Clubbing of Income — Sections 97 to 101 [Income Tax Act, 2025]

Key Takeaways

• Clubbing provisions (Sections 97–101) of the Income Tax Act, 2025 (formerly Sections 60–65 of the Income Tax Act, 1961) prevent taxpayers from reducing their tax liability by transferring income or income-generating assets to family members in lower tax brackets.
• Section 97 (formerly Sections 60, 61, and 62) clubs income where the transfer of income is made without transfer of the underlying asset, and clubs income from revocable transfers of assets in the hands of the transferor.
• Section 98 (formerly Section 63) provides the definitions of "transfer" and "revocable transfer" for these purposes.
• Section 99 (formerly Sections 64 and 65) clubs income arising to the spouse from assets transferred without adequate consideration, income from assets of the son's wife, income of minor children, and income in cases of joint assets.
• The exemption of Rs. 1,500 per minor child per year under Schedule II (formerly Section 10(32)) continues under the Income Tax Act, 2025.
• Clubbing applies only to the income from the transferred asset, not to income earned by the transferee from independent sources or