Income from asset transferred to even your daughter-in-law will be clubbed to your income and will be taxable in your hand in this case, says income tax dept

Income Tax Department has recently released a new brochure highlighting how clubbing of income provisions is applicable for individual taxpayers. Clubbing of income refers to the situation in which your wife’s or child’s or other person’s income is included in your total income and accordingly taxed. Under the Income Tax Act, 1961 income will be clubbed in the hands of either the husband or wife whose total income is higher.

Ramakrishnan Srinivasan, former chief commissioner of Income Tax Department says: "«Many taxpayers are not aware of the clubbing provisions of Income Tax Act, 1961 and accordingly land up getting slapped with huge tax demand for arranging their financial affairs with their relatives. One such case which I remember was about a taxpayer who gave cash gift to his spouse and she invested it in fixed deposit in her name and offered interest income in her income tax return. The tax department applied the clubbing provisions and taxed the interest income in the hands of the husband. Similarly in another case, a salaried employee opened a fixed deposit (FD) in the name of his minor daughter out of his savings and did not offer the interest income in his hands thinking that interest is getting accumulated in his daughter’s account without realizing the clubbing provisions of Income Tax Act, 1961. The tax department brought the said income to tax in the hands of the employee and also levied stiff penalty on the ground under reporting of income which amounts to misreporting.»

What is clubbing of income?

According to the income tax brochure, clubbing of income refers to including another person’s income in the taxpayer’s total income under certain circumstances as per the Income Tax Act, 1961. This is done to