There is a tendency among the tax-payers of the higher tax brackets to divert a part of their income to the hands of their relatives, in order to reduce the burden of tax. It may therefore be observed that by diverting the income into different hands, he is able to make substantial reduction to the tax liability. With a view to discourage such practice, the Income Tax Act, 1961 (the Act) has incorporated provisions in section 64 for clubbing of income of other persons in the income of the assessee.

Following incomes are required to be clubbed under section 64 of the Act:

• Salary, commission, fees or any other form of remuneration received directly or indirectly whether in cash or in kind by a person from a concern in which his or her spouse has substantial interest, subject to certain exceptions, shall be clubbed in the hands of the spouse having substantial interest.
• An income received from an asset which has been transferred directly or indirectly by the spouse without adequate consideration or without an agreement to live apart shall be clubbed in the hands of the transferor subject to the provision of section 27(1).
• In a case where asset is transferred directly or indirectly on or after 01.06.1973 to son’s wife without adequate consideration, then the income arising from such assets shall be clubbed in the hands of the transferor.
• In a case any asset is transferred to a person or association of persons (AOP) for the immediate or deferred benefit of the spouse without adequate consideration then income arising from such assets shall be clubbed in the hands of the transferor to the extent it is for the immediate or deferred benefit of the spouse.
• In a case where asset is transferred to a person for the immediate or deferred benefit of the son’s wife after 01.06.1973 without adequate consideration, then the income arising from such assets shall be clubbed in the hands of the transferor to the extent it is for the immediate or deferred benefit of the spouse.
• Income arising in hands of the minor child shall be clubbed in the hands of the parent having higher income subject to certain exceptions.

It may be noted that provisions of section 64 apply only to the individuals. It does not cover the case of Karta of Hindu Undivided Family gifting coparceners property to his wife.

Tax Returns for Financial Year 2010 -11 (March 2011) has started.  Just mail us Form16/ Salary Certificate and details of other income, at info@taxmantra.com . We would take it from there to file your return of income.

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