Can someone explain to me what is clubbed income and when does it apply??
Hey @riya_gupta
The situation in which the income of another person is included in the income of the taxpayer is called clubbing of income. In certain special cases, the income of other person is included (i.e. clubbed) in the taxable income of the taxpayer. Here, he will be liable to pay tax in respect of his income (if any) as well as the income of other people too.
To understand in detail about what clubbed income us and when does is apply, please refer to the article.
I am a freelance developer. From the income I generate I plan to make some investments. If I gift a part of my income to my mother(not a professional / housewife) and if she makes investments. The capital gains(apart from equity, for example intraday, FNO trading that will be considered as a non-speculative business income and will be taxed at the slab rate instead of flat rate?) on that investment can be taxed at a lower slab rate. Now question is, is this allowed? Or will the income from that get clubbed with my income?
If in the same scenario, if the person gifting was my father, i.e. a husband gifting to his wife and wife making investments. In that scenario, I think it gets clubbed. Will it?
And for non-professionals / housewives who want to start trading, how can they make the initial capital if it will always get clubbed into the income of the person who gifted the initial capital?
I understand the person gifting still has to pay taxes and that’s fine and the recipient doesn’t have to as long as they are a relative of the person gifting.
Hey @phoenix, you can refer to this article for a detailed explanation.
Hi,
I know that if a Husband sends money to his wife and if the wife invests that money and makes some profit then this profit is clubbed with the husband’s income and taxable in the husband’s salary bracket.
But what if Father gives the money to his son as a gift (This is not taxable and there is no cap limit) and the son gives this money to his mother as a gift (This is again not taxable and there is no cap limit). Now if the mother invests this money and makes some profit then still clubbing of income is applicable or the profit will be considered as sole mother’s income?
1 Like
For the mother, if she makes gain/profit using that money then the same shall be taxable in the hands of the mother.
Here’s a read on Clubbing of Income as per Section of Income Tax Act - Learn by Quicko
3 Likes
Isn’t it a nice lawfull trick to circulate money and to prevent the clubbing of income ?
1 Like
I was also thinking about the same. This looks like a big loophole.
As per the clubbing provision if the person has sent the money to the other person, then any income out of that investment will be taxable in the hands of the provider only. If the income out of that investment is being re-invested then the income arising out of that will be taxable in the hands of the receiver.
as per your below statement ; it is not applicable in case of son and mother !
@Shrutika_Shah can you clarify his question ?
Initially you mentioned transfer of stocks to mother will not come under clubbing. While later your message conveyed otherwise. Will mother come under clubbing same like spouse ?
As a karta of HUF, can I gift stocks held as individual into my HUF without incurring clubbing of income?
Hey @SANKET_POSAM,
No, in such a case clubbing of income will be applicable.
Hi… If my wife GIFTS her shares worth more than 10 Lakhs to my MOTHER IN LAW, upon sale of the shares by my Mother, be it Long term or Short term- A. will the Cap Gains be Clubbed to my wife’s account? B. I presume ,The Gifted shares will not Incur any Gift Tax in the hands of my mother
Hey @Surbhi_Pal I need clarity on two hypothetical situation. Scenario 1 . If my wife GIFTS her shares worth more than 10 Lakhs to my MOTHER IN LAW, upon sale of the shares by my Mother, be it Long term or Short term- A. will the Cap Gains be Clubbed to my wife’s account? B. I presume ,The Gifted shares will not Incur any Gift Tax in the hands of my mother
Scenario2 @Surbhi_Pal If my wife (Co Parcener of the HUF) GIFTS her shares worth more than 10 Lakhs to our HUF DEMAT , upon sale of the shares by HUF DEMAT, be it Long term or Short term- A. will the Cap Gains be Clubbed to my wife’s account? B. I also presume ,The Gifted shares to HUF is Gift Tax free. Thanks in Advance for your reply and advice
Transfer money online to my father in law ( wife father) account 1. Is this considered as GIFT ( non taxable ) under relative definition . 2. Will income generated be clubbed to my income as in case of transfer to wife
Hi @Ash000,
Yes, this amount will be considered a gift and will not be taxable as a son-in-law is included in the definition of ‘relative’.
In case of gifts sent to the spouse, the clubbing provisions do apply.