Clubbing of Income

64. [(1)] In computing the total income of any individual, there shall be included all such income as arises directly or indirectly—

           (i)  [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

          (ii)  to the spouse of such 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 :

                 [Provided that nothing in this clause shall apply in relation to any income 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 ;]

         (iii)  [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

         (iv)  subject to the provisions of clause (i) of Section 27, [* * *] to the spouse of 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 ;

          (v)  [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]

         (vi)  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; [* * *]

        (vii)  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 [* * *]; and]

      [(viii)  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

1. Income earned out of Income arising from transferred assets not liable for clubbed.
[M.S.S. Rajan 252 ITR 126 (Mad)]

Gifts made between spouses and to their minor children attract the provisions of Section 64.

All your major children can help you save your income tax. You can freely gift (under irrevocable transfer) money to your major children without attracting the payment of tax. if any income, arising from these investments in years to come will be taxed in the hands of your major children.

If you have fixed deposits let us say of Rs.10 lakh and you have a major son as well as a major son as well as a major daughter then it makes sense to gift away Rs.5,00,000 to each of them.

Covered	Not covered
Spouse	Major Son/ Daughter
Minor	Brother / Sister
Daughter in Law	Parents

64 [(1A)In computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child [, not being a minor child suffering from any disability of the nature specified in Section 80 U] :

Provided that nothing contained in this sub-section shall apply in respect of such income as arises or accrues to the minor child on account of any—

          (a)  manual work done by him ; or

          (b)  activity involving application of his skill, talent or specialised know-ledge and experience.

Explanation.—For the purposes of this sub-section, the income of the minor child shall be included,—

          (a)  where the marriage of his parents subsists, in the income of that parent whose total income (excluding the income includible under this sub-section) is greater ; or

          (b)  where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the previous year,

Besides clubbing of income of minor-children in the hands of the parent, certain other incomes are also liable to be clubbed in the hands of the individual in the following circumstances:-

a) When   the  income  arises  to  the   spouse   of such individual from assets transferred directly or indirectly to the spouse by the individual for inadequate consideration.
b) When the income arises to the son's wife from assets, transferred after 1^st June 1973, to the son's wife by the individual for inadequate consideration.
c) When income arises to the son's wife from assets transferred, for    inadequate consideration, by the individual to such person for the benefit of   the individual's wife or son's wife.