Tax Ready Reckoner

The Income Tax Act contains provisions to prevent tax avoidance by transferring income to other persons (usually family members or related entities). Sections 60 to 65 specify situations where income earned by another person is included (clubbed) in the assessee’s total income. 1. Transfer of Income without Transfer of Asset [Section 60] If an individual

Concept: Section 60applies when a person transfers only the right to receive income from an asset without transferring ownership of the asset itself. In such cases, the income continues to be taxable in the hands of the original owner (transferor). Key Conditions: No Transfer of Ownership:The asset itself remains with the transferor. Only Income Rights Transferred:The transferee gets the right

Concept: Section 61states that if an asset is transferred in a revocable manner, any income from that asset will continue to be taxed in the transferor’s hands (not the transferee’s). This prevents taxpayers from reducing their tax liability by temporarily shifting income-generating assets to others while retaining control. Key Conditions for Revocable Transfer: A transfer is revocable if: The transfer

Section 63 defines what constitutes a revocable transfer for the purposes of Section 61. It clarifies when income from transferred assets will be taxed in the transferor’s hands instead of the transferee’s. Key Conditions for a Revocable Transfer A transfer is revocable under Section 63 if: 1.   The Transfer Can Be Reversed (Expressly Revocable) The transfer agreement explicitly allowsthe transferor to: Reclaim the asset(take it back). Regain

Key Rule: Section 61 (taxation of revocable transfers) does NOT applyif the transfer is irrevocable for a specified period (as defined under Section 62). In such cases, income is taxable in the transferee’s hands, not the transferor’s. Conditions for Section 62 to Apply (Irrevocable Transfer) For a transfer to be considered irrevocable and escape clubbing under Section 61, it must meet one of

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:

Basic Rule Under Section 64(1A), all income of a minor child (below 18 years) is automatically clubbed with the income of: The parent whose total income is higher(before clubbing) Exception:Income earned by the minor through their own skill/talent What Income Gets Clubbed? INCOME TYPE CLUBBING STATUS Interest from fixed deposits (gifted by parents/relatives) ✅ Clubbed Dividend from shares gifted

Key Rule When an individual converts their self-acquired property into HUF (Joint Family) property, any income generated from that property continues to be taxable in the individual’s hands (not the HUF’s). How This Works Self-Acquired Property→ Property earned through personal income (not inherited) Conversion to HUF→ Transferring ownership to Hindu Undivided Family Tax Effect→ Despite transfer, income (rent,