THE BHOPAL SCHOOL OF SOCIAL SCIENCES

CLUBBING OF INCOME AND DEEMED INCOMES

INTRODUCTION
Clubbing of income means income of other persons included in assessee's total income under
some special circumstances. there are some special provisions in Income Tax Act which are
intended to counter act the various efforts which individual may make for avoiding or
reducing his liability to tax by transferring assets or income to other person. These provisions
are under section 60 to 69 of the Income Tax Act and are discussed below –

1. TRANSFER OF INCOME WITHOUT TRANSFER OF ASSETS - SEC. 60

Where a person transfers to any other person an income (whether revocable or not) from an
asset without transferring that asset, the income shall be included in the total income of the
transferor. Section 60 is applicable if the following conditions are satisfied –
 The Taxpayer owns assets.
 The ownership of assets is not transferred by him.
 The Income from the assets is transferred to any person under a settlement , or
agreement
 If the above conditions are satisfied, the income from the assets would be taxable in
the hands of the transferor.

Example – Mr. X confers the right to receive rent in respect of his house property to his
friend Mr. Y, without transferring the house itself to him. In this case, the rent received by
Mr. Y will be clubbed with the income of Mr. X.
2. REVOCABLE TRANSFER OF ASSETS - SEC. 61
Revocable transfer means the transferor of assets assumes a right to re – acquire asset or
income from such an asset, either whole or in parts at any time in future, during the lifetime
of transferee. It also includes a transfer which gives a right to re- assume power of the
income from asset or asset during the lifetime of transferee.
If the following conditions are satisfied section 61 will become applicable.
 An asset is transferred under a “Revocable Transfer”.
 The Transfer for this purpose includes any settlement or agreement.
 Then any income from such an asset is taxable in the hands of the transferor.
Example - If there is a sale with a condition of re-purchase; or If the transfer is to a trust and
if the transfer can be revoked with consent of two or more beneficiaries.
3. TRANSFER IRREVOCABLE FOR A SPECIFIED PERIOD - SEC. 62
Exception to Section – 61

*Edited & Compiled for Students by:

DR. RICHA BHATIA
Associate Professor
Department of Commerce
The Bhopal School of Social Sciences
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CLUBBING OF INCOME AND DEEMED INCOMES

 Where the income arises to any person by virtue of transfer by way to trust which is
not revocable during the life time of the beneficiary, & in case of any other transfer
whichis not revocable during the life time of the transferee.
 Where the income arises to any person by virtue of transfer made before 01.04.1961
which is not revocable for the period of 6 years or more.
Besides, above exceptions all income arising to any person by virtue of any such transfer
shall be chargeable to income tax as the income of the transferor as and when he power to
revoke the transfer arises, and shall then be included in his total income.
4. INCOME OF SPOUSE - SEC. 64 (1) (II)
The following incomes of spouse of an individual are clubbed –
 Income to spouse from a concern in which such individual has substantial interest
 All such income as arises directly or indirectly, to the spouse of an individual by way
of salary, commission, fees or any other remuneration, whether in cash or kind from a
concern in which such individual has a substantial interest, shall be included in the
income of the individual.
 The remuneration paid to the spouse is not due to technical or professional knowledge
of the spouse. Then such remuneration shall be considered as income of the
individual & not for the spouse concern in which such individual has a substantial
interest, shall be included in the income of the individual.
 The remuneration paid to the spouse is not due to technical or professional knowledge
of the spouse. Then such remuneration shall be considered as income of the
individual & not for the spouse
Exceptions-
In the following circumstances income of spouse will not be clubbed
 Where the spouse possesses technical or professional qualification and the
 Income is solely attributable to the application of his/her technical or Professional
knowledge and experience, the income shall not be included in the income of (other
spouse) the assessee.
 When both husband & wife have substantial Interest
 Where both the husband & wife have substantial interest in a concern & both are in
receipt of the remuneration from such concern, both the remuneration will be included
in the total income of husband or wife whose total income excluding such
remuneration is greater.

