Do you deposit your ITR? Know the tax rules for clubbing income from minor children and spouses | Image credit: BCCL
New Delhi: Basically, you have to pay tax on your income. However, in certain circumstances, you may need to combine your family member’s income. Under the Income Tax Act, the pooling of income means that the income of another person is included in the total income of the Assesse and he pays the applicable tax. For example, when the income of a spouse or minor child is added to the taxpayer’s income, this is known as an income lump.
If you intend to transfer your assets or income to another person as a means of tax planning in order to avoid being taxed on the income in your hands, you must understand that such transfers may result in clubbing regulations under the Indian Income Tax Laws are availed.
In fact, real gifts to your spouse or underage child can also have this income tax impact. In order to avoid a tax assessment from the ministry, it would be extremely helpful to get some insight into the clubbing regulations under the Indian income tax law beforehand. Section 64 of the Income Tax Act explains the rules for pooling income.
1. Club income of the spouse: According to IT law, income that the spouse of a natural person incurs directly or indirectly in the form of salaries, commissions, fees or other payments in cash or in kind is added to the income of the taxable partner. There are also some exceptions. For example, if the spouse has a technical or professional qualification and the income is solely due to the application of his technical or professional knowledge and experience, this income cannot be collected. Even if the couple lives apart, the fortune cannot be beaten.
2. Underage child’s clubbing income: Any income generated by a minor child during the financial year should also be included in the income of the taxable parent and taxed accordingly. If both parents are earning, the income of a minor child should be included in the income of the parent whose total income is higher. However, if the minor child suffers from any kind of disability identified in Section 80U of the Income Tax Act, the income cannot be beaten.
The taxpayer must bear in mind that the minor child’s income cannot come from manual work by the child or from any activity that requires the application of his or her skills, talents or expertise and experience.