CLUBBING OF INCOME

CLUBBING OF INCOME

In general, a person has to pay tax only on his own income but sometimes the incomes of other persons are added to his income to charge tax from him, it is called 'clubbing of income'. Clubbing provisions are applicable to check tax evasion.

Clubbing provision is applicable in the following cases: -

Transfer of income without transferring the asset Section 60

If any person has transferred any income without transferring the asset, in such cases clubbing provision shall be applicable.

Example

Mr. X has two deposits of Rs.10 lakhs each and interest income of each deposit is Rs.1.5 lakhs. He has transferred income of one of the deposit to his brother Mr. Y. in this case, clubbing provision shall be applicable and income shall be taxable in the hands of Mr. X.

Transfer of asset through revocable transfer Section 61

If any person has transferred any asset through revocable transfer, income from that asset shall be clubbed in the income of the transferor.

Example.

Mr. X has transferred a deposit of IO lakhs to his friend Mr. Y with the condition' that the deposit can be taken back by him at any time. In this case, clubbing provision shall be applicable.

Transfer of an asset through irrevocable transfer Section 62, 63

If any person has -transferred any asset through irrevocable transfer, in this case, clubbing provision shall not apply. However, if the transferor has any right to interfere with the asset in any manner or has any right to derive any benefit from the asset, clubbing provision shall be applicable.

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 the power to revoke the transfer arises.

If any person has transferred any asset through a transfer that is not revocable during the lifetime of the beneficiary, in this case, clubbing provision shall not apply.

Example

Mr. X has transferred one asset to Mr. Y with the condition that the asset shall be retained by Mr. Y as long as he is alive and after that the asset shall be taken back by Mr. X. In this case, clubbing provisions shall not apply.

Meaning of revocable transfer

A transfer shall be deemed to be revocable it contains any provision for the re-transfer directly or indirectly of the whole or any part or the income or assets to the transferor, or it, in any way, gives the.., transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets.

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