Understanding Clubbing of Income u/s 60-65 of Income Tax Act 1961

Clubbing of income refers to the inclusion of other person’s income in the assessee’s final taxable income, for instance, income earned by the spouse from an organization where the individual has sizable interest then the income from such source is clubbed with the latter’s income. Nevertheless, in case the remuneration is derived out of professional or technical knowledge then the clubbing provisions would not take place.

A person is not allowed to transfer his assets or income which is his source of income to any other individual or simply putting together a person is not allowed to divert his income to another individual. In case the assessee does so, the income which is reported to be earned by another individual is clubbed in the assessee’s taxable income on which he has to pay tax.

Also, any income of either of husband or wife which arises from the asset which is transferred for insufficient consideration by the individual is added to the taxable income of the individual. Nevertheless, such provisions of clubbing will not take effect where the asset has been transferred in connection with the arrangement to live apart. Furthermore, the income from such transferred assets would also be clubbed when such assets are channeled by the individual via some other person or for the deferred or immediate advantage of the spouse.

For instance, Ms. A transfers his bonds carrying 9 percent interest without any adequate consideration to some association of persons, on the condition that the income from the interest would be used for her husband, Mr. A’s benefit . In such case interest income from such bonds shall be clubbed with Ms. A income. Alike provisions are also applicable where income is diverted by a daughter-in-law.

Income which arises to a minor child would be added to the total taxable income of the parents whose taxable income is more than other parent’s income which is subject to Rs. 1,500 deduction for each child. In case the marriage between the parents does not exist, it shall be added to the taxable income of the parent who is maintaining such child. Though, income which is earned by a minor child who is suffering from a specified disability, or involves talent or talent or-or on account of manual work, shall not be clubbed together with the parent’s income.