Clubbing of Income [Section 64] – Income of Spouse, Minor Child & Others Included in Assessee’ s Total Income

Section 64 of the Income Tax Act, 1961, mandates the clubbing of certain incomes earned by family members (spouse, minor child, etc.) with the income of the taxpayer to prevent tax avoidance through income splitting.

1. Income of Spouse [Section 64(1)(ii)]

When is Spouse’s Income Clubbed?

Income of a spouse is clubbed in the taxpayer’s hands if:

1. Asset Transfer Without Adequate Consideration
   • If the taxpayer transfers an asset (directly/indirectly) to their spouse without adequate consideration(e.g., gift), any income from that asset is clubbed.
   • Exception:If the transfer is for adequate consideration (e.g., sale at market price), clubbing does not apply.
2. Income from Business Controlled by Taxpayer
   • If the spouse is employed in a business where the taxpayer has significant influence(without having professional qualifications), the salary income is clubbed.

Examples

• Gift of Property: A gifts a house to his wife. Rental income is taxable in Mr. A’s hands.
• Business Salary: B employs her husband (non-professional) in her firm. Salary is clubbed in Mrs. B’s income.

2. Income of Minor Child [Section 64(1A)]

Mandatory Clubbing Rules

• All income of a minor child(below 18 years) is clubbed in the hands of the parent whose income is higher.
• Exception:Income earned by the minor through manual work, skill, or talent (e.g., child actor, athlete).

Exemption Limit

• ₹1,500 per child(maximum two children) is exempt from clubbing.

Examples

• Fixed Deposit Interest:Minor’s FD interest (from grandparents’ gift) is clubbed with the parent’s income.
• Child Model Earnings:Income from modelling is not clubbed (self-earned).

3. Income from Assets Transferred to Son’s Wife/Daughter-in-Law [Section 64(1)(vi)]

• If an individual transfers assets to their son’s wife(daughter-in-law), any income from such assets is clubbed in the transferor’s hands.

Example

• X gifts shares to his daughter-in-law. Dividends are taxable in Mr. X’s hands.

4. Income from Assets Transferred to a Person for the Benefit of Spouse [Section 64(1)(iv)]

• If assets are transferred to a third party(e.g., trust) for the benefit of the spouse, income is clubbed with the transferor’s income.

Example

• Y creates a trust for his wife. Trust income is taxable in Mr. Y’s hands.

5.  Income from Assets Transferred for the Benefit of Spouse [Section 64(1)(vii)]

Key Provision

Under Section 64(1)(vii), if an individual (transferor) transfers an asset:

• To any person (third party), and
• The transfer is for the benefit of their spouse (directly or indirectly),
  then any incomearising from such assets will be clubbed in the transferor’s income.

When Does Clubbing Apply?

1. Direct or Indirect Benefit to Spouse
   • The transfer must be intended to benefit the spouse, even if done through a third party (e.g., trust, relative, or friend).
2. No Adequate Consideration
   • If the transfer is without adequate consideration(i.e., not a commercial transaction), clubbing applies.

Examples

✅ Case 1: Transfer to a Trust for Spouse’s Benefit

• Atransfers a property to a trust where his wife is the sole beneficiary.
• Tax Effect:Rental income from the property will be taxed in Mr. A’s hands, not the trust’s.

✅ Case 2: Gift to Relative with Spouse as Ultimate Beneficiary

• Bgifts shares to her brother, but the dividends are used for her husband’s expenses.
• Tax Effect:Dividend income will be clubbed in Mrs. B’s income.

❌ Case 3: Transfer for Adequate Consideration (No Clubbing)

• Csells a house to his friend at market value, and the friend later allows Mr. C’s wife to use it.
• Tax Effect:Since the transfer was for adequate consideration, income (if any) is not clubbed.

Exceptions (When Clubbing Does NOT Apply)

1. Adequate Consideration
   • If the transfer is a genuine sale(not a disguised gift), clubbing does not apply.
2. Income Not Linked to Transferred Asset
   • If the spouse earns income independently(e.g., salary, professional fees), it is not clubbed.

6.  Income from Assets Transferred to any person for the Benefit of Son’s wife [Section 64(1)(viii)]

Key Provision

Under Section 64(1)(viii), if an individual (transferor) transfers an asset:

• To any person (third party), and
• The transfer is for the benefit of their son’s wife (daughter-in-law),
  then any incomearising from such assets will be clubbed in the transferor’s income.

When Does Clubbing Apply?

1. Direct or Indirect Benefit to Daughter-in-Law
   • The transfer must be intended to benefit the son’s wife, even if done through a third party (e.g., trust, relative, or friend).
2. No Adequate Consideration
   • If the transfer is without adequate consideration(i.e., not a commercial transaction), clubbing applies.

Examples

✅ Case 1: Transfer to a Trust for Daughter-in-Law’s Benefit

• Atransfers a property to a trust where his daughter-in-law is the sole beneficiary.
• Tax Effect:Rental income from the property will be taxed in Mr. A’s hands, not the trust’s.

✅ Case 2: Gift to Relative with Daughter-in-Law as Ultimate Beneficiary

• Bgifts shares to her brother, but the dividends are used for her daughter-in-law’s expenses.
• Tax Effect:Dividend income will be clubbed in Mrs. B’s income.

❌ Case 3: Transfer for Adequate Consideration (No Clubbing)

• Csells a house to his friend at market value, and the friend later allows Mr. C’s daughter-in-law to use it.
• Tax Effect:Since the transfer was for adequate consideration, income (if any) is not clubbed.

Exceptions (When Clubbing Does NOT Apply)

1. Adequate Consideration
   • If the transfer is a genuine sale(not a disguised gift), clubbing does not apply.
2. Income Not Linked to Transferred Asset
   • If the daughter-in-law earns income independently(e.g., salary, professional fees), it is not clubbed.

7. Conversion of Self-Acquired Property into HUF Property [Section 64(2)]

• If a member transfers self-acquired property into HUFand earns income, it is taxed in the individual’s hands (not HUF).

Example

• Z merges his flat into HUF. Rental income is taxable in his hands, not HUF’s.

8. Exceptions to Clubbing (When Income is NOT Clubbed)

✅ Income from genuine business/profession of spouse (not linked to transferred assets).

✅ Minor’s self-earned income (e.g., sports, arts).

✅ Transfers for adequate consideration (e.g., sale at market value).

9. Summary Table: Clubbing under Section 64

10. Key Takeaways

✔ Spouse’s income from gifted assets is clubbed.

✔ Minor’s income (except self-earned) is clubbed with the higher-earning parent.

✔ Gifts to daughter-in-law or trusts for spouse attract clubbing.

✔ HUF income from converted property is taxable in the individual’s hands.

Tax Tip:

• To avoid clubbing, consider irrevocable transfers (Section 62)or ensure income is self-generated (not asset-linked).