Smart things to know: Clubbing of income for taxation

Clubbing of income for taxation

Paying tax on income earned by others

• Income earned by others is taxable as per the norms of income tax.
• This is known as clubbing of income. You cannot avoid the tax on income that is earned on other’s income. This eliminates the tax avoidance to those who transfer their balance to those having lower tax.

Income earned on an asset

If you earn income from some assets, then that income is taxable. If you transfer the interest earned on that income, to someone else without transferring the assets. The tax will be paid by the transferee.

The investment made in the name of a minor child

• If the income is earned on behalf of a minor child, the parents of that child will pay the Income Tax.
• The complete tax will be added to the income of parents.

Re-transferring the asset to someone else

• If you have transferred your property, then the tax earned on those assets will be paid by the transferee.
• The transferee retains to re-transfer the assets to someone else, only the transferee is liable to pay the tax on those assets.

Clubbing of income for taxation

• All forms of income such as salary, profit from the business, capital gains, House Property, or any source of income will be clubbed together, and tax on each income will be paid.
• Any form of income should be mentioned while filing the tax and the tax on that income should be filed.