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 transfers only the incomefrom an asset without transferring the asset itself, the income will still be taxed in the hands of the transferor.
- Example:A gifts rent from a property to his son but retains ownership. The rent is taxable in A’s hands.
2. Revocable Transfer of Assets [Section 61]
- Income from assets transferred under a revocable transferis taxable in the transferor’s hands.
- A transfer is revocableif:
- It can be revoked wholly/partly.
- The transferor retains control over the income/assets.
- Exception:If the transfer is irrevocable, income is taxed in the transferee’s hands.
3. Income from Irrevocable Transfer [Section 62]
- If a transfer is irrevocable for a specified period (exceeding 6 years)or for the lifetime of the transferee, income is taxable in the transferee’s hands.
- Exception:If the transfer is revocable (as per Section 61), income is clubbed back to the transferor.
4. Clubbing of Spouse’s Income [Section 64(1)(ii)]
- Applicability:Income arising to the spouse (husband/wife) from:
- Assets transferred directly/indirectlywithout adequate consideration.
- Business controlled by the assessee(if spouse is employed without professional qualifications).
- Exceptions:
- If the transfer is for adequate consideration.
- If income arises from the spouse’s own skills/knowledge(not due to transferred assets).
Example:
- A gifts shares to his wife. Dividends from these shares are taxable in A’s hands.
- If A’s wife is a doctor and earns a salary from a hospital, it is not clubbed(since it’s her professional income).
5. Clubbing of Minor Child’s Income [Section 64(1A)]
- Income of a minor child(below 18 years) is clubbed in the hands of the parent whose income is higher.
- Exceptions:
- Income from child’s own skills/talent(e.g., child artist).
- ₹1,500 per childexemption is allowed (max two children).
Example:
- If a minor earns ₹10,000 from fixed deposits (gifted by parents), it is clubbed in the parent’s income.
6. Income from HUF to Member [Section 64(2)]
- If an HUF (Hindu Undivided Family) is partitioned and a member receives income from converted property, it is clubbed in the member’s individual income.
7. Cross Transfers & Indirect Transfers [Section 64(1)(iv) & (v)]
- If assets are transferred to:
- Son’s wife(daughter-in-law) or
- Spouse’s relatives(e.g., son-in-law),
the income may still be clubbed if the transfer is indirectly for the benefit of the assessee.
Key Points :
✅ Clubbing applies when income is diverted to relatives (spouse, minor child) without genuine transfer.
✅ Revocable transfers are always taxed in the transferor’s hands.
✅ Minor’s income is clubbed with parents (except self-earned income).
✅ Gifts to daughter-in-law/son-in-law may also attract clubbing if indirect benefit exists.
