What is clubbing provision in Income Tax Act? When is it applicable?
Clubbing provisions
When is clubbing not applicable?
If money or assets are transferred to wife or daughterin-law before marriage.
If any gifts are received at the time of marriage. The income from these are also not clubbed for the transferor.
If one stays with parents and gives them rent, or offers a monetary gift, or if they invest this amount, it will not invite clubbing provisions.
If money is invested in the PPF for spouse or child.
If money is saved by wife from the household expense funds given by the husband.
As the term suggests, clubbing means combining the income of another person with one's own for tax calculation purposes. However, many people club the incomes of their family members and close relatives in order to evade tax or minimise their tax liabilities. To prevent tax evasion and encourage compliance, the government has laid down rules for clubbing of incomes under Sections 60-64 of the Income Tax Act , 1961.These rules, or clubbing provisions, specify the types of incomes, relationships and circumstances under which incomes can be clubbed for tax benefits. So, not all relationships or money transfers qualify for clubbing provisions. Spouses, children, daughters-inlaw, Hindu Undivided Families, and specific close relatives typically invite these provisions. For instance, if a parent invests in a fixed deposit (FD) in his child's name, clubbing provisions apply and the interest generated from this FD is clubbed with the income of the parent who earns more. However, the parent can avail of `1,500 per child tax deduction under the old tax regime . Besides, clubbing provisions won't apply if a minor child earns an income through manual work, or by using his own skill and talent, or if he suffers from a disability.The incomes that are considered for clubbing can be from various sources and investment avenues like property, interest, mutual funds and bank deposits, among others. Since the taxable income increases after clubbing, it also impacts the ITR form that is chosen to file tax returns.Clubbing provisions among relatives and family members don't apply under these specific conditions.
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