Scope and principle
This guide covers returns under the Income-tax Act, 1961 through FY 2025–26 (AY 2026–27). For tax years beginning on or after 1 April 2026, use the corresponding provisions of the Income-tax Act, 2025. Sections 60–65 can require one person to include specified income of another. Separate the tax treatment of the asset transfer itself from the subsequent income; an exemption for a gift from a relative does not prevent clubbing of later income.
Apply the relevant trigger
| Event | Provision | What to test |
|---|---|---|
| Spouse receives salary, commission, fees or other remuneration from a concern | Section 64(1)(ii) | Check substantial interest and the proviso for income solely attributable to application of the spouse’s technical or professional knowledge and experience where the spouse has the requisite qualifications. |
| Direct or indirect transfer to spouse | Section 64(1)(iv), subject to section 27(i) | Trace income from the transferred asset. Check adequate consideration or a transfer connected with an agreement to live apart. For house property, check deemed ownership separately. |
| Direct or indirect transfer to son's wife | Section 64(1)(vi) | Check the relationship, timing, adequate consideration and income from the asset. |
| Transfer to another person or association for a spouse or son's wife | Section 64(1)(vii) or (viii) | Check inadequate consideration and the extent to which the income benefits the relevant person immediately or later. |
| Income of a minor child | Section 64(1A) | Exclude income from manual work or an activity applying the child's skill, talent, specialised knowledge or experience. The provision excludes a minor with a disability of the nature specified in section 80U. |
| Exemption against clubbed minor-child income | Section 10(32) | Old regime: lower of ₹1,500 per child and the income included for that child. Section 115BAC(2) excludes this exemption in the new regime. |
For spouse remuneration, substantial interest generally requires at least 20% of voting power in a company (subject to the share exclusions in Explanation 2) or at least 20% entitlement to profits of another concern, at any time during the previous year. The specified holdings or entitlements of the individual's relatives can count. Explanation 1 governs attribution of relevant remuneration by reference to the greater total income before inclusion, and continuity of attribution unless the Assessing Officer changes it after giving an opportunity to be heard.
Where the parents' marriage subsists, section 64(1A) attributes the minor’s clubbable income to the parent with greater total income before the inclusion. Where the marriage does not subsist, it uses the parent who maintains the child in the previous year. Once included in one parent's income, the statute generally continues that attribution unless the Assessing Officer is satisfied, after an opportunity to be heard, that a change is necessary. Identify the income and relevant parent rather than assuming that the account holder or custodial title decides.
Document the source and ownership of funds
- Commercial loan: If ₹50 lakh is advanced to a spouse, document enforceable repayment, interest, creditworthiness and actual performance. Neither a loan label nor a quoted interest rate establishes that there is no indirect transfer. Report the lender’s actual interest and separately test the borrower's income and deductions.
- Reinvestment: If a ₹10 lakh gift produces ₹75,000 of interest, trace that first return to the transferred asset. A genuinely separate investment of the accumulated interest needs its own source analysis. Do not treat growth or proceeds of the original gifted investment as separate merely because they are reinvested; follow the actual funds and apply the statutory proportional rule where relevant to business investment.
- Exempt instruments: Test the relevant PPF, Sukanya Samriddhi or tax-free bond exemption and account eligibility separately. Clubbing does not by itself convert qualifying exempt interest into taxable income. It also does not exempt a capital gain or a non-qualifying receipt.
- Adult child: A genuine gift from a parent to an adult child is outside section 56(2)(x) by the relative exception; section 64(1A) does not apply to income arising after majority. Verify the child’s own income, applicable regime and eligibility before drawing a tax conclusion.
Six worked cases
Case 1: ₹20 lakh gifted to a spouse: deposit versus equity fund
Amit gifts ₹20,00,000 to Ritu on 1 April 2024. A full year of FD interest at 7.5% is ₹1,50,000. Assuming the amount is clubbed and all of it falls in Amit’s 30% band with no surcharge, incremental tax is ₹45,000 plus ₹1,800 cess, or ₹46,800. Ritu does not use her basic exemption against income attributed to Amit.
Alternatively, Ritu buys units of a qualifying equity-oriented fund on 1 April 2024 and redeems them on 10 July 2025 for ₹24,00,000. Assume the section 112A holding, securities transaction tax and other conditions are met, no transfer costs, no other section 112A gains, and Amit’s basic exemption is already absorbed with no rebate or surcharge. The ₹4,00,000 long-term gain is attributed to Amit and retains its tax character. At 12.5% on ₹2,75,000 above the annual ₹1,25,000 threshold, tax is ₹34,375 plus ₹1,375 cess, or ₹35,750. The FD and fund figures cover different periods and risks and do not establish that one investment saves a fixed percentage of tax.
Case 2: Salary to the spouse of a controlling shareholder
Sameer has 85% of the relevant voting power in a diagnostics company. His spouse Priya, who has an MBA in hospital administration, manages 45 staff and earns ₹24,00,000 as COO. Substantial interest is present on these facts. Determine whether the salary is solely attributable to applying her relevant professional knowledge and experience. Retain role, qualification, duties and payment evidence. If the proviso is established, that remuneration remains assessable to Priya; a degree and a market salary alone do not establish it. In Batta Kalyani v. CIT, the Andhra Pradesh High Court examined both qualifications and attribution; it did not grant an automatic exception. The employer's deduction is a separate question.
