Can remuneration received by spouse of an individual be clubbed with his/her Income
CLUBBING OF INCOME IN INCOME TAX ACT– Under certain circumstances as given in section 64(1)(ii) of Income tax law, remuneration /salary received by the spouse of an individual from a concern in which the individual is having substantial interest is clubbed with the income of the individual in Income tax Return. Provisions in this regard are as following:
- The individual is having substantial interest in a concern/case.
- Spouse(husband/wife) of the individual is employed in the concern in which the individual is having substantial interest.
- The spouse of the individual is employed without any technical or professional knowledge or experience (Remuneration/Salary is not justifiable).
(*) An individual shall be deemed to have substantial interest in any concern, if such individual alone or along with his relatives (as per income tax act) beneficially holds at any time during the previous year are flowing
-
- in case of a company –20% or more of the equity shares
or is entitled to
in case of concern other than a company 20% of profit .
Relative Means for this purpose includes husband/wife, brother/sister or lineal ascendantor descendent of that individual [ section 2(41) of Income tax act].
Example-1
Mr. Mohan is beneficially holding 21% equity shares of Apple Minerals Pvt. Ltd. Mrs. Mohan is employed as Manager (in accounts department) in Apple Minerals Pvt. Ltd. at a monthly salary of Rs. 74,000. Mrs. Mohan is not having any knowledge, experience or no any qualification in the field of accountancy. Will the remuneration/ salary) received by Mrs. Mohan be clubbed with the income of Mr. Mohan?
**
In this situation, Mr. Mohan is having substantial interest in Apple Minerals Pvt. Ltd. and remuneration of Mrs. Mohan is not justifiable (i.e., she is employed without any technical or professional knowledge or experience) and, hence, salary received by Mrs. Raja from Apple Minerals Pvt. Ltd. will be clubbed with the income of Mr. Mohan and will be taxed in the hands of Mr. Mohan.
Example-2
Mrs. Sharma is beneficially holding 30% equity shares of AM Construction Pvt. Ltd. Mr. Sharma is an architect and he is employed as site observer of one of the construction sites of the AM Construction Pvt. Ltd. at a monthly salary of Rs. 38,400. The remuneration/salary received by Mr. Sharma is justifiable considering his knowledge, experience and qualification. Will the remuneration received by Mr. Sharma be clubbed with the income of Mrs. Sharma because she is having substantial interest in AM Construction Pvt. Ltd.?
**
In this situation, Mrs. Sharma is having substantial interest in AM Construction Pvt. Ltd., but Mr. Sharma is deputed on the basis of his knowledge, experience and qualification and, hence, remuneration/salary paid to him is justifiable. The clubbing provisions of section 64(1)(ii) of income tax act apply only in a case where spouse is deputed without any technical or professional knowledge or experience. In this case, the remuneration/Salary of spouse is justifiable, hence, salary received by Mr. Sharma will not be clubbed with the income of Mrs. Sharma but will be taxed in his hands.
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