Know about income clubbing in IT - Fusion - WeRIndia

Know about income clubbing in IT

Know about income clubbing in IT

You may have heard about income clubbing while filing your income tax returns.

The Income Tax Act of 1961 under section 60 to 64 specifies that those who earn income in the family should not evade tax by making investments in the name of their family members for their personal benefit.

In some cases, the income is clubbed with the earning individual if the other person is dependent on him financially.

It is essential to know which income can be clubbed and which income should not be clubbed.


Here are some important things about income clubbing:

  • If you retain the ownership of any asset and transfer the income to any other family member, then the income is treated as your taxable income, but not the other member who receives the money.
  • In some cases, where you have transferred the ownership of the asset, but kept it revocable, then you still have to pay the tax for income earned on the asset.
  • If you have gifted some money to your non-earning spouse to make investments in his/her name, you have to pay tax for the income earned from this investment.
  • If you invest amount in fixed deposits or savings scheme in the name of your minor child, then the income from such investment is clubbed with the parent who is earning higher income.
  • If your spouse is receiving a salary from a company in which you hold substantial interest i.e. equity of 20 percent or more voting rights, or are entitled to profits, then the income is clubbed with your income.

However, there are certain situations where the income is not clubbed:

  • If your minor child is earning an income from his or her own talents and skills, then the income is not clubbed with the income of parents.
  • If your spouse is working in a business in which you hold substantial interest and your spouse is receiving salary for his or her professional or technical knowledge, then the income is table in your hands.
  • If your spouse wants to reinvest the income that is earned from the investments made with your money to earn further returns, the income is not clubbed with your income.
  • If you have transferred money to your major child who is not earning, and your child invests it to earn returns, the income earned from such investment is not clubbed.

 

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