Clubbing of Income for Asset Transferred to Your Spouse or Son’s Wife

As per section 64 of the Income Tax Act, 1961 clubbing of income will be done is any assets are transferred without adequate consideration to his or spouse or son’s wife then any income from such assets will be added back to transferor income. If Assets are transferred for the benefit of his/her spouse or son’s wife then also any income generating from such assets will be added back to transferor income.

Transfer of assets to son’s wife [section 64(vi)]

Where an asset is transferred (after May, 1973) by an individual to his or her son’s wife, directly or indirectly, otherwise than for adequate consideration, any income from such asset will be deemed to be the income of the transferor.

Transfer of assets for the benefit of the spouse [section 64(vii)]

Where an asset is transferred by an individual, directly or indirectly, otherwise than for adequate consideration to a person or association of person, for the immediate or deferred benefits of his or her spouse, any income from such assets will be deemed to be the income of the transferor.

Transfer of assets for the benefit of the son’s wife [section 64(viii)]    

Where an asset is transferred by an individual, directly or indirectly, otherwise than for adequate consideration to a person or association of person, for the immediate or deferred benefits son’s wife, any income from such assets will be deemed to be the income of the transferor.

Individual is assessable in respect of remuneration of spouse [section 64(ii)]

An individual is chargeable to tax in respect of any remuneration received by the spouse from a concern in which the individual has substantial interest. Exception is that remuneration, which is solely attributable to that application of technical knowledge or professional knowledge and experience of the spouse, then such income will not be clubbed.

Note 1: an individual is deemed to have substantial interest, if he (individually or along with his relatives) beneficially hold equity share carrying not less than 20% voting power in case of a company or is entitled to not less than 20% of the profit in the case of a concern other than the company at any time during the previous year. Relative in relation to an individual means husband, wife, brother or sister or any lineal ascendant or descendent of that individual.

Note 2: when both husband and wife have substantial interest in the concern and both are in receipt of the remuneration from such concern, remuneration will be included in the total income of husband or wife whose total income, excluding such remuneration, is greater. Where such income is once included in the total income of either spouse, any such income arising in any subsequent year cannot be included in the income of the other spouse unless the A.O. is satisfied after giving that spouse an opportunity of being heard that it is necessary to do so.

Transfer of assets to spouse [section 64(iv)]

Where an asset is transferred (after May, 1973) by an individual to his or her son’s wife, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset will be deemed to be the income of the transferor.

Note 1; natural love and affection will not be treated as adequate consideration.

Note 2: The relationship of husband and wife should subsist both at the time of transfer of asset and at time when income is occurred

Note 3: If the transfers are inter connected and are part of the some transaction, the aforesaid rule of clubbing is applicable

Note 4: Income arising from accretions to transferred assets shall not be clubbed

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