5. TAXABLE INCOME TO SPOUSE FROM THE ASSETS TRANSFERRED

(SEC. 64(1)(IV)
Income from Asset transferred to Spouse [section 64(1)(iv)]
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CLUBBING OF INCOME AND DEEMED INCOMES

Income from assets transferred to spouse becomes taxable under provision 64(1)(iv) as per
following conditions –
 The taxpayer is an individual.
 He / She has transferred (directly/indirectly) an asset (other than a house property).
The asset istransferred to his/ her spouse.
 The asset is transferred without adequate consideration. Moreover there is no
agreement to live apart. If the above conditions are satisfied any income from such
asset shall be deemed to be the income of the taxpayer who has transferred the asset.
 It is not necessary that the assets must have been transferred by the assessee to spouse
in the same form in which it stands at the time the income arises.
Exceptions to the rule -
The transferor has received adequate consideration in money or money's worth.
 If the consideration was inadequate, proportionate income shall be included in the
income of the transferor.
 The transfer has been made in connection with an agreement to live apart.
 This separation can be either judicial or voluntary under circumstances in which a
judicial separation can be granted.

6. CLUBBING OF INCOME OF MINOR CHILD [SECTION 64(1A)]

All income which arises or accrues to the minor child shall be clubbed in the income of his
parents, whose total income (excluding minor‟s income) is greater. However, in case parents
are separated, the income of minor child will be included in the income of that parent who
maintains the minor child in the relevant previous year.
Exemption in respect of the income of minor
However if the income of any minor child is less than Rs. 1,500 p. the aforesaid exemption
shall be restricted to the income so included in the total income of the individual. Exemption
to parent [sec. 10(32)] An individual shall be entitled to exemption of Rs.1,500 p.a. in respect
of each minor child if the income of such minor as included u/s 64(1A) exceeds that amount.
Exceptions
 Income of the minor will not be included in the income of his parent in the following
cases.When such income arises or accrues to the minor child on account of any
 Manual work done by him; or
 Activity involving application of his skill, talent or specialised knowledge and
experience; or
 If the minor is handicapped or disabled then his income will not be included in the
income ofhis parent.
Example:
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CLUBBING OF INCOME AND DEEMED INCOMES

Master Garvit, 14 years old, received income Rs.21, 500 as interest on investments. His
father's income is Rs. 4, 00.000 while mother's income is Rs. 4, 50,000. Show the impact of
Garvit's income on his parents from clubbing of income point of view.
Solution:
Master Garvit is minor, therefore his income from investment Rs. 21,500 less exemption
1,500 = 20,000 shall be clubbed with the income of Father or Mother, which income his
greater. So, the taxable income of minor shall be added to mother‟s income 4,50,000 +
20,000 = 4,70,000 because her income is greater than Husband.
7. INCOME TO SON'S WIFE (SEC. 64(1) (VI)]
Where any individual transfers, directly or indirectly, any asset to his/her son's wife without
adequate consideration, on or after May 31, 1973, the income from such asset hall be
included in the income of the transferor.
8. TRANSFER FOR IMMEDIATE OR DEFERRED BENEFIT OF SON'S WIFE
(SEC. 64(1) (VIII)]
Any income arising, directly or indirectly, to any person or association of persons from assets
transferred directly or indirectly on or after May 31, 1973, otherwise then for adequate
consideration to the person or association of persons by such individual shall, co the extent to
which the income from such assets is for the immediate or deferred benefit of his son's wife
be included in computing the total income of such individual.
9. INCOME TO SPOUSE THROUGH A THIRD PERSON (SEC. 64(1) (VII)]
Where a person transfers some assets directly or indirectly to a person or association of
persons (trustee or body of trustees or juristic person) without adequate consideration for the
immediate or deferred benefit of his or her spouse, all such income as arises directly or
indirectly from assets transferred shall be included in the ne of the transferor. If only a
portion is reserved for the benefit of spouse and utilised for the benefit of others, only the
portion reserved for the spouse shall be included in the income of the transferor.
Any income of H.U.F. from the self-acquired property of a member of the H.U.F. converted
into the property of his H.U.F. will be included in the total income of themember concerned.
DEEMED INCOMES
1. Cash Credits (Section 68)
Where any sum found credited in the books of an assessee maintained for any accounting
year and assessee is not in apposition to give explanation about the nature and source thereof
or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer,
the sum so credited may be treated as income of the assessee in respect of the accounting year
in which the cash credits have made in the books. This section comes into operation only
when the following conditions are satisfied -
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CLUBBING OF INCOME AND DEEMED INCOMES

