Clubbing of Income - When income of other person is included in your income and taxed in your hands.
Since an assessee typically has only one income subject to taxation, some with higher incomes began transferring income to those with lower incomes inorder to avoid paying taxes.
When a person (the transferor) transfers his income but not his assets, the transferee will receive the income but the transferor will be the only one who must pay taxes on it.
After the death of the transferee, a person (the transferor) who transferred assets to that person(the transferee) under a revocable trust will only be liable for tax on theincome from those assets. (No clubbing)
If a person (the transferor) transfers any asset excluding house property to his or her spouse (the transferee) without providing reasonable consideration, the income from such assets will be subject to proportionate taxation on the transferor.
Income clubbed =Total income x Gift amount / Total value of assets
A) Income will only be combined if there is a husband-wife connection at the time of asset transfer and income generation.
B) In the following situation clubbing will not be possible.
C) Income from assets purchased by transferee by selling gifted assets will be clubbed with transferor.
If a person (the transferor) transfers any assets excluding house property to his or her spouse (the transferee) without providing reasonable consideration, the income from such assets will be subject to proportionate taxation on the transferor.
Income clubbed = Total income x Gift amount / Total value of assets
Any income from such assets is obtained by any other person (the transferee) if an individual transfers any assets to a person without consideration or on insufficient consideration for the interests of a son's wife or husband; however, tax on such income is paid by the transferor.
Income of minor child will be clubbed with their parents (i.e. mother or father) whose comparatively income is higher).
Exception (no clubbing) - In following cases minors income will be in hands of minors only.
A) If minor child income is in the hands of parents then exemption u/s 10(32) of 1500 p.a per child is allowed to parents.
B) The term minor child includes step child & adopted child.
C) Income earned by minor child due to its own efforts and talent will not get clubbed.
The income of spouse will be clubbed with assessee if following 3 condition satisfied.
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