Clubbing of income

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 March 2013 commision income of spouse earned from a firm has to be clubbed in hands of partner ..which head of income does it fall under? ?( Ideally it shd come under business /profession) but in the solution of the institute it is given under i.f.o.s)plz expl

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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05 March 2013 Yes, it comes under Income from Other sources. Any income which shall be clubbing with the assessee income shall be income from other sources. I.e adding of income for the purpose of income tax due to the applicability of clubbing provision such income should be income from other sources irrespective of nature/type or sources of or way of income earned.

OM SAI SRI SAI JAI JAI SAI

CA Suraj Lakhotia

CA Suraj Lakhotia (Expert)
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05 March 2013
The clubbed income retains the same head under which it is earned.

If business income is to be clubbed, it will be clubbed under business head.

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Querist : Anonymous

Querist : Anonymous (Querist)

05 March 2013 contradictory replies..please clarify

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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19 July 2024 The issue you're referring to involves the taxation of commission income earned by one spouse from a firm and whether it should be clubbed with the income of the other spouse. Let's break down the key points:

1. **Clubbing Provisions**: In tax law, clubbing provisions are used to prevent tax evasion by shifting income between family members, especially spouses. The Income Tax Act in many countries has provisions that require certain types of income to be clubbed with the income of the spouse who earns more or who is subject to higher tax rates.

2. **Nature of Commission Income**: Commission income earned by a spouse is typically considered income from their profession or business. It reflects their individual effort or contribution to the firm's activities.

3. **Classification of Income**: According to the Income Tax Act, income is classified under different heads such as:
- **Income from Salaries**: Income received from an employer for services rendered.
- **Income from House Property**: Rental income from owned property.
- **Profits and Gains of Business or Profession**: Income earned from business activities, including professional services.
- **Capital Gains**: Income from the sale of capital assets.
- **Income from Other Sources**: Income not classified under the above heads.

4. **Clubbing under Income from Other Sources (I.F.O.S)**: The confusion arises because sometimes commission income of one spouse is clubbed with the other spouse's income under "Income from Other Sources." This is typically done under specific circumstances where the commission income is seen as indirectly benefiting the other spouse or where it's not directly attributable to the individual efforts of the earning spouse. The intention is to prevent tax avoidance through income splitting.

5. **Institute's Solution**: The institute you mentioned might have classified commission income under "Income from Other Sources" for clubbing purposes based on specific interpretations or scenarios provided in the tax laws or guidelines. This could be due to the nature of the commission arrangement or the relationship between the spouses and the firm.

6. **Business/Profession vs. I.F.O.S**: While commission income ideally falls under "Profits and Gains of Business or Profession" when it's directly earned through personal effort in a business or professional capacity, clubbing provisions can override this classification for tax purposes.

In conclusion, the classification of commission income under "Income from Other Sources" for clubbing with the spouse's income is based on specific provisions in the tax law. It aims to ensure that income is taxed appropriately and prevents taxpayers from manipulating their tax liability by splitting income between family members.