(i) The assessee maintains books of account; (ii) A credit entry occurs in such books; (iii) The
assessee fails to explain the source and nature of the sum credited (iv) The explanation
offered by the assessee is not satisfactory, and the Assessing Officer comes to the conclusion
that it is the undisclosed income of the assessee.
2. Unexplained Investment (Section 69)
Where the assessee has made investments which are not recorded in the book of account, if
any, maintained by him for any source of income and the assessee is in a position to offer any
explanation about the nature and source of the investment or the explanation offered by him
is inadequate or not satisfactory in the opinion of the Assessing Officer, the value of the
investments may be treated as the income of the assessee for the financial year in which the
investments are made.
3. Unexplained Money etc. (Section 69A)
Where the assessee is found to be the owner of any money, bullion, jewellery or any other
valuable article and such article is not recorded in the books of account, if any, maintained
byhim for any source of income and the assessee is not in a position to offer any explanation
about the nature and source of acquisition of the articles or the explanation offered by him is
not satisfactory in the opinion of the Assessing Officer, the value of such articles may be
deemed to be the income of the assessee for the financial year in which he is found to be the
owner thereof.
4. Undervalued Investments or Valuables (Section 69B)
This section empowers the Assessing Officer to charge tax on undisclosed incomes
represented by under valuation of assets. Where in any financial year the assessee has made
investments or isfound to be the owner of any bullion, jewellery or other valuable articles and
the Assessing Officer finds that the cost of these items shown by the assessee in the books of
account is less than the value thereof and the assessee fails to explain the source of
excess amount or the explanation offered by him is not satisfactory, the excess amount may
be treated as the income of the assessee for the financial year in which he is found to have
made the investment or is foundto be in possession of the valuables.
5. Unexplained Expenditure (Section 69C)
Where in any financial year an assessee has incurred any expenditure and he offers no
explanation about the source of such expenditure or part thereof, or the explanation offered
by him is not satisfactory in the opinion of the Assessing Officer the amount of such
expenditure or part thereof, as the case may be deemed to be the income of the assessee for
such financial year, i.e., the financial year in which he incurred the expenditure.
6. Amount borrowed or repaid on Hundi (Section 69D)
Where any amount is borrowed on Hundi from, or any amount due thereon is repaid
(including interest) to any person otherwise then through an „account cheque‟ drawn on a
bank, the amount so borrowed or repaid shall be deemed to income of the person borrowing
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CLUBBING OF INCOME AND DEEMED INCOMES

or repaying the amount aforesaid for the previous year in which the amount was borrowed or
repaid.

REFERENCES:
❖ Shripal Saklecha and CA Anit Saklecha. (2023-24). Income Tax Law & Practice. Indore,
India: Satish Printers and Publishers.
❖ Dr. H.C.Mehrotra and Dr. S.P.Goyal. (2023-24). Income Tax Law & Practice. Agra,
India: Sahitya Bhawan Publications.
❖ V. P. Gaur and D. B. Narang. (2023-24). Income Tax Law & Practice. New Delhi, India:
Kalyani Publishers
❖ Taxation Study Material. (2023-24). India: ICSI