According to government regulation, generally, a citizen is taxed in respect of income earned by him or her only. However, in some special cases income of another person is included, which is known as the clubbed income, in the taxable income of the taxpayer. In those cases, the person will be liable to pay tax in respect of his/her income (if any) as well as income of another person too. The situation in which the income of another person is included in the income of the taxpayer is called clubbing of income. For example, the income of a minor child can be clubbed with the income of his/her parent. Under Section 60 to 64, various provisions relating to clubbing of income have been mentioned.
Regulation under Section 60
Section 60 of IT regulation informs that if a person transfers income from an asset owned by him/her without transferring the asset from which the income is generated, then the income from such an asset is taxed in the hands of the transferor, that is the person transferring the income.
Regulation under Section 64
Under certain circumstances, as mentioned in Section 64(1)(ii), the salary received by the spouse of an individual from a concern in which the individual is having substantial interest, will be clubbed with the income of the individual.
On this matter, according to the IT portal of the union government, "An individual shall be deemed to have a substantial interest in any concern, if such individual alone or along with his relatives beneficially holds at any time during the previous year 20% or more of the equity shares (in case of a company) or is entitled to 20% of profit (in case of concern other than a company). Relative for this purpose includes husband, wife, brother or sister or lineal ascendant or descendent of that individuals."
Section 64(1)(vii) informs that if an individual transfer his/her asset otherwise than for adequate consideration to a person or an association of persons for the immediate or deferred benefit of his/her spouse, then income arising from the asset so transferred will be clubbed with the income of transferor. Additionally, according to Section 64(1)(viii), if any individual transfers his/her asset otherwise than for adequate consideration to a person or an association of persons for the immediate or deferred benefit of his/her son's wife, then income arising from the asset so transferred will be clubbed with the income of transferor, the IT portal mentions.