Deemed Income and Clubbing of

Income
• Introduction –
• 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 favour 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 Sections 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 fulfilment 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 Sections 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 of Income

• Under the following circumstances, the income of

other person is included in the income of the assessee.

• A. Clubbing of Income for Transfer Of Income

Without Transfer Of Asset (Sec. 60)
• Section 60 is applicable if the following conditions are
satisfied:
• The taxpayer owns an asset
• The ownership of asset is not transferred by him.
• The income from the asset is transferred to any
person under a settlement, or agreement.
• The ownership of asset is not transferred by
him.
• The income from the asset is transferred to
any person under a settlement, or agreement.
• If the above conditions are satisfied, the
income from the asset would be taxable in
the hands of the transferor
• Illustration 10.1: Amitabh Bachan owns
Debentures worth Rs 1,000,000 of ABC Ltd.,
(annual) interest being Rs. 100,000. On April
1, 2018 he transfers interest income to
Shahrukh Khan, his friend without
transferring the ownership of these
debentures. Although during 2018-19,
interest of Rs. 100,000 is received by
Shahrukh Khan, it is taxable in the hands of
Amitabh Bachan as per Section 60.
 B. Clubbing of Income for Revocable
Transfer Of Assets (Sec 61)
• ‘Revocable transfer means the transferor of
,

asset 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 and not
the transferee (owner).
• Exceptions to section: 61
• Where the income arises to any person by
virtue of transfer by way of trust which is not
revocable during the life time of the
beneficiary,and in case of any other transfer
which is 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.
 C. Clubbing of Income Of Spouse SEC.
64(1) (ii)
• The following incomes of the spouse of an
individual shall be included in the total
income of the individual:
• (i) Remuneration from A Concern In Which
Spouse Has Substantial Interest [Sec 64 (1)
(ii)]
• Concern – Concern could be any form of
business or professional concern. It could be a
sole proprietor, partnership, company, etc.
• Substantial interest – An individual is deemed
to have substantial interest, if he /she
(individually or along with his relatives)
beneficially holds equity shares carrying not
less than 20 per cent voting power in the case
of a company or is entitled to not less than 20
percent of the profits in the case of a concern
other than a company at any time during the
previous year.
• If the following conditions are fulfilled this
section becomes applicable.
• If spouse of an individual gets any salary,
commission, fees etc (remuneration) from a
concern
• The individual has a substantial interest in such a
concern
• The remuneration paid to the spouse is not due
to technical or professional knowledge of the
spouse.
• Then such salary, commission, fees, etc shall be
considered as income of the individual and not of
the spouse.
• The remuneration paid to the spouse is not
due to technical or professional knowledge of
the spouse.
• Then such salary, commission, fees, etc shall
be considered as income of the individual and
not of the spouse.
• Illustration X has a substantial interest in A
Ltd. and Mrs. X is employed by A Ltd. without
any technical or professional qualification to
justify the remuneration. In this case, salary
income of Mrs. X shall be taxable in the hands
of X.
 When both husband and wife have
substantial interest
• Where both the husband and wife have a
substantial interest in a concern and both are
in receipt of the remuneration from such
concern both the remunerations will be
included in the total income of husband or
wife whose total income, excluding such
remuneration, is greater.
 (ii) Income From Assets Transferred
To Spouse [SEC. 64(1) (iv)]
• Income from assets transferred to spouse
becomes taxable under provisions of section
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 is transferred 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.
• Illustration 10.3 – X transfers 500 debentures
of IFCI to his wife without adequate
consideration. Interest income on these
debentures will be included in the income of
X.
 When Section 64(i) (iv) is not
applicable
• section 64 is not applicable in the following
cases:
• If assets are transferred before marriage.
• If assets are transferred for adequate
consideration.
• If assets are transferred in connection with an
agreement to live apart.
• If on the date of accrual of income, transferee
is not spouse of the transferor.
• If property is acquired by the spouse out of
pin money (i.e. an allowance given to the wife
by her husband for usual household
expenses).
• In the aforesaid five cases, income arising
from the transferred asset cannot be clubbed
in the hands of the transferor.
 D. Clubbing of Income From Assets
Transferred To Son’s Wife [SEC. 64 (1) (VI)]
• Income from assets transferred to son,s wife attract
the provisions of section 64 (1) (vi) as per conditions
below:-
• The taxpayer is an individual.
• He/she has transferred (directly/indirectly) an asset
after May 31, 1973. The asset is transferred to son‘s
wife.
• The asset is transferred without adequate
consideration.
• In the case of such individuals, the income from the
asset is included in the income of the taxpayer who
has transferred the asset.
E. Clubbing of Income From Assets Transferred
To A Person For The Benefit Of Spouse [SEC.
64(1) (VII)]
• Income from assets transferred to a person for the benefit
of spouse attract the provisions of section 64 (1) (vii) on
clubbing of income. If:
• The taxpayer is an individual.
• He/she has transferred(directly/indirectly) an asset to a
person or an association of persons. Asset is transferred for
the benefit (immediate/deferred) of spouse.
• The transfer of asset is without adequate consideration.
• In case of such individuals income from such an asset is
taxable in the hands of the taxpayer who has transferred
the asset.
 F. Clubbing of Income From Assets Transferred To A
Person For The Benefit Of Son,S Wife [Sec. 64 (1) (VIII)]
• Income from assets transferred to a person for
the benefit of son,s wife attract the provisions of
section 64 (1) (vii) on clubbing of income. If,
• The taxpayer is an individual.
• He/she has transferred (directly/indirectly) an
asset after May 31, 1973.
• The asset is transferred (directly/indirectly) to
any person or an association of persons. The
asset is transferred for the benefit (immediate/
deferred) of son,s wife.
• The asset is transferred without adequate
consideration.
• In case of such individual, the income from
the asset is included in the income of the
person who has transferred the asset.
 G. Clubbing of Income Of Minor Child
(SEC. 64 (1A)
• All income which arises or accrues to the
minor child shall be clubbed in the income of
his parent (Sec. 64(1A), whose total income
(excluding Minor,s income) is greater.
However, in case parents are separated, the
income of minor will be included in the
income of that parent who maintains the
minor child in the relevant previous year.
• Exemption to parent [Sec 10(32)]
• An individual shall be entitled to exemption of
Rs. 1,500 per annum (p.a.) in respect of each
minor child if the income of such minor as
included under section 64 (1A) exceeds that
amount.
 When Section 64(1A) is not applicable

• In case of income of minor child from following

sources, the income of minor child is not clubbed
with the income of his parent.
• Income of minor child on account of any manual
work.
• Income of minor child on account of any activity
involving application of his skill, talent or
specialized knowledge and experience.
• Income of minor child (from all sources) suffering
from any disability specified u/s 80U
H. Clubbing of Income Of HUF{SEC. 64
(2)}
• Where, in the case of an individual being a
member of a Hindu undivided family, at any
time after the 31st day of December, 1969,
has converted his self-acquired property into
property belonging to the family through the
act of impressing such separate property with
the character of property belonging to the
family or throwing it into the common stock
of the family or ,
• been transferred by the individual, directly or
indirectly, to the family otherwise than for
adequate consideration (the property so
converted or transferred being hereinafter
referred to as the converted property), the
income arising from such converted/
transferred property shall be dealt with in the
following manner:
• 1. The entire income from converted/transferred
property shall be taxable in the hands of the
individual (transferor)
• 2. If the converted/transferred property is
subsequently partitioned amongst the members
of the family, the income derived from such
converted/transferred property as is received by
the spouse of the transferor will be taxable in the
hands of the transferor.