Income transferred without transfer of Assets
If a person transfers income to another person, without transfer of the asset from which the income arises, then such income shall be taxable in the hands of the transferor.
For example:
- Mr. X transferred his interest income on FD to Mr. Sharing without transferring the FD. Interest shall be taxable in the hands of X
- Mr. X is the owner of a house property from which he is getting a rent of Rs. 10,000 per month. After some time, he transferred his right to receive rent to his wife. Discuss the tax implications.
Lifetime transfer is NOT a revocable transfer
If the asset will have been received after the death of the transferee, then income shall not be clubbed in the hands of transfer till the death of the transferee.
- Clubbing provision shall be applicable if Mr. A transfers any House property to his friend Mr. with the condition that HP can be taken back by him anytime.
- Even if the property is transferred for some specific time, for example, 7 years, in that case also clubbing provisions shall be applicable. If transferred for lifetime no clubbing shall be applicable.
Remuneration of spouse Section
If the Spouse having Substantial Interest, then remuneration shall be clubbed.
- Spouses of an individual are receiving any Income like salary, commission, fees, or any other remuneration from any concern in which the individual is having substantial interest then such salary, etc. such income shall be included in the income of the individual.
No clubbing
- If any income etc. of a spouse which is due to the application of professional or technical or Knowledge or experience shall not be clubbed
- If the Technical or professional qualifications shall include not only degree or membership but also any experience or expertise or any natural talent.
Both having SI and both are receiving
remuneration clubbing in the hands of Spouse with higher income.
- If husband and wife both have a substantial interest in the org. and
- Both are receiving remuneration from the org,
- Then the remuneration of both shall be clubbed in the hands of that spouse whose total income is higher, before clubbing such income.
- Substantial interest = 20% (spouse + relatives).
- Relative means the husband, wife, brother or sister or any lineal ascendant or descendant of the individual.
Income from assets transferred spouse Section
- Any income arising from an asset (other than house property) transferred to the spouse for inadequate consideration shall be taxable in the hands of the transferor.
- Capital gains are also taxable in the hands of the transferor.
- Exceptions – clubbing shall not be done if:
Asset Transferred invested in Business
- Income-generating from the assets invested in a business that was transferred by the spouse shall be clubbed in the hands of the transferor. For calculating the income which has to be clubbed, first, we have to check the value of the asset transferred and invested in the business as on 1st day of the previous year for which income is to be clubbed.
- Mr. y has gifted Rs. 2,00,000 to his wife Mrs. y. She invested it in the proprietary business and there were profits of Rs. 1,00,000. In this case, the entire income of Rs. 1,00,000 shall be clubbed in the income of Mr. y.
Income From Assets Transferred to son’s wife without adequate consideration
- Indirect transfer to daughter in law
- Income from assets transferred to a person for the benefit of the son’s wife shall be taxable in the hands of the transferor.
- Any income arising from an asset transferred to son Wife for inadequate consideration shall be taxable in the hands of the transferor
The income of the Minor Child to clubbed with an income of the parent with higher income
- If any income accrues or arises to a minor child, such income shall be clubbed in the income of parents whosoever have higher income before taking into consideration the income to be clubbed.
- If the marriage of mother, the father doesn’t subsist, in that case, income shall be clubbed in the income of mother or father whosoever maintains the minor child.
- Minor includes adopted, stepchild and a minor married daughter.
- If the minor attains majority during the year then income till the date of the majority shall be clubbed in the hands of the parents.
Exemption to parent
If the income of a child is so included, the parent shall be entitled to an exemption of a maximum Rs 1,500 in respect of each minor child.
