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Clubbing of Income of an Individual with income of Spouse, Minor Child, etc. [Section 64]

1.   Remuneration of Spouse from a Concern in which the Other Spouse has Substantial Interest [Section 64(1)(ii)]:

In computing the total income of an individual, there shall be included all such sums as arise directly or indirectly' to the spouse, of such individual by way of salary, commission, fees or any other form of remuneration, whether in cash or in kind from a concern in which such individual has a substantial interest.

Therefore, any remuneration derived by a spouse from a concern in which the other spouse has a substantial interest, shall be clubbed in the hands of the spouse who has a substantial interest in that concern. Any other income. not specified above, is outside the scope of this section and will not the clubbed even if it accrues to the spouse from a concern in which the individual has a substantial interest.

No Clubbing if Remuneration is due to Technical or Professional Qualifications:

The provisions of this clause shall not apply to any income arising to the spouse:

(a)          on account of technical or professional qualifications possessed by the spouse, and

(b)          the income is solely attributable to the application of his/her technical or professional knowledge or experience.

For example:

Mr. X is a partner in a partnership concern and is entitled to 50% share of the profit of the firm. Mrs. X is employed as the General Manager of the firm and is getting a salary of Rs. 25,000 per month. The taxable salary of Mrs. X will be clubbed with the total income of X under the head 'Income from salaries'. However, if Mrs. X is receiving the salary on account of her technical or professional knowledge or experience, then the salary would not be clubbed.

Where both Husband and Wife have Substantial Interest and both are getting Remuneration from the Concern:

If the husband and wife both have substantial interest in the concern and both are in receipt of remuneration from the concern, then the remuneration of both shall be clubbed in the hands of that spouse whose total income, before including such remuneration, is greater.

In this case, the clubbing will be done for the first time in the previous year in which the following three conditions are satisfied:

(a)          Both the husband and wife have a substantial interest in the concern.

(b)          Both the husband and wife get remuneration from such a concern.

(c)           The relationship of husband and wife subsists at the time of accrual of such income.

Where such income is once included in the hands of either spouse. any such income arising in any succeeding year shall not be included in the total income of other spouse unless the Assessing Officer is satisfied, after giving that spouse an opportunity of being heard, that it is necessary solo do.

Note :

 

Meaning of Substantial Interest :

An individual shall be deemed to have a substantial interest in the concern:

(i)            if the concern is a company: he alone or along with his relatives at any time during the previous year owns beneficially, shares, carrying not less than 20% of the voting power. Thus shares here would mean equity shares.

(ii)           Relative means :  the husband, wife, brother or sister or any lineal ascendant or descendant of the individual.

(iii)          in any other case: if he alone or along with his relatives is entitled to at least 20% of the profits of such concern at any time during the previous year.

 

2.   Clubbing of Income from Assets transferred to the Spouse [Section 64(1)(iv)]:

In computing the total income of an individual, all such income as arises directly or indirectly, subject to the provisions of section 27(1) (i.e. deemed owner), to the spouse of such individual from assets (other than house property) transferred directly or indirectly to the spouse of such individual otherwise than for adequate consideration or in connection with an agreement to live apart shall be included.

As per this provision, if an individual transfers any asset other than house property to his/her spouse, the income from such an asset shall be included in the total income of the transferor.

This provision is not applicable to house property because in that case the transferor is deemed to be the owner of the house property and the annual value of the property is taxed in the hands of the transferor as per section 27.

The income from the transferred assets shall not be clubbed in the following cases:

(i)            if the transfer is for adequate consideration:

(ii)           the transfer is under an agreement to live apart:

(iii)          if the relationship of husband and wife does not exist, either at the time of transfer of such asset or at the time of accrual of the income .

For example,  A makes a gift to his fiancée (would be wife) then the income arising on the amount so gifted, shall not be taxable in the hands of A, even after their marriage as the relationship of husband and wife does not exist at the time of making the gift.

Similarly, if A makes a gift to his wife and later on A divorces his wife, income arising after such event will not be clubbed.

