Employment by a family concern is not the complete test
For tax year 2026–27, section 99(1)(a)(i) of the Income-tax Act, 2025 addresses salary, commission, fees and other cash or non-cash remuneration arising to an individual’s spouse from a concern in which that individual has substantial interest. It excludes income solely attributable to application of the spouse’s technical or professional knowledge, experience and technical or professional qualification. Do not treat either the marriage certificate or a professional degree alone as the entire analysis.
Use voting power for a company and profit entitlement otherwise
Section 99(5)(a) in the Act as amended by Finance Act, 2026 defines substantial interest. For a company, relevant shares must carry not less than 20% voting power and be beneficially owned by the individual, alone or jointly with one or more relatives, at any time during the year. Shares entitled to a fixed dividend, with or without further profit participation, are excluded by the stated definition. For another concern, use entitlement to at least 20% of profits, alone or jointly with relatives, at any time during the year. Nominal capital, a year-end snapshot and an annual average are not substitutes for those tests.
Allocate only after deciding what falls within the provision
Section 99(5)(a)(i) places the relevant income with the spouse whose total income before inclusion is greater. Once included with either spouse, the rule restricts shifting it to the other in a succeeding year unless the Assessing Officer is satisfied after giving the required opportunity of hearing. Keep earlier allocation records; do not automatically reselect the larger-income spouse every year. The examples isolate an agreed includible remuneration amount after all relevant head-of-income computations and ignore final tax, credits and unrelated deductions.
Separate this rule from transferred-asset clubbing
Section 99(2)’s opening-investment formula concerns transferred assets invested in business or firm capital, following the Finance Act, 2026 cross-reference correction. It is not a percentage formula for this remuneration provision. Nor does the professional-income exception automatically shelter interest or business income arising from gifted assets. Maintain separate source schedules when a spouse receives both salary and investment returns.
Evidence that supports the professional exception
Retain qualifications, role descriptions, work outputs, employment terms and a supported connection between the remuneration and the qualifying professional activity. The statutory solely-attributable requirement needs facts; an unrelated qualification or an unsupported description of consultancy does not establish it. Mixed functions and disputed allocation require supported analysis rather than an invented universal apportionment percentage. Income excluded from this clubbing clause still needs the actual recipient’s tax computation.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Company threshold equality
Assume eligible beneficial holdings carry 18% voting power for the individual and 2% for the relevant relative, satisfying the statutory ownership conditions. Combined voting power is 20%, meeting the substantial-interest threshold. Using 18% alone would miss the aggregation test.
Illustrative example 2: Below the ownership threshold
Eligible combined voting power is 19.5%, or 0.5 percentage point below 20%. On these facts the substantial-interest threshold is not met under this company limb. That result is not a general exemption from all other tax provisions.
Illustrative example 3: Non-company profit entitlement
In a non-company concern, the individual is entitled to 12% of profits and a relevant relative to 10%, with the required joint-entitlement facts established. Their combined entitlement is 22%, two percentage points above the test. A capital account percentage of 15% does not replace the profit-entitlement input.
Illustrative example 4: First-year remuneration allocation
Assume the clause applies and ₹6,00,000 is the agreed includible remuneration. The spouses’ respective incomes before that inclusion are ₹14,00,000 and ₹5,00,000. With no prior allocation constraint, inclusion with the former produces ₹20,00,000 before other adjustments. The same ₹6,00,000 must not remain duplicated in both computations.
Illustrative example 5: Professional work supported
A spouse receives ₹9,00,000 from a concern where the substantial-interest test is met. Assume reliable facts establish that the whole amount is solely attributable to the specified professional knowledge, experience and qualification. This clause’s included amount is zero and ₹9,00,000 remains for the actual recipient’s separate tax computation; it does not become tax-free.
Illustrative example 6: Continuity in a later year
Relevant remuneration was included with A in the earlier year. This year the agreed includible amount is ₹4,00,000 and pre-inclusion incomes are A ₹7,00,000 and B ₹10,00,000. Assuming no permitted change by the Assessing Officer and continuing applicability, retain A: ₹7,00,000 + ₹4,00,000 = ₹11,00,000. B’s larger current base alone does not authorise a switch.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the tax year | Apply the current Act to the actual period. |
| 2 | Identify remuneration sources | Separate salary, commission, fees and non-cash amounts. |
| 3 | Identify the concern | Distinguish company voting power from other-concern profit rights. |
| 4 | Trace beneficial ownership | Retain the individual/relative ownership evidence. |
| 5 | Test the full year | Check the at-any-time requirement, not only year-end. |
| 6 | Review professional facts | Match the statutory exception to actual work and qualifications. |
| 7 | Determine includible income | Use supported head-of-income computations. |
| 8 | Read earlier allocations | Check continuity and any Assessing Officer decision. |
| 9 | Allocate between spouses | Apply the correct higher-income and continuity rules. |
| 10 | Reconcile returns | Avoid duplicate income and analyse tax-credit treatment separately. |
Sixteen practitioner FAQs
1. Does every spouse salary get clubbed?
No. Establish the specified concern, substantial interest and absence of an applicable exception.
2. Does the rule cover commission?
Yes. Salary, commission, fees and other remuneration are expressly covered.
3. Can non-cash remuneration matter?
Yes. The text includes remuneration in cash or kind.
4. What company measure is used?
Eligible beneficial shareholdings carrying the specified voting power.
5. Is the company threshold strictly above 20%?
No. Not less than 20% includes exactly 20%.
6. Can relevant relatives’ holdings matter?
The definition expressly provides the stated joint aggregation.
7. Can nominal capital always replace voting power?
No. Apply the statutory voting-power input and share exclusions.
8. What measure applies to another concern?
The stated entitlement to at least 20% of profits.
9. Is only year-end ownership tested?
No. The definition uses at any time during the tax year.
10. Does a degree alone prove the exception?
No. The income must satisfy the specified sole-attribution test on the facts.
11. Does excluded remuneration become exempt income?
No. It remains subject to the actual recipient’s relevant tax provisions.
12. Which spouse initially includes the covered amount?
The rule refers to the spouse with greater total income before inclusion.
13. Can that choice change automatically next year?
No. The continuity restriction and Assessing Officer process must be considered.
14. Is section 99(2)’s opening-capital ratio applied to salary?
No. That formula addresses qualifying transferred assets invested in business or firm capital.
15. Does payroll TDS determine attribution?
No. Reconcile income attribution and credit treatment under their respective provisions.
16. Do these cases calculate final tax?
No. They identify the inclusion and allocation; final tax requires the full computation.
Conclusion
Test concern ownership before allocating spouse remuneration. Section 99 uses a 20% substantial-interest threshold, a specific professional-income exception and a higher-income-spouse continuity rule.