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May 30, 2020

Giving Gift & Assets to Spouse, Minor Child, HUF & Others it will be Taxable in your hand Know Clubbing Provision in IT from April 2020

by Mahesh Mara in Income Tax

Giving Gift & Assets to Spouse, Minor Child, HUF & Others it will be Taxable in your hand Know Clubbing Provision in IT from April 2020

Clubbing of Income as per Income tax act

Clubbing of Income means income of one person is included in the total income of another person. Normally a person is required to pay tax on the income earned by him only. Under clubbing provisions income of other person is clubbed or added in the taxable total income of the taxpayer and in such a case he will be liable to pay tax in respect of his income (if any) as well as income of other person too. This situation of including the income of other person is known as clubbing of income. Person cannot divert his income to another person and explain that such income is not taxable in his hands. In case the person does that then the income shown diverted to other person shall be included in the assessee total income and the assessee is liable to pay tax on it.

Below table explains the various clubbing provisions of the Income tax act:

SectionNature of transactionClubbed in the hands ofConditionsException
64 (1A)Income of Minor ChildIn hands of marriage parent having more taxable income before clubbing minor’s income1. If the marriage exists, then in the hands of the parent whose total income is greater; or; 2. If the marriage does not exist, then in the hands of the person who maintains the minor child. 3. Income once included in the total income of the parent, it shall continue to be included in the hands of same parent in the subsequent year unless AO is satisfied that it is necessary to do so.Clubbing not appliable if: 1. Income is due to manual work 2. Income is due to skill & talent 3. Minor child suffering from disability
64(1)(iv)Asset transferred to spousePerson transferring the asset. Clubbing not applicable if, the assets are transferred with an agreement to live apart, or Before marriage, or Income earned when relation does not exist.
64(1)(vi)Asset transferred to son’s wifePerson transferring the asset.The transfer should be without adequate consideration. 
64(1) (vii/viii)Asset transferred to any person for the benefit of spouse/ son’s wifePerson transferring the asset.The transfer should be without adequate consideration 
64(1)(ii)Income of spouse from a concern where assessee has substantial interestIn hands of spouse whose total income is more. Clubbing not appliable where the spouse is deriving the income solely on technical or professional qualification and income is attribute to such qualification.
60Income transferred without transfer of assetPerson who is transferring the asset1. Clubbing shall apply even if transfer is revocable or irrevocable 2. Clubbing shall apply even if transfer is made before the Income tax act 
61Revocable transferPerson who is transferring the asset Clubbing not applicable in case the transfer is irrevocable during the lifetime of the beneficiaries.
64(2)Asset transfer to HUFIncluded in the hands of member contributing to the HUFIf the HUF is partitioned in the future then clubbing is applicable 

Note:

As per section 64(1)(ii) individual is having substantial interest if,

  1. In case of a company, the person is holding more than 20% of the voting power either individually or jointly with relatives at any time during the previous year.
  2. In other cases, the person either himself or jointly with his relatives is entitled in aggregate to not less than 20% of the profits of such concern, at any time during the previous year.

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