Clubbing of Income Under Sections 60 to 64: Spouse, Minor Child and HUF Rules Explained
Ordinarily, an assessee pays tax only on income that he himself earns. The clubbing provisions in Section 60 to Section 64 of the Income-tax Act are the exception: in the situations they describe, income earned by someone else is added to the assessee's total income, and he pays tax on it along with his own. The most familiar example is the income of a minor child, which is added to a parent's income.
Transfer of Income Without the Asset: Section 60
Where a person hands over the income from an asset he owns but keeps the asset itself, Section 60 taxes that income in the transferor's hands.
Example: Mr. Anand owns a bungalow let out at annual rent of Rs. 96,000. He directs the whole rent to his friend Mr. Deshmukh but keeps the bungalow. The Rs. 96,000 is taxed as Mr. Anand's income.
Revocable Transfers: Section 61
A transfer is generally revocable when the transferor, directly or indirectly, retains a right or control over the asset or the income from it. Under Section 61, income from such an asset is taxed in the transferor's hands. The section does not apply to a trust that cannot be revoked during the beneficiary's lifetime, or to a transfer that cannot be revoked during the transferee's lifetime.
Spouse's Remuneration: Section 64(1)(ii)
Remuneration paid to a spouse by a concern in which the individual has a substantial interest is clubbed with the individual's income, when all of these hold:
- the individual has a substantial interest in the concern;
- the spouse is employed there; and
- the spouse has no technical or professional knowledge or experience, so the pay is not justifiable.