Tag: clubbing of income

6 things should be kept in mind while clubbing of income

  Income earned on income shall not be clubbed: seems confusing right? Don’t worry, I will make it easy. If Mr. A transfers house to Mrs. A and Mrs. A has rented it and earned income. Mrs. A, further, invests this rent income in FD and receives interest. In this case, rent income shall be clubbed with income of Mr. A but Interest income on FD shall not be clubbed with income of Mr. A as it is income earned on income.   Income on accretion of asset shall not be clubbed: Mr. A transfers shares to Mrs. A, Mrs. A receives dividend income. This income will be clubbed in the hands of Mr. A. Now Mrs. A receives bonus shares for shares held by her. Dividend income on those bonus shares shall not be clubbed with income of Mr. A but shall be taxable in the hands of Mrs. A.     Clubbing provision for interconnected transactions: Some taxpayers are smart and they transfer assets not to relatives but to relatives of friends or third party. In that case also, clubbing provision will apply. Taking one example, Mr.A gifts Rs. 20 lacks to Mrs. P. without consideration and Mr. P gifts Rs. 20 lacks to Mrs. A without consideration. Technically clubbing provision will not apply here but as per judgment of the case of CIT vs Keshavji Morarji...

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Clubbing provision for income of minor child

Q. is clubbing provision applicable for income of children? Ans. Yes, if asset is transferred without adequate consideration to minor child (not minor married daughter) , the income arising from that asset will be clubbed with income of transferor. There is also another provision under section 64(1A). According to this section, income arising to minor child shall be clubbed with income of parent. Q. will income be clubbed with father’s income? Ans. When marriage of parents subsists, Income will be clubbed with the income of parent whose total income, excluding the income to be clubbed, is greater. If marriage of parent does not subsist, income will be clubbed with the parent who maintains the minor child in the previous year. Once income is clubbed, it will not be clubbed with other parent in next year. If assessing officer is satisfied with changing the option, he allows clubbing the income with other parent after giving opportunity to be heard. Q. is there any exemption for clubbing of minor child’s income? Ans. There is exemption up to Rs. 1,500 for each minor child. Q.Is there any exemption available for income of minor married daughter? Ans. No, there is no exemption u/s 64 (1A). Q. Is there any income on which clubbing provision will not apply? Ans. Yes, following incomes will not be clubbed with parent’s income. Activity which requires special skill,...

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Know about clubbing provision of income tax by FAQ

  Q.  Why is there need of clubbing? A. Sometimes to reduce the tax burden the taxpayer transfers the asset to another person. In this case, to protect the interest of revenue, the income derived by that asset will be clubbed in the income of transferor. This is called clubbing of income. Q.Which sections are covering clubbing provision? A.Section 60 to section 65 of income tax act covers the provisions of clubbing. Q.If I transfer the rent without transferring house to my wife, will it be clubbed with my income? A. Yes, According to section 60, When income is transferred without transfer of asset, it is deemed to income of transferor. Q. When I transfer some asset by revocable transfer, will clubbing provision apply for income from that asset? A. Yes, as per section 61, When some person transferred asset to another person which can be revoked (cancelled), any income arising from the asset will be clubbed with the income of transferor. Example: If Raj Kumar transfers his office to his wife by agreement mentioning that the asset can be re transferred any time to Raj Kumar, the income arisen from the rent of office is deemed income of Raj Kumar. Definition of transfer and revocable transfer: Transfer is deemed to be revocable if it contains any provision for the re transfer of the whole or any part of...

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