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When Is The Income Of Wife Liable To Be Clubbed With The Income Of Her Husband, And Vice Versa ? in case of NRI

[How an NRI can Avoid Clubbing of his Incomes and Wealth with that of his Spouse and Children]

Under the provisions of Section 64(1) of the Income Tax Act there are various situations under which the income of a wife is not considered for tax purposes in her own hand but is liable to be clubbed or added with the income of her husband. In certain situations the income of the husband could be clubbed with the income of the wife under the provisions of Section 64(1). Hence, a non-resident should adopt proper tax planning with a view to avoiding such clubbing of income. For doing so, it is necessary to understand the relevant provisions of Section 64(1) as given below so that such clubbing can be avoided altogether by non-resident Indians.

(a) Under the provision of Section 64(l)(iii) the salary, commission, fees or other forms of remuneration, whether in cash or in kind, received by the wife of a non-resident Indian from a concern in which the non-resident Indian has a substantial interest would be liable to be added to the income of the non-resident Indian. However, this provision would not apply if the wife possesses technical or professional qualifications and the income is solely attributable to the application of her technical or professional knowledge and experience. In the case of a company, if equity share carrying 20% or more of voting power at any time during the previous year are owned beneficially by the non-resident Indian or by him along with one or more of his relatives, the non-resident Indian would be deemed to have a substantial interest in the company. In any other case, like an association of persons or a partnership firm, non-resident Indian would be considered to have a substantial interest in the concern if he, along with one or more of his relatives, is entitled in the aggregate at any time during the previous year to 20% or more of the profits of such a concern. Hence, whenever a non-resident and his relatives are substantially interested in a concern, he should avoid paying any remuneration to his wife, unless the wife is technically or professionally qualified. If this precaution is not taken, then the remuneration so paid to the wife would be added to the income of the non-resident. This is equally applicable in the case of the wife where she is substantially interested in the concern and pays some remuneration to her husband who is not technically or professionally qualified.

(b) Under the provisions of Section 64(1)(iv) if a husband makes any gift to his wife, the income from such gift would be liable to be added his income. Similarly, in the case of wife. Where, however, a transfer of money or funds or assets takes place from the husband to the wife or vice versa for an adequate consideration, this provision would not apply. Another situation in which this provision is not applicable is where the transfer of assets or gifts is made in connection with an agreement to live apart. Hence, a nonresident should never make any gift to his wife so that he can avoid the clubbing of income from gifted assets in his own hands. If, however, the gift is made by a husband to his wife before marriage, then this provision would not apply.

(c) Another provision in the matter of clubbing of income of the husband and wife is Section 64(l)(vii) under which a gift made to any other person or to the trustees of a trust for the benefit of the spouse of a non-resident Indian would be liable to be clubbed in the hands of the donor spouse. Hence, a non-resident Indian should not only refrain from making a gift directly to his wife but should also not make any gift indirectly in favour of the trustees f a trust for the benefit of his wife, so that the clubbing of income arising to the wife out of assets so gifted by the husband to the wife is avoided. This provision is equally applicable in the case of a gift by the wife to a trust for the benefit of the husband.

How an NRI can Avoid Clubbing of his Incomes and Wealth with that of his Spouse and Children !
1. Income From Joint Accounts Or Joint Investments by NRI : Is it Liable To Be Clubbed For Tax Purposes in case of NRI ?
2. When is the income of wife liable to be clubbed with the income of her husband, and vice versa ? in case of NRI
3. When is the income of a Minor Child liable to be Clubbed with that of a Parent in case of NRI ?
4. When is the Income of Daughter-In-Law Liable to be Clubbed with that of her Father-In-Law or Mother- In-Law in case of NRI ?
5. Income of a Major Child cannot be Clubbed with that of his Parent in case of NRI
6. When is the Income Of An HUF From Self-Converted Assets Liable To Be Clubbed In The Members’ Hands in case of NRI ?
7. When is income from Assets Received on Partial Partition of an HUF liable to be Clubbed with the Income of the HUF in case of NRI ?
8. Joint Ownership Of House Property: Does It Make The Income Of A Husband, Wife, And Children Liable To Be Clubbed Together in case of NRI?
9.  How To Avoid Clubbing Of The Wife’s Wealth With That Of The Husband’s In Case Of NRI
10. Gift From Non-Relatives Now Taxed As Income In Case Of NRI

More... Topics !..


Tax Guide for NRI - Tax Planning, Tax Saving, Investment Guidance for Non-Resident Indians !

1. Basic Aspects Of Tax Planning For NRIs
2. How an NRI can Avoid Clubbing of his Incomes and Wealth with that of his Spouse and Children
3. The Incomes of an NRI completely Exempt from Income Tax
4. Capital Gain of an NRI could be Completely Exempt from Income Tax
5. Items completely Exempt from Wealth Tax for an NRI
6. Special Procedure of Assessment regarding Income of an NRI from Foreign Exchange Assets
7. Deductions Allowed to NRIs in the Computation of Total Income and Tax Payable
8. Procedure for the Filing of Income Tax and Wealth Tax Returns, Assessment, and Refunds
9. Gifts by NRIs to Relatives and Friends can be made fully Exempt from Gift Tax
10. FEMA and NRIs Preliminary Aspects Analysed
11. Acquisition and Transfer of Immovable Property in India by NRIs and FEMA
12. Permissible and Prohibited Current Account Transactions in Case of NRI
13. Investment In Shares, Securities, Units And Other Activities, etc. by an NRI in India
14. Deposits in India by an NRI
15. RFC account of a Returning NRI and Investment Abroad
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