Clubbing Of Income

Q. What does “Clubbing” mean?

A. CLUBBING means someone else’s income is added to income of a person and charged a tax.
Usually it happens when person gives GIFT to wife or minor son.
Income Earned from Asset transferred to wife or minor is added to income of husband

Q. What are the exceptions where clubbing is not attracted?

A. There are certain instances when clubbing is not attracted.
-If GiFT is given before marriage.
– If Gift is given at the time of divorce

Q: Upto what limit can one transfer money to spouse in a year ?

A. There is No upper limit of GIFT to spouse.

Q. Does it attract income tax on both end on transferring money to spouse?

No. However, Clubbing can defeat purpose of tax saving. Income on asset is clubbed to
transferor.

Q. If wife is also medico (professional) can we transfer money to our spouse account every month and show that as expenses ?

A. If husband is paying certain amount to wife as professional fees then husband can show that amount as expense
while wife will have to show it as Revenue in her account.If both are in 30% tax bracket
there is NO tax saving. However, if wife is in 10% bracket then you can save tax.
TDS deduction is not required in this case

Q. Both husband and wife are working, husband has multiple expenses, so to take benefit of 80C, he transfers money from his wife and invests in ELSS. Now when returns come of that fund it becomes taxable, in such situations how do clubbing work? As both are working and paying tax on it?

A. If transfer is shown as professional fees then No clubbing is attracted.
If transfer is not professional fees then LTCG on ELSS of wife will be added to income of
husband

Q: is there any way that we have a benefit of clubbing the income with spouse ?

A. Clubbing has NO benefit unless there is negative income from asset.
E.g. In above example, long term capital Loss in ELSS of wife can be clubbed to husband
income and tax is reduced

Q. if husband transfers money to wife’s account during some kind of emergency, Can it be considered as loan if later she transfers back the amount ?

A. YES.

  • Husband can give loan to wife.
  • No clubbing is attracted.
  • In fact, LOAN is best way to transfer money from one spouse to other and HUF to members.
  • No clubbing is applicable to loan

Q. Can the deposit money be given to wife in the form of depreciation: say over the period of 10 years for a constructed hospital?

A. If wife uses deposit to constuct building or buy machine, she would get benefits of depreciation.
Deposits are shown Loan/ Advances in balance sheet. It’s not money of wife. Its refundable deposit

Q. Does transfer of any amount of my professional income into my spouse or parents saving account serve any purpose?

ANS: YES.
If used INTELLIGENTLY transfer of money from one spouse to other and parent can save
tax legally. It can create assets.
Please note that INCOME OF INCOME is NOT clubbed.
That means If husband give 1 lac deposit. Wife earns Rs. 10000 and this income is
clubbed to income of husband. If that Rs. 10000 is invested and Rs 1000 is earned then
this is income of wife. Its not clubbed to husband income.
This is very IMPORTANT concept

Q. If husband and wife both are working professional with different category, one receiving salary with 30% bracket, another having business income with lots of expenses with 10% bracket, is it advisable to give gift for debt component investment? From 30% to 10%

A. Salaried doctor can’t give PRETAX money to wife and show as Expenses.
He can give as much as money from POST TAX income as GIFT
This is tax free in hands of wife. However, income from that money will be clubbed to
income of husband

Q. Can spouse borrow/lend money to each other as a formal transaction? If yes, what are the parameters?

A. Husband and wife are different persons . They can give loan to each others.

  • You need to do cheque/online transfer.
  • Both need to make entries in balance sheets.
  • Reasonable interest should be paid..However , interest free loan can be given.. But it
    depends upon FACTs and Circumstamces.

Q. Suppose if I transfer Rs. 50000 to wife’s account every month as her professional income from my account, does she have to pay tax on that amount ?

A. It becomes her Revenue and she will have to pay Tax

Q. Can husband give salary to nonmedico wife for managing the diagnostic Centre? How much?

A. NO.

  • Salary without Technical expertization is not possible.
  • You may show some amount: let’s say Rs.10000 – 20000 per month as per her qualification.
    But Unreasonable salary can’t be shown without MBA or management degree

Q. Can husband give loan to wife?

ANS: YES

Q. Can we take unsecured loan from parents?

ANS: YES

Q. Can the deposit money or loan given to wife by husband be used by her for investment and returned after few years?

A. YES

  • Wife can use loaned money for investment also and return back to husband.
  • Even if you show just entries on book its OK. No need to return.

Q. Is their any need to show reason every time for giving the loan to wife by husband

A. Reason of Loan will not be asked.

  • Only books of accounts are must.
  • And if wife is paying interest then there is Absolutely NO problem at all.
  • E.g. Husband give 1 Cr loan to wife and she pays 6-7 Lacs as interest.
  • She can invest 1Cr and earn 12-13 Lacs also..
  • This will be very clear transaction.
  • Give loan- Pay interest

Q. If wife is in 10 % bracket and husband is in 30% bracket then how will clubbing will help in saving tax?

A. Clubbing Increase TAX burden. It does not save tax.

Q. Can HUF give gift to any member like karta? How much? What are tax parameters for it?

A. HUF can gift Unlimited money to its members. It’s TAX free in hands of members.

Q. Can HUF gift ONLY to one member? Is there need to show reason for gift or do gift stamp?

ANS; HUF can give gift to Any member. It’s better to have GIFT deed as evidence.

Q. If a minor gets gifts from his/her grand parents in form of monthly Recurring deposits. After the demise of grand parent (child still minor), will the interest be clubbed with the income of father?

A. YES.

Q. How can you spread income without clubbing?

A. TAX TIP.

  • Husband give LOAN to wife.
  • She buys Machines ( X ray, Car, Ventilators etc.).
  • She rent machines to hospital and earn Significant money as RENT and Benefits of Depreciation.
  • You can spread income without Clubbing