There are certain situations where you are liable to pay taxes for someone else’s income as well. This is called clubbing of income. It takes place in the following cases:
Transfer of income without transfer of Asset
If any person transfers income without transferring the ownership of the asset, such income will be taxable in the hands of the transferor. Ex. X owns 5000, 14% debentures of A ltd. of Rs. 100 each , he transfers interest income to his friend Y without transferring the ownership of Debentures . In this case although interest will be received by Y but it is taxable in the hands of X.
Revocable transfer of Asset
If any person transfers any asset to any other person in such form and condition that such transfer is revocable at any time during the lifetime of the transferee, the income earned through such asset is chargeable to tax as the income of the transferor. For ex. X transfers a house property to A. However, X has right to revoke the transfer during the life time of A. It is a revocable transfer and income arising from the house property is taxable in the hands of X.
Remuneration to Spouse
An individual is chargeable to tax in respect of any remuneration received by the spouse from a concern in which the individual has *substantial interest. This provision has an exception. If the remuneration is received by spouse by the application of technical or professional knowledge or experience clubbing provisions will not take place. For example, X has substantial interest in A ltd. and Mrs. X is employed by A ltd. without any technical or professional qualification. In this case salary income of Mrs. X shall be taxable in the hands of X.
Income from assets transferred to spouse
Where an asset is transferred by an individual to his spouse directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset is deemed to be the income of the transferor. For example, Mr. X transfer’s 100 debentures of IFCI to his wife without adequate consideration. Interest income on these debentures will be included in the income of Mr. X.
Income from asset transferred to son’s wife
If an individual, directly or indirectly transfers asset, without adequate consideration to son’s wife, income arising from such asset is included in the income of the transferor. For example, Mr. X transfer’s 100 debentures of IFCI to his son’s wife without adequate consideration, Interest income on these debentures will be included in the income of Mr.X.
Income from asset transfer to a person for the benefit of spouse/ son’s wife
If an individual, directly or indirectly transfers asset, without adequate consideration to a person or an association of persons for the benefit of his/her spouse /son’s wife, income arising from such asset directly or indirectly is included in the income of the transferor. For example, X transfers Government bonds without consideration to an association of persons, subject to the condition that, the interest income from these bonds will be utilized for the benefit of Mrs. X or Mrs. X son’s wife. Interest from bonds will be included in the income of X.
Income of a minor child
All income which arises to the minor shall be clubbed in the income of his parents. Income will be included in the income of that parent whose total income is greater. This case has two exceptions. (1) Income of minor child suffering from specified disability. (2) Income of minor child on account of manual work or involving application of his skill/talent etc.
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Written by Sridhar Nag
Income Tax calculator