Generally, an assessee is taxed in respect of his own income. In some cases, however; the Income Tax Act deviates from this principle and the assessee may be taxed in respect of incomes which is technically belongs to some other person, which is known as clubbing of income.

Transfer of income without transfer of assets

If any person transfers income without transferring the ownership of the asset, such income is taxable in the hands of the transferor. It will not make any difference whether the transfer is revocable or irrevocable or it was effected before or after the commencement of The Income Tax Act, 1961.

Revocable transfer of assets

Any income arising to any person by virtue of a revocable transfer of assets is chargeable to tax as the income of the transferor. This is subject to the following two exceptions:

• Where the income arises to any person by virtue of a transfer by way of trust which is not revocable during the lifetime of the beneficiary and, in the case of any other transfer, which is not revocable during the lifetime of the transferee.
• Where the income arises to any person by virtue of a transfer made before April 1, 1961, which is not revocable for a period of six years or more.

Income from assets transferred to spouse

Where an asset (other than house property) is transferred by an individual to his spouse directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset is deemed to be the income of the transferor.

Income from assets transferred to son’s wife

If an individual, directly or indirectly, transfers assets without adequate consideration to son’s wife, income arising from such asset is included in the total income of the transferor.

Income from assets transferred to a person for the benefit of spouse

Where an asset is transferred by an individual, directly or indirectly, without adequate consideration, to a person or an association of persons for the immediate or deferred benefit of his or her spouse, income arising from the transferred asset is included in the total income of the transferor to the extent of such benefit.

Income from assets transferred to a person for the benefit of son’s wife

Where an asset is transferred by an individual, directly or indirectly without adequate consideration, to a person or an association of persons for the immediate or deferred benefit of son’s wife, income arising, directly or indirectly, from the transferred asset is included in the total income of the transferor to the extent of such benefit.

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