Generally an assessee is taxed in respect of his own income. But sometimes in some exceptional circumstances this basic principle is deviated and the assessee may be taxed in respect of income which legally belongs to somebody else. Earlier the taxpayers made an attempt to reduce their tax liability by transferring their assets in favor of their family members or by arranging their sources of income in such a way that tax incidence falls on others, whereas benefits of income is derived by them. So to counteract such practices of tax avoidance, necessary provisions have been incorporated in S. 60 to 64 of the Income Tax Act. Hence, a person is liable to pay tax on his own income as well as income belonging to others on fulfillment of certain conditions.
Inclusion of others Incomes in the income of the assessee is called Clubbing of Income and the income which is so included is called Deemed Income. It is as per the provisions contained in S. 60 to 64 of the Income Tax Act.
Objective–
Main Objectives are as follows:
- Circumstances when income of some other person is included in the income of Assessee
- Provisions when these sections will be applicable
- Under what head and in whose income it will be included.
Cases of Clubbing–
Under the following circumstances, the income of other person is included in the income of the assessee:
A. S. 60: Transfer Of Income Without Transfer Of Asset
B. S. 61: Revocable Transfer Of Assets
C. Income Of Spouse
- S. 64(1)(ii): Remuneration from A Concern In Which Spouse Has Substantial Interest
- S. 64(1)(iv): Income From Assets Transferred To Spouse
D. S. 64(1)(vi): Income From Assets Transferred To Son’s Wife
E. S. 64(1)(vii): Income From Assets Transferred To A Person For The Benefit Of Spouse
F. S. 64(1)(viii): Income From Assets Transferred To A Person For The Benefit Of Son’S Wife
G. S. 64(1A): Income Of Minor Child
Other Points–
Can negative income be clubbed?
If clubbing provisions are applicable and income from such a source is negative it will still be clubbed in the income of asses see.
Head of income under which an income belonging to somebody else would be clubbed–
The other person‘s income is taxable under the head under which it would have been taxable if it is the income of the asses see himself.
For example Mr. X gifts Mrs. X Rs 2 lakhs from which she starts a business. Now as per clubbing provisions whatever is the profit from this business it will be taxable in the hands of Mr. X. Since it is an income taxable under the head ‘Profits & gains of Business & profession, that is why it will be taxable under the same head and income will be calculated as if it is the business of Mr. X.
Conclusion–
Sometimes an individual is taxed in respect of others income. The income legally belongs to somebody else but it is clubbed with the income of some other person in some special circumstances. These provisions are contained in S. 60 to 64.
S. 60 & 61 contains provisions when income from an asset is transferred without transferring the asset or transferring an asset but the transfer is revocable. In both the situations income from such assets is treated as income of the transferor.
Any remuneration received by the spouse from a concern in which individual has substantial interest is taxable in the hands of individual. Similarly income from any asset transferred to spouse will continue to be taxable in the hands of former. Income from any asset transferred for the benefit of spouse is taxable in the hands of transferor. Similarly income from any asset transferred to son,s wife or for the benefit of son‘s wife again becomes taxable in the hands of transferor. The other person,s income is taxable under the head under which it would have been taxable if it is the income of the assessee himself.