Clubbing of Spouse's Income

Clubbing of Spouse's Income

Here are some situations when your spouse's income will get clubbed to your income and you'll have to pay tax on it-

(1) Your spouse receives a salary from a company or a firm in which you have a substantial interest, then such salary will be clubbed with your income. Substantial Interest means you alone or with your relatives (husband, wife, brother, sister or your lineal ascendant or descendant) hold equity or voting power of a company which is 20% or more. Or in case of a firm you are entitled to 20% or more of the profits. Also, if both of your receive an income from such a firm or company, it will get taxed in the hands of the person whose taxable income is higher. There is one exception to this - if your spouse receives the salary due to his/her application of technical or professional knowledge & experience then such salary will be taxed in the hands of the person receiving it and not clubbed.

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(2) You transfer an asset to your spouse directly or indirectly without receiving adequate consideration (does not include where asset is transferred as part of a divorce settlement) - income from this asset will be clubbed with your income. For example – where the husband to reduce his tax liability transfers an asset worth Rs 1,00,000 to his wife for Rs 25,000 .3/4th of the income from this asset will be taxed in the hands of the husband. If he receives no consideration, in that case the entire income from this asset will be clubbed with the husband's income. Although the clubbing provisions here exclude house property - but in case you transfer a house property to your wife and do not receive adequate consideration, as per the Act, you will still be considered the 'deemed owner' and the income from the asset will be clubbed with your income.

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(3) You transfer an asset to a person or an association of persons, directly or indirectly, without adequate consideration, so that the benefit arises to your spouse either now or on a deferred basis, income from such an asset will be clubbed with your income.

Join test series for Commerce UPSC optional ( starting date- .16th December 2017)

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(4) Assume a situation where you provide money to your spouse (who is non working) and that money is invested by the spouse and a certain income is generated (from such money that you gave your spouse).The income that arises from such investment done by her can be clubbed to your income. However, if your spouse reinvests the income portion and earns further income then such income may not be clubbed with your taxable income.