Accounting in case of clubbing

Others 338 views 4 replies

chaitri kharod

115 Points Posted on 11 October 2021

suppose , Mr A has business and he provides salary to his wife as a staff member but actually his wife doesn't have any technical or professional qualifications...salary amount is 20000
now, clubbing provision attracts as per income tax act...
but my question is what is accounting treatment??
in the books of Mr A...

salary account dr 20000
to bank account 20000

in the books of Mrs A...

Bank account dr 20000
to salary income 20000

but this 20000 will be clubbed in the hands of Mr A as per IT act and he will be liable for tax...

above entry and its effect as per IT is correct????

Replies (4)

Giridhar S Karandikar

Team Lead

7558 Points Posted on 11 October 2021

Clubbing provisions are not applicable in this case as there's no transfer of asset by husband to wife. husband is paying salary to wife for adequate considerations so clubbing not applicable.
in this case A will get the deduction of salary paid to his wife.
and in wife's hand the entire salary would be tax free as it's below exemption limit.

chaitri kharod

115 Points Posted on 11 October 2021

Ok....got it...
but if husband transfers asset to his wife otherwise than adequate consideration and wife receives rent income then what is the accounting entries in husband and wife books of account???

Kev Men

790 Points Posted on 11 October 2021

As per Section 64 (1)(ii), since the wife does not possess technical/professional qualifications, clubbing provision will be applicable.

As per Section 40(A)(2)(b), any expenses which the Assessing Officer feels is unreasonable (in present case, since wife does not possess technical/professional qualifications) can be disallowed.

It is advisable to disallow the same under section 40(A)(2)(b) in ITR and 'disclose' the same in Schedule SPI of ITR. This is my humble opinion.