Case 3: Reciprocal transfers to business partners' spouses
X pays ₹15,00,000 to Y’s wife, and Y pays ₹15,00,000 to X’s wife on the same day. Assume the evidence shows a single reciprocal arrangement that indirectly puts each man’s funds at his own spouse’s disposal without adequate consideration. On that assumption, each ₹1,10,000 of FD interest is attributed to the spouse who is the relevant indirect transferor: the amount earned by Y’s wife to Y, and the amount earned by X’s wife to X. CIT v. C. M. Kothari considered connected cross-transfers under the analogous 1922 Act provision. Common timing alone does not prove a linked transaction. Examine separately whether the receipt of the funds triggers section 56(2)(x) on the actual facts.
Case 4: Child actor and bank interest
Eleven-year-old Aarav earns ₹18,00,000 from acting and sponsorship activities in FY 2024–25. Assume all fees are directly attributable to applying his skill. They are assessed in his own hands, with the appropriate return and representation as applicable. Assume the ₹85,000 interest is a separately earned bank return, rather than remuneration for the activity. With no applicable disability exclusion, it is clubbable in the hands of the parent identified under section 64(1A). In the old regime the exemption is ₹1,500 and the net inclusion ₹83,500; in the new regime the full ₹85,000 is included. Examine individual sponsorship contracts and other receipts separately.
Case 5: ₹25 lakh gifted after the son turns 18
The son turns 18 on 15 July 2024 and receives a genuine ₹25,00,000 gift from his father on 20 July. The relative exception covers the gift and section 64(1A) does not attribute income arising from this post-majority deposit. At 7.5% for a full year the interest is ₹1,87,500. Use the actual interest accruing or received in the applicable year rather than assuming a full year to 31 March. If this is his only ordinary income for the full year, it is below the basic exemption under either regime in the years covered. ITR eligibility depends on his complete circumstances.
Case 6: Husband funds a ₹1.20 crore flat titled to his wife
A husband supplies the full purchase funds and the seller conveys the Mumbai flat directly to the wife. Rent is ₹45,000 monthly, or ₹5,40,000 over 12 months. Trace the transfer of funds and the rent. Section 27(i) is a deemed ownership provision for an actual transfer of house property by a spouse otherwise than for adequate consideration outside a live-apart agreement; do not assume it applies merely because the purchase money came from the husband. If the wife is the owner and the purchase is traced to the gratuitous cash transfer, section 64(1)(iv) can attribute the resulting property income. Assuming annual value equals rent, no deductible municipal taxes or interest and no other adjustment, section 24(a) gives ₹1,62,000, leaving ₹3,78,000 of property income. Verify title, the actual mode of transfer and net annual value before reporting.
Frequently asked questions
1. Which parent is relevant if the marriage does not subsist?
Apply the statutory maintenance test and the continuity rule. A custody label does not substitute for the facts.
2. What if the child turns 18 on 15 December?
Separate income arising up to 14 December during minority from income arising from 15 December onward. Use the actual accrual or receipt rule for the income; do not split every receipt by days mechanically.
3. What if the transfer occurs before the son's marriage?
Section 64(1)(vi) specifically concerns transfers to the son's wife. Check the relationship at the relevant time and whether there is an indirect or linked arrangement. A prospective daughter-in-law is not automatically a relative under section 56(2)(x); test the receipt and any independently applicable exception.
4. Is section 10(32) available under section 115BAC?
No. The new regime expressly excludes it.
5. Where should clubbed income be reported?
Include it under the correct income head and complete Schedule SPI where the chosen return provides it, as in ITR-2. ITR-1 has no separate Schedule SPI; include eligible clubbed income in the applicable field if the taxpayer and the income qualify for that form. The income type may require a different return. Avoid including the amount twice.
6. Is interest on ₹1,50,000 of savings from a household allowance automatically outside clubbing?
No universal rule follows from the label “household allowance”. Distinguish funds used for family expenses from amounts actually transferred for the recipient’s investment, and trace ownership, purpose, source and income before concluding.
Sources
- Income-tax Act, 1961: sections 10, 24, 27, 56, 60–65, 112A and 115BAC
- Income Tax Department: Income-tax Act, 1961 as amended by Finance Act, 2025
- Section 64: statutory text
- Finance Act, 2023: substituted section 115BAC(2)(i)
- Income Tax Department: eligible clubbed income in ITR-1
- Supreme Court judgment: CIT v. C. M. Kothari, (1963) 49 ITR 107
- Andhra Pradesh High Court judgment: Batta Kalyani v. CIT, (1985) 154 ITR 59
- Finance Act, 2026 Gazette copy: rates for AY 2026–27
- Notified AY 2026–27 ITR-2, Schedule SPI
- Income Tax Department: transition between the Acts