Understanding Clubbing of Income
Under the Income-tax Act, 1961, income is generally taxed in the hands of the person who earns it.
However, in specific situations, income earned by another person is required to be
included (clubbed) in the income of the taxpayer.
In such cases, tax liability arises on both personal income and the clubbed income.
Key Scenarios Covered Under Clubbing Provisions
Transfer of Income Without Transfer of Asset
If income is transferred without transferring ownership of the asset,
the income continues to be taxed in the hands of the transferor.
Transfer of Assets Without Adequate Consideration
Income from assets transferred to spouse or son’s wife without adequate consideration
is clubbed in the hands of the transferor.
Clubbing of Spouse’s Income
Salary or commission received by spouse from a concern in which the individual has
substantial interest may be clubbed.
Other Important Clubbing Provisions
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Income of Minor Child: Income of a minor child is clubbed with the income of the parent
having higher income, except where income is earned through skill, talent, or disability under Section 80U.
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Revocable Transfer of Assets: Income from assets transferred with retained control
is taxed in the hands of the transferor.
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Clubbing of Losses: Where income is clubbed, losses from the same source are also allowed to be clubbed.
Proper evaluation of clubbing provisions is essential, especially for NRIs, high-net-worth individuals,
and family wealth planning structures, to avoid unexpected tax exposure.