Note :

1.            If any property is acquired by the wife out of an allowance given by her husband for her personal expenses (called pin money). the clubbing provisions shall not apply.

2.            If the asset transferred has changed the shape and identification, then income from such changed asset shall be clubbed For example, if the asset originally gifted were shares, thereafter the spouse sold the shares, and acquired house property which is later on let out., then such income from house property shall be clubbed.

3.   Clubbing of Income from Assets transferred to Son's Wife [Section 64(1)(vi)]:

Any income which arises from assets transferred directly or indirectly by an individual to his son's wife after 1.6.1973, otherwise than for adequate consideration, shall be included in the income of the transferor for calculating taxable income.

Example :

R transfers 1,000  10%  Bonds of Rs. 100 each of IDBI to his son's wife without any consideration. IDBI declares Rs. 10,000 as interest. Although the sum of Rs. 10,000 as interest is received by his son's wife, this amount shall be included in the income of R under the head 'Income from Other Sources' for the purpose of computing his total income.

4.   Clubbing of Income from Assets Transferred to any Person for the benefit of the Spouse of the Transferor [Section 64(1)(vii)]:

Where an individual transfers any assets to any person or association of persons, otherwise than for adequate consideration, the income from such assets shall be included in the income of the transferor to the extent to which the income is for the immediate or deferred benefit of his or her spouse.

In other words, where an asset is transferred to some other person, without adequate consideration for the benefit of the spouse of the individual as well as for some other persons. income on such an asset to the extent of benefit which accrues to the spouse, shall be included in the total income of the individual.

Example :

X transfers a house to his friend V with a direction that 50% of the rental income is to be used for the benefit of his wife Mrs. X and 50% for others, then the rental income to the extent of 50% shall be included in the total income of X.

5.   Clubbing of Income from Assets Transferred to any person for the benefit of Son's Wife [Section 64(1)(viii)]:

Where an individual transfers any assets, after 1st June. 1973 to any person or association of persons, otherwise than for adequate consideration, the income from such assets shall be included in the income of the transferor to the extent to which the income is for the immediate or deferred benefit of his or her son's wife.

6.   Clubbing of Income of a Minor Child [Section 64(1A)]

In computing the total income of an individual, there shall be included all such income as arises or accrues to his minor child. Therefore, the income of a minor child is to be clubbed in the hands of either of his parents.

The income shall be clubbed in the hands of that parent whose total income (excluding the income of the minor) is greater. If the marriage of his parents does not subsist, the income shall be clubbed in the hands of that parent who maintains the minor child in the previous year.

Where any income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.

Where the income of a minor child has been included in the total income of a parent, such parent shall be entitled to an exemption to the extent of such income or Rs. 1,500 whichever is less, in respect of each minor child whose income is so included.

Certain incomes of Minor Child Taxable in the hands of Minor Child only:

The following income of a minor shall not be clubbed and will be taxable in the hands of the minor himself:

(i)            Any income of a minor child suffering from any disability of the nature specified in section 80U like physically disabled, totally blind, etc.

(ii)           Such income which accrues or arises to the minor child on account of any manual work done by him

(iii)          Such income which accrues or arises to the minor child on account of any activity involving application of his skills, talent or specialized knowledge and experience.

7.   Clubbing of Income from Self-acquired Property Converted to Joint Family Property [Section 64(2)]

Where an individual, who is a member of the Hindu Undivided Family,—

(a)           converts, his separate property as the property of the HUF, or

(b)          throws the property into the common stock of the family, or

(c)           otherwise transfers his individual property to the family,

otherwise than for adequate consideration, then the income from such property shall continue to be included in the total income of the individual.

In other words, if self-acquired property of an individual is treated/convened into joint family property without adequate consideration, the income derived by the joint family on account of such property shall be included in the total income of the individual who was the owner of such self-acquired property.

Example :

Mr. X owns a house property from which he derives an income of Rs. 6,00,000 per annum. If, he converts this property as the property of an HUF of which he is a member. Although the income shall henceforth be received by the HUF but it shall be deemed to be the individual income of Mr. X and shall be included in computation of his total income under the head Income from House Property.

 

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