1. Basic Principle of Assessment
Clubbed income is assessed in the hands of the transferor (not the transferee) under the same head of income as it would have been taxed if received by the transferee. The transferor must include this income in their total income for tax computation.
2. Step-by-Step Assessment Process
- Identify Clubbing Provision Applicable
- Determine which section (60-65) applies to the transfer
- Common cases:
- Spouse’s income (Sec 64(1)(ii))
- Minor child’s income (Sec 64(1A))
- Daughter-in-law’s income (Sec 64(1)(viii))
- Determine the Head of Income
- Retains original nature:
- House Property → Rental income
- Capital Gains → Profit from asset sale
- Other Sources → Interest, dividends
- Calculate Taxable Amount
- For minors: Deduct ₹1,500 exemption per child (max 2 children)
- Apply applicable deductions (e.g., standard deduction for house property)
- Include in Transferor’s Total Income
- Add to relevant schedule in ITR:
- Schedule HP for house property
- Schedule CG for capital gains
- Schedule OS for other sources
3. Special Considerations
✔ Double Taxation Avoidance
- Once taxed in transferor’s hands, transferee cannotbe taxed on same income (Sec 65)
✔ Return Filing Requirements
- Transferor: Must disclose clubbed income under “Income of others included in total income”
- Transferee: Should report with remark “Income clubbed in [Name]’s return”
✔ Documentation
- Maintain gift deeds/transfer agreements
- Preserve evidence of income source
4. Practical Examples
| SCENARIO | HEAD OF INCOME | ASSESSMENT |
| Rental income from property gifted to spouse | House Property | Taxable in transferor’s hands under HP |
| FD interest earned by minor child | Other Sources | Taxable in parent’s hands after ₹1,500 exemption |
| Capital gains from shares transferred to son’s wife | Capital Gains | Taxable in transferor’s hands under CG |
5. Consequences of Non-Compliance
⚠ For Transferor
- Penalty for concealment (50-200% of tax avoided)
- Interest u/s 234A/B/C for late payment
⚠ For Transferee
- May face tax demand if transferor defaults
- Need to prove income was properly clubbed
6. Best Practices
- For Transferors
- File revised return if clubbing omitted
- Segregate clubbed income clearly in accounts
- For Transferees
- File ITR with proper disclosures
- Retain proof of clubbing
