One of the most relevant issue in computing total income of an individual is clubbing of income.
Clubbing of income refers to inclusion of income of other persons in one’s own income. This provision is given in section 64 of Income Tax Act, 1961.
This section specify specified persons whose income will be be clubbed with that of the individual, in certain specified situations.
Specified situations where income needs to be clubbed with income of individual’s income.
1) If any income is accruing to spouse of the individual by way of salary, commission, fees, or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest..
But if any income is arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience, such income will not be clubbed.
2) Subject to provision of section 27, income arising to spouse f such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.
Such income shall be included in the income of that spouse, whose total income before including such income is greater. And once such income is included in such spouse’s income, it will continue to be included in his or her income, unless Assesing Officer is satisfied, after giving that spouse an opportunity of being heard, that it is necessary so to include it in other spouse’s income.
Substantial interest of an individual in a concern means –
i) In case of a company, holding shares on his own or along with his relatives carrying atleast 20% of voting power at any time during the previous year. It excludes the shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits.
ii) In any other case, if the individual either himself or along with his relatives are entitled in aggregate to atleast 20% of profits of the concern, at anytime during the previous year.
3) Any income is accruing to the son’s wife, of such individual, from assets transferred directly or indirectly on or after the 1st day of June, 1973, to the son’s wife by such individual otherwise than for adequate consideration.
4)Â Any income is accruing to any person or association of persons from assets transferred directly or indirectly otherwise than for adequate consideration to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his or her spouse.
5)Â Any income is accruing to any person or association of persons from assets transferred directly or indirectly on or after the 1st day of June, 1973, otherwise than for adequate consideration, to the person or association of persons by such individual, to the extent to which the income from such assets is for the immediate or deferred benefit of his son’s wife.
In case the asset transferred directly or indirectly by the individual to spouse or son’s wife are invested by the transferee in any business, that part of the income arising out of the business to the transferee in any previous year, which bears the same proportion to the income of the transferee from the business as the value of the assets aforesaid as on the first day of the previous year bears to the total investment in the business by the transferee as on the said day, shall be included in the total income of the individual in that previous year.
If asset is invested by way of contribution of capital as a partner in a firm, that part of the interest receivable by the transferee from the firm in any previous year, which bears the same proportion to the interest receivable by the transferee from the firm as the value of investment aforesaid as on the first day of the previous year bears to the total investment by way of capital contribution as a partner in the firm as on the said day, shall also be included in total income of the individual in that previous year..
6) Any income arising or accruing to minor child of the individual where child includes both step child and adopted child, will be clubbed in the hands of higher earning parent.
However, if marriage of child’s  parents does not subsist, income shall be clubbed in the income of that parent who maintains the minor child in the previous year.
In case, a member of HUF transfers his individual property to HUF for inadequate consideration or converts such property into HUF property.
If the converted property i s subject to partition, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse, and shall be clubbed with the income of individual.
Here, property includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.
For section 64, income includes loss too.
