Clubbing of Income
Clubbing of Income – NRI Taxation Explained by Casela Advisors
Clubbing of Income refers to the inclusion of another person’s income into the taxpayer’s own income under certain circumstances, as per the Indian Income Tax Act, 1961. While an individual is generally taxed only on income earned by them, in specific cases, the income of spouse, minor child, or other relatives may be clubbed and taxed in the individual’s hands. This concept plays a crucial role in tax planning and compliance, especially for NRIs and HNIs.
At Casela Advisors, our expert Chartered Accountants for NRI taxation simplify income clubbing provisions to help you avoid penalties and ensure proper tax filings.
Situations Where Clubbing Provisions Apply
1. Transfer of Income Without Transfer of Asset
If an individual transfers income from an asset but retains ownership of the asset, the income is still taxable in the hands of the original owner.
Example: An NRI rents out a property but gifts the rental income to a friend without transferring the property. The rental income remains taxable in the hands of the NRI.
2. Transfer of Asset Without Adequate Consideration
When assets are transferred to spouse or son’s wife without fair consideration, income from such assets is clubbed with the transferor’s income.
Example:
- Mr. A gifts ₹1 lakh to his wife, and she earns interest on a fixed deposit from this gift. The interest is taxable in Mr. A’s hands.
- If the gift came from her father, the income is taxable in her hands, not clubbed.
3. Clubbing of Spouse’s Income from a Concern with Substantial Interest
If your spouse earns salary, commission, or fees from a business where you have a substantial interest (own at least 20% equity or profit share), and they are not employed based on their professional expertise, the income is clubbed with your income.
4. Clubbing of Minor Child’s Income
A minor child’s income is clubbed with the income of the parent with higher taxable income, except when:
- The income is from the minor’s skill, talent, or manual work
- The child is disabled as per Section 80U
Exemption: Income of each minor child is exempt up to ₹1,500.
5. Revocable Transfer of Assets
In cases where a person transfers assets but retains control or can revoke the transfer, the income from such assets is taxable in the transferor’s hands.
6. Clubbing of Losses
Just like income, losses from assets subject to clubbing are also clubbed and can be adjusted against the transferor’s income.
Why NRIs Should Be Cautious of Clubbing Provisions
NRIs often gift or invest in India through relatives or joint ownerships. However, without professional guidance, these transactions may lead to unexpected tax liabilities in India.
Casela Advisors, a leading Chartered Accountant firm for NRIs, offers personalized tax advisory and income clubbing assessment to ensure you stay compliant and maximize tax efficiency.
Get Expert Help with Clubbing of Income
Whether you’re an NRI transferring assets to family members or a resident involved in shared income structures, our team at Casela Advisors can help you navigate clubbing rules, apply exemptions correctly, and file accurate ITRs.
Clubbing of Income FAQs
- What types of income are subject to clubbing?
- Is income from minor child’s bank account taxable?
- How to avoid clubbing provisions legally?
Contact Casela Advisors today for a consultation with top Chartered Accountants in India specializing in NRI taxation and income tax compliance.
✅ Services Covered:
- Clubbing of income assessment
- NRI taxation and asset transfer advisory
- ITR filing for NRIs and RNORs
- Gift and inheritance tax planning
- Expert Chartered Accountant guidance
