64(1) (viii) Asset transferred to for the benefit of son’s wife |
Condition 1. Asset transferred by individual to person or AOP, 2. without adequate consideration 3. then income arising to son’s wife from the transferred asset shall be clubbed in the hands of transferrer to the extent benefit arises to son’s wife. |
A transfers asset to Mrs. A. Mrs A transfer same asset to her son’s wife. The income arising to son’s wife shall be clubbed ? |
|
| Genuine Transfer |
Fraud Transfer |
||
| Mrs. A | Ms. A | ||
| Section 64(1A). Clubbing provisions relating to minor child | |||
| All income accruing to minor child shall be clubbed in the hands of that parent whose total income excluding the income of the minor child is greater. |
Exception : 1. Where the marriage of the parent do not subsist, the income of the minor child shall be clubbed in the hands of that parent who maintains the minor child in the relevant PY. 2. If once the income is included in the hands of father or mother it shall be be continued to be clubbed in the same hands unless AO do otherwise. |
S 1 0 ( 3 2 ) . Exemption upto RS. 1,500 per child exemption to that parent in whose hands income is clubbed |
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| No clubbing from the date minor childattains majority. | |||
| No clubbing if | 1. | Minor child is suffering from any disability specified u/s 80U. All income shall not be clubbed. |
The income earned by minor child shall be taxable in their hands only. ROI shall be in their name and signed by guardian. |
| 2. | Minor child has earned any income from his own skill or talent. Only income earned through talent shall not be clubbed remaining income shall be clubbed. |
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| Other Points. | |||
| Spouse / Son’s Wife | Minor Child | ||
| 1. | Income from transferred asset is to be clubbed. |
Correct | Correct |
| 2. | Income from income cannot be clubbed | Correct | Wrong |
| 3. | Income from accretion of asset cannot be clubbed. |
Correct | Wrong |
| 4. | All income is clubbed | No only income from the transferred asset is clubbed |
Yes all income is clubbed |
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FAQs on Clubbing of Income (Section (60 to 65)) - Fast Track Quick Revision Income Tax - Taxation
| 1. What is clubbing of income under Section 60 to 65 of taxation? |  |
Ans. Clubbing of income refers to the inclusion of income earned by a taxpayer in the tax return of another person. Sections 60 to 65 of the Income Tax Act outline the provisions for clubbing of income in certain situations, where income is transferred to another person with the intention of avoiding tax liability.
| 2. When does clubbing of income occur? | |
Ans. Clubbing of income occurs when a taxpayer transfers their income to another person, such as a spouse, minor child, or any other specified relative, with the intention of reducing their own tax liability. The transferred income is then added to the transferee's income and taxed accordingly.
| 3. Are there any exceptions to the clubbing of income rule? | |
Ans. Yes, there are some exceptions to the clubbing of income rule. For example, if a spouse receives income from a genuine business or profession, it will not be clubbed with the transferor's income. Similarly, if a minor child earns income from manual work or any activity involving application of skill, knowledge, or experience, it will not be clubbed.
| 4. Can clubbing of income be avoided legally? | |
Ans. Yes, clubbing of income can be avoided legally by ensuring that the transfer of income is not done with the intention of tax avoidance. It is important to establish that the transfer is genuine and not a sham transaction. Additionally, taking advantage of the exceptions and provisions provided in the Income Tax Act can help minimize the scope of clubbing of income.
| 5. What are the consequences of clubbing of income? | |
Ans. The consequences of clubbing of income include the transferred income being added to the transferee's income and taxed at their applicable income tax rates. This may result in higher tax liability for the transferee. Additionally, penalties and interest charges may be imposed if the clubbing of income is found to be a deliberate attempt to evade taxes.
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Nov 16, 2024 Last updated |
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