Clubbing of income

(Sec 60- 65 of the Income Tax Act)

Introduction• Generally only assessee’s

income is charged to tax.• To lighten their tax burden,

transfer huge portions of their taxable income.

• Sec 60 - 65 enacted• Provisions apply to income

as well as loss

TAX

Income arising from asset not transferred or from revocable

transfer of asset

Section 60:

• Transfer of income without transfer of

asset is deemed to be the income of the

transferor

• Does not matter if such transfer is

revocable or irrevocable

Section 61: Income

arising out of revocable transfer of assets is

taxed in the hands of the

transferor

Section 62:• Provisions of Sec 61 do not apply:a) Transfer by way of trust – not

revocable during the lifetime of transferee

b) Transfer was made before 1.4.61 – not revocable for a period exceeding 6 yrs.

Section 63:Definitions :

•Transfer•Revocable transfer

Section 64: Income arising to spouse, son’s

wife, minor child and HUF to be clubbed

• Sec 64(1) —spouse and son’s wifeAny remuneration in cash or kind from a concern in which the assessee has substantial interestAsset transferred to spouse/son’s wife without considerationTransfer without consideration for immediate/future benefit of spouse/son’s wife

Club bing

Income got from transferred income that is invested in a business by spouse/son’s wife is still transferor’s income.

If there is accretion to the asset, any income or such accretion shall not be clubbed.

When transferred asset is converted to another form, income derived from such conversion shall be clubbed.

Sec 64(1A): Income of minor child :

Income of minor child clubbed with assesseeExceptions:

Manual work done by him or Activity involving application of his skill, talent or specialized knowledge or experienceIncome of minor child suffering disability specified in Sec 80However income earned on investment made out of the not clubbed income of the minor child has to be clubbed

Income is clubbed with that of the parent whose income is higherExemption given up to Rs.1500 per child or the clubbed income whichever is lower.

Child includes step child and an adopted child of the assessee and minor married/unmarried daughter

If minor child earns only agricultural income it is not clubbed with the parent’s total income for rate purposes

If minor child earns agricultural/non agricultural income then his income shall be aggregated to determine tax rate applicable to the minor.

Section 64(2): Income of HUF :

When a member converts/transfers self acquired property without consideration into the HUF property, it is taxed as income of the transferor member

If converted property is partitioned among members of the HUF the income derived from it and received by the spouse of the transferor will be taxed in the hands of the transferor .

Section 65:• Levy and collection of tax • The person in whose name

the asset stands shall be liable to pay tax if the assessing officer demands.

• When an asset is held by more than one person, each of them will be held jointly and severally liable to pay tax on the income derived from such asset.