Section 64 - Clubbing of Income under the Income Tax Act

MEANING

Clubbing of Income as the term suggests, means adding the income of another person to the income of the person who is paying the tax. This term is explained under Section 64 of the Income Tax Act. Though, there are certain restrictions to a specified person and to the specified scenarios which are mandatory to discouraging the practice.

SPECIFIED PERSON

Income of every person or any person cannot be clubbed in the income for calculating the total income of the person who is paying the tax and also to be noted not all income can be clubbed in the income. Section 64 has specified about the person and specified about the income which can be clubbed to calculate the total income of any person who is paying tax.

SPECIFIED SCENARIO

Section 60

As per this section, if any person is transferring income without actually transferring asset by way of an agreement or by any other way then, the income of such asset can be clubbed in the hands of transferor.

Section 61

As per this section, if any person is transferring asset on the condition that it will be revoked then, if there is any income it will be clubbed in the hands of transferor.

Section 64(1)

As per this section, if any minor child is receiving income and it also includes the minor child, step child and even if there is adopted child. The provision of clubbing is also applied to minor married daughter. The income will be clubbed in the hands of the parent who has higher income.

IMPORTANT NOTE

• If child's parents are not together then the income will be clubbed in the hands of the parents who is maintaining the minor child in previous year.
• If there is clubbing of income of minor's child then there will be exemption of Rs 1,500 which is applicable to parent.
• There is an exception for clubbing of income of disabled child which is specified in Section 80U.
• Income shall be earned by minor child from the work which requires the special skill of child and talent or any specialized knowledge and experience.
• Income which is earned by major child. This includes the amount which is earned from the investments made by parents as a gift to major child. This amount of gift is exempted from gift under the gift received from relative.

Section 64(1)(ii)

As per this section, if your spouse is receiving any remuneration irrespective of its nomenclature like salary, fees, commission etc. by any mode which is in cash or in kind from any organization in which you have substantial interest then, income will be clubbed in the hands of taxpayer whose income is higher.

Section 64(1)(iv)

As per this section, if your spouse is transferring directly or indirectly any asset to the spouse by the assessee for inadequate consideration then, income will be clubbed in the hands of the transferor. Point to be noted is the asset shall be other than house property.

Section 64(1)(vi)

As per this section, if you transfers the asset directly or indirectly to your daughter in law for inadequate consideration the, income will be clubbed in the hands of the transferor.

Authored by Adv Shivam Kumar