Income Tax

Income Tax Rules For Clubbing Income In IT Returns

Income tax law has many sections that provide tax relief and tax exemption to the income tax payer.On the other hand, there is Section 64 of Income Tax, 1961 that provides clubbing of income of spouse and minor children. As a result, to clubbing of income the net tax burden especially on the high net worth individuals would increase.
Income Tax Rules For Clubbing Income In IT ReturnsIf you want to build up your capital or for any other reasons need to show a higher Income you may  club your income with your family member’s income. Here are a few important points to be taken care of while clubbing income.

Ensure That Wife Income Is Not Clubbed To Your Income

One must ensure a steady income not only of his/her own but also all other members of the family. Proper tax planning should be done to ensure that your wife’s income is not clubbed with your income. This can be done by taking legal advice in some cases.

Here it is essential that married woman’s income must be from her own independent account, so she can independently assess in separate income tax file without her income being clubbed with her husband’s income.

How A Wife Can Possess Property In Her Own Name And A Clubbing Of Income?

A married woman can have own independent funds made up of gifts and loans. Where tax planning is adopted by a married woman, she could own a house as well from her income if she is earning. She could either buy separate home of her name, for that she can take money from the husband, father-in-law or mother-in-law, however a reasonable interest must be paid for that. She can also construct a house in joint account with her husband.

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Transfer Of Shares To His/Her Spouse

If one transfers share to his/her spouse with no enough consideration then no tax is payable since this transfer is not considered as a transfer in section 47 of the Act.  In addition, a gift from spouse is exempt as said, but any profits produced in the future shall be clubbed with your income and will be taxed.

Transfer Of Assets To Spouse Prior To Marriage To A Clubbing Income

As per the Allahabad High Court, the income from the transferred assets would not be included in the total income of the Assessee since the transfer took place prior to the date of marriage

Clubbing Of The Income Of Your Minor Child

The income of the minor is clubbed with the income of father or mother, whoever has higher earnings.  The income of Minor Child shall be clubbed if where the marriage of his parent exists, in the income of the parent whose total income (excluding the income of minor) is greater or
where the marriage of his parents does no longer exist, in the income of that parent who maintains the minor child in the previous year.

Clubbing Income Of Daughter-In-Law

If you wish to club income of the Daughter-in-law then it is essential to keep a separate Income-tax file for the Daughter-in-law.

Liability Of Tax Payment Even When Income Is Taxed at Other Party’s End [Sec.  65]

When asset are in name of an individual but income from such asset is clubbed and taxed at somebody else’s hands due to provisions of  Sec 60 to Sec 64 of Indian Income Tax Act 1961, then too the owners of assets is liable to pay tax on any extent of income as and when (and if) the A.O. serves him/her with a demand notice.

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