Learn About Clubbing of Income, Under Income Tax Act 1961

Incomes of Other Persons to Be Included in The Total Income of An Individual:

The following are the incomes that need to be included in the total Income of an Individual under Section 60 to section 64 of the Income Tax Act, 1961.

•          The income from the transfer of assets in case there is no transfer [Section 60]

•          Revocable Asset transfer [Section 61]

•          In case the transfer is irrevocable for a certain period [Section 62]

•          In case of revocable transfer [Section 63]

•          Individual income including incomes of a minor child, spouse, etc. [Section 64]

•          Clubbing of minor child's income [Section 64(1A)]

•          Income generated from the self-acquired property that is converted into a joint family [Section 64(2)]

According to the provisions under sections 60 to 64 of the Income-tax Act, 1961, the below-mentioned cases are incomes even if they accruing to persons but for the prevention of tax evasions that are included in the total income of individual assesses.

[Section 60] of Income Tax Act: Transfer of income where there is no transfer of assets:

In case of transfer of an income by a person to another, without transferring the asset from which income arises, this income includes in the transferor’s total income, in case the transfer is revocable or not revocable and if the transfer is impacted prior or after the commencement of the Income Tax Act, 1961.

[Section 60 to 64] Incomes of Other Persons to Be Included in The Total Income of An Individual:

The aforesaid concept can be better analyzed and explained with the help of an example. For example, Mr. Singh is the owner of a house that is fetching a rent of Rs.10,000 per month and declares that the rent belongs to his relative Mr. Kapoor, but the house remains the property of Mr. Singh. In such case, the transfer of income without transferring the asset, the rental income will be included in Mr. Singh's total income for calculation of total income.

Revocable Transfer of Assets:

When the transfer is revocable for an asset from one person to another, the income derived from the transfer of asset will be included in the transferor's total income. If the transfer is not revocable for a certain period under Section 62 and Section 61 will not be applicable in such case.

According to Section 62(1), the provisions of revocable transfer are applicable for transfer by way of trust. The transfer is irrevocable during the beneficiary's lifetime. While in the case of other transfers, it is not revocable during the transferee's lifetime, provided the following conditions are fulfilled.

When The Transfer Is Made Prior to 1.4.1961, The Transfer Is Irrevocable For A Period of More Than 6 Years:

In the aforesaid cases, the income will be taxable in the transferee's hand.

These exceptions will be applied given that the transferor derived no indirect or direct advantage from any such income.

When a Transfer Is Revocable:

According to section 63 of the Income Tax Act, 1961, a transfer in respect of sections 60,61 and 62 will be deemed to be revocable only if;

Any provisions that contain the details of re-transfer that may be directly or indirectly of the whole or part of income or assets to the transferor during the beneficiary's lifetime.

OR

It provides the right to the transferor to reconsider authority directly or indirectly over the whole or part of assets or income during the beneficiary's lifetime or the transferee.

Income of An Individual to Club Income of Spouse, Minor Child:

Remuneration received from spouse concerning the other spouse having substantial interest under [Section 64(1)(ii)]. While calculating the individual's total income, there will be the inclusion of sums that are arisen directly or indirectly to the spouse in the way of salary, fees, commission, or any other remuneration form, whether it may be received in cash or kind concerning the individuals having substantial interest.

Hence, any remuneration that is derived by the spouse concerning another spouse will have a substantial interest and the same will be clubbed in the spouse's hand having substantial interest in that regard.

Any other income which is not specified in the aforesaid section is not under the scope of the section and that cannot be clubbed although it accrues to the spouse concerning the individual's substantial interest.

Where Both Wives, As well As The Husband, Have A Substantial Interest in Getting Compensation from The Concern:

In case both husband and wife have a substantial interest in the concern, and both are concerned with the receipt of remuneration, the remuneration of both will be clubbed in the hands of the spouse whose total income includes greater remuneration.

Income from Assets Transferred to The Spouse:

Under [Section 64(1)(iv)] of the Income Tax Act, 1961, In the calculation of the total income of an individual, all the incomes that are related directly or indirectly are subject to the guidelines under section 27(i) i.e., deemed owner to the spouse of individual assets transferred indirectly or directly to the spouse else for adequate consideration connected with the agreement.

Income from Assets Transferred to Any Person for The Profit of The Spouse of the Transferor:

According to [Section 64(1)(vii)] of Income Tax Act, 1961, in case of. In case of individual transfers of assets after 1st June 1973 to another person or association of person, where there is adequate consideration that the income from such assets will be added to the transferor's income to an extent that the income immediately benefits his/her spouse.

In other words, in case the asset is transferred to any other person without any such required consideration related to benefit of the individual's spouse and for some other persons, the income generated from such asset to the extent of advantage that accrues to the spouse will be added in the total income of the individual.

Income from Assets Transferred to Any Person for The Benefit of The Son's Wife:

Under [Section 64(1)(viii)] of the Income-tax Act, 1961 provides the details regarding the aforesaid aspect. In case of individual transfers of assets after 1st June 1973 to another person or association of person, where there is adequate consideration that the income from such assets will be added to the transferor's income to an extent that the income immediately benefits his/her son's wife.

Clubbing of Income of A Minor Child:

Section 64(1A) of the Income Tax Act, 1961 provides the details regarding the clubbing of a minor child's income in the total income of an individual. While calculating the total income of an individual, all incomes that accrue to his minor child must be clubbed. Thus, the minor child's income will be clubbed by either of his parents whether it may be the father or mother of the child.

It is to be noted that the minor child's income will be clubbed to any of the parents whose total income is higher.  In case, the parent's marriage does not exist, the income of the minor child will be clubbed against the income of the parent who is taking custody of the child during the previous year.

It is also to be noted that any income once added to the total income of any of the parents arising in any succeeding year will not be added to the total income of the other parent, until and unless satisfied by the Assessing Officer. However, the parent is providing a chance to be heard if it is felt necessary to do.

When a minor child's income is clubbed with the income of either of the parents, such parent will be eligible to get an exemption to the extent of the child's income or Rs.1,500 whichever is less, about the minor child that has been included.

Income from Personal Property Converted to Joint Family Property:

Under Section 64(2) of the Income Tax Act, 1961, the incomes of self-acquired property that are converted into the joint family property will be clubbed to the total income of the Individual provide the below mentioned are fulfilled.

In case the individual is a member of the Hindu Undivided Family.

•          He has converted his property as a property of the Hindu Undivided Family

•          He has thrown the property as the family's common stock

•          He has transferred his property to whole family members

Otherwise, compared to the adequate consideration, the income derived from such property will be included in the individual's total income. In simple words, when the self-acquired of an individual is converted to a joint family property without any such specified consideration, the income generated by the joint family in respect of that specified property will be included in the individual's total income, owner of the self-acquired property.