Questions Clubbing of income

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Sunil Sahoo

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December 20, 2018 6:13 pm

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Clubbing of income

I want to know two things regarding clubbing of income
1.) If grandfather decides to gift any money to his niece/nephew, will there be any clubbing of income
2.) If father gives money to his son/daughter will there be any clubbing of income

Can you please mention the cases wherein there shall be cl...

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Amlan Dutta

Good question , for these we will refer section 56(2) which defines list of relatives and section 60 to 64, which deals with clubbing of income in certain combinations of gift given to relatives

In your particular cases, both relationship ( niece and parent ) fall in the realm of relative ...not...

December 20, 2018

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Amlan Dutta

December 20, 2018

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Ritesh kumar srivastava

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December 11, 2018 3:25 pm

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Clubbing of income

Hi Amlan,
pls guide on the scenario where husband give away loan of 5lakh with nominal interest (to avoid clubbing provisions) to non earning wife for start of her small business to be engaged in daily life such as sewing/computer classes (not registered) or share market trading/investment to generat...

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Amlan Dutta

Firstly be very careful to document the loan...No intimation is required to be given to the Department by either you or your wife , the ITR credentials will be sufficient .....Note that it is not be shown as gift in any event else income from the gifted amount shall be clubbed to your income invoking 64(1) of the act ......

Normally loaned amounts to wife at REASONABLE ( NOT NOMINAL) rate of interest for starting her own business/ investing in shares/ purchase of property should not attract clubbing provision of section 64 (1)... Precaution to be taken in such a case is that the interest charged by the husband should be a reasonable one ...

As to what would be a reasonable rate of interest depends on fact and circusmtances of the case ....for example if you would have otherwise kept the money in FD and now loaning it to your wife , take interest atleast more than bank FD offered rates ....you will show such interest income under other sources in your return of income ...

As far as filling ITR for wife is concerned , since loan is not income for wife , she doesn't need to show it in ITR ...and income from her investments under loaned arrangement now qualifying to be her own( since clubbing u/s 64(1) won't apply) will be charged as per income head accordingly ...i.e if she makes money from shares on delivery based trading, then she will fill up capital gain income head, likewise for business income from sewing classes/computer classes , then income to be shown under business head

Note that there have been unfortunately a few cases where amount is loaned to wife and she puts it in shares to earn an income and thereby husbands end up saving significant tax by clubbing of income ,it may be hard to convince the tax authorities about the lender borrower arrangement , given the close relationship of parties and the tax save involved ....usually in most cases it is used as tax saving method and the revenue wants to be careful of that...so sometimes, it boils down finally to the assessing officers take on the situation , however under loaned arrangement at reasonable rate of interest , section 64(1) clubbing fails and you can always appeal

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December 17, 2018

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Amlan Dutta

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December 17, 2018

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sravan

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July 30, 2018 9:34 am

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Clubbing of income

I am transferring 5 lac amount every year to my wife's account from which she is using for 1.5 lac in Sukanya account, 1.5 lac in PPF and 2 lac for household expenses. For filing itr-1, whether she need to show 5 lac amount as exempt income (gift income) plus interest income for savings and FD or el...

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Amlan Dutta

I will answer this in details .......The provisions relating to gift tax have been dealt with under Section 56(2)(x) of the Income-tax Act, 1961. As per the law as it stands today which was amended in 2017, gift received by any person by any person or persons are taxed in the hands of recipient under the head ‘Income from other sources’ at normal tax rates except few exemptions one of which includes receiving gifts from close relatives (covering spouse). Any transfer of assets to close relatives (parent, spouse, sibling, lineal ascendant/descendant) is not taxed.

Many people use this rule to transfer assets to others who are either in a lower tax bracket or do not pay tax at all and save tax on income from these assets.

To check this, Section 64 of the Income Tax Act contains clubbing provisions as per which any income from investment made or assets purchased in the name of close relatives (spouse, minor child or daughter-in-law) is clubbed with the income of the person making the investment and taxed accordingly .
This applies to all types of investments such as shares, fixed deposits, land, building, post office savings and mutual funds.

Further, income from assets transferred directly or indirectly other than for adequate consideration to a person or association of persons who may benefit the individual's spouse or son's wife is also clubbed with the transferer's earnings.

So, if a person opens a fixed deposit in his wife or minor child's name, the interest earned will be clubbed with his income. Also, if a person buys a property in the name of his wife, who has not contributed any money, the rental income will be clubbed with his income.
Here, i am assuming that the gift was without any receipt of adequate consideration
So, here the gift of 5 lakh rupees gifted by you to your spouse will be exempt for your wife(spouse) and she can show it in exempt income of the tax return , however please note that income from investments like interest on FD , PPF interest etc will get clubbed to your income ...she will only show FD gift income in exempt portion and she wont be able to take benefit of 80C since here deductions exceed income ....because of clubbing provisions under 64, you will show the FD interest income in your return ...as far as your own income is concerned , it will be taxable as per its income head ... if it is exempt show it under exempt income portion of the return ....

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November 26, 2018

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Amlan Dutta

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November 26, 2018

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Ajit S. G.

Category : Clubbing..,

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June 14, 2016 1:40 pm

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Clubbing of income

Hello Amlan.

I understand that if a husband gifts some amount to his wife and she invests the amount as FD in her name, the interest earned is supposed to be included by the husband as his own income while filing his return while the wife need NOT declare the same. But the bank will do TDS and issue ...

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Wife will show nil income and claim TDS credit and seek refund. Husband will show income and will be responsible for paying taxes . He won't be able to claim tax credit but anyways in a way he is getting back the TDS in a way when the wife gets back the refunded TDS . In scrutiny assessment if the a...

June 14, 2016

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