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Know taxation rules for clubbing income of minor child and spouse ITR FY 2020-21
October, 24th 2020

Income tax return filing last date (November 30) is near and taxpayers whose spouse or minor kid earns need to know about income clubbing taxation rules. There are many occasions when one might have to club the income of someone else with their income. As per the Income Tax Act, clubbing of income means the income of other person is included in assessee’s total income and they pay the tax on it as applicable. For instance: if the income of a spouse or minor child is added to the taxpayer's income, it is termed as clubbing of income. 

If you are planning to transfer any of your assets, income to another person as a means of tax planning to avoid the income getting taxed in your hands, you need to know that such transfers could result in attraction of clubbing provisions under the Indian income tax laws.

In fact, genuine gifts extended to your spouse or minor child could also have these income tax implications. In order to avoid any tax notice from the department, it would help you immensely if you get some insights on the clubbing provisions under the Indian Income Tax Law beforehand. Section 64 of the Income Tax Act explains rules regarding clubbing of income.

1. Clubbing income of spouse: As per the I-T Act, Income arising directly or indirectly to the spouse of an individual by way of salary, commission, fees or any other form of remuneration, in cash or in kind will be added to the tax-paying partner's income. There are some exceptions as well. For instance, if the spouse possesses technical or professional qualifications and the income is solely attributable to the application of their technical or professional knowledge and experience, such income cannot be clubbed. Also, if the couple is living apart, the assets cannot be clubbed.

2. Clubbing income of a minor child: Any income earned by a minor child during the financial year should also be clubbed in the income of the taxpaying parent and taxed accordingly. In case both the parents are earning, the income of a minor child should be clubbed in the income of the parent whose total income is greater. However, if the minor child is suffering from any disability of any nature specified under Section 80U of the Income Tax Act, the income cannot be clubbed.

Taxpayers must remember that the income of the minor child should not arise out of manual work done by the child or out of any activity involving the application of his skill, talent or specialised knowledge and experience.

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