Clubbing of income means Income of other person included in assessee’s total income.    Generally an assessee is taxed in respect of his own income. But in some cases, the Income Tax Act deviates from this principle and the assessee may be taxed, under sections 60 to 64, in respect of an income which legally belongs to some other person.                                                             Â
For example: Income of father which is shown to be the income of his son is clubbed and is taxable in the hands of the father.
1. Income eligible for clubbing:
Following incomes are required to be clubbed
- As per section 64(1)(ii), clubbing is to be done in the hands of individual is limited to salary, any remuneration, fees or commission received by the spouse having substantial interest directly or indirectly, whether in cash or in kind.
- As per section 64(1)(iv), any income received from an asset which has been transferred directly or indirectly by the spouse, otherwise than for adequate consideration or in connection with an agreement to live apart shall be clubbed in the hands of the transferor.
- As per section 64(1) (vi), any income arising on the transfer of the asset directly or indirectly to son’s wife on or after 31.05.1973, without adequate consideration shall be clubbed in the hands of the transferor.
- As per section 64(1)(vii), any income arising on the transfer of the asset directly or indirectly, to a person or AOP for the immediate or deferred benefit of the spouse, without adequate consideration, clubbing to be done in the hands of the transferor to the extent of such benefit.
- As per section 64(1)(viii), any income arising on the transfer of the asset directly or indirectly, to a person or AOP for the immediate or deferred benefit of the son’s wife, without adequate consideration, clubbing to be done in the hands of the transferor to the extent of such benefit.
- As per section 64(1A), any income arising in hands of the minor child shall be clubbed in the hands of the parent having higher income subject to exemption of Rs 1500.
NOTES
- The above provision of section 64 applies only to individuals.
- Substantial Interest means an individual alone or along with his relatives beneficially holds equity shares carrying not less than 20 percent voting power in case of a company or other than a company at any time during the previous year.
- Â Relatives, in relation to an individual means husband, wife, brother or sister or any lineal ascendant or descendant of that individual.
2. Transfer of income without transfer of assets: As per section 60, if any person transfers income without transferring the ownership of asset, such income is taxable in the hands of the transferor, irrespective of the fact whether such transfer is revocable or irrevocable.
3.  Irrevocable Transfer:
As per section 62, a transfer is irrevocable when such transfer is-
- 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.
- Made before 1.4.1961, which is not revocable for a period of six years or more.
However, such irrevocable transfer is not charged in the hands of transferor, provided such transferor derives no direct or indirect benefit from such income in either case.
4.  Income of minor child:
As per section 64(1A), the income of minor children is required to be clubbed with income of the parent, whose income is higher. The agricultural income of the minor child is also included in the income of the parent for rate purposes. The following are the exceptions:
- Income of a physically handicapped minor child specified in sec 80U,
- Income of minor child from any manual work done by him,
- Income of minor child due to his skill, talent or specialized knowledge or experience.
- If the income of a minor child has been clubbed in the hands of a particular parent for an AY, it will be continued to be clubbed with the same parent. However, an A.O., if finds necessary, then he can club the income of such child in the hands of other parent, giving justified opportunity to the assessee of being heard.
- If the marriage of the parent does not subsist then the income will be clubbed in the hands of the parent, who has maintaining the child during the relevant previous year.
- In case the income of an individual includes the income of his minor child, then such an individual shall be entitled to an exemption of Rs 1500 in respect of each minor child. Such income of minor child which is to be clubbed with the income of the parent gets computed under each head of income.
- The parent will be entitled to claim the benefit of section 80C to 80U together. No separate deduction for parent and each minor child will be allowable.
- If any TDS has been deducted from interest or any other income, A.O. will give credit for such TDS to the parent, in whose income the minor child’s income has been clubbed.
Any incomes generated from investing capitals or from accumulation of funds by the minor, also get clubbed even though such accumulation consists of –
- Gifts received by the minor
- Assets or properties inherited by the minor
- Any income in earlier years by way of interest, rent, dividend etc.
5. Remuneration of Spouse:
As per section 64(1)(ii), clubbing arises in the hands of individual, if it is limited to salary, any remuneration, fees or commission  & is received by the spouse having substantial interest directly or indirectly, whether in cash or in kind.
- But, where both husband and wife have a substantial interest in a concern & both receives remuneration from such concern, then remuneration will be included in the total income, whose total income excluding such remuneration is greater.
- Remuneration with respect to the application of technical or professional knowledge does not get clubbed, irrespective of the fact, whether such income is received from a concern or from any other person.
6. Clubbing of Negative Income:
Under section 64, the income of specified persons is liable to be included in the total income of the individual. Due to this, the word income will include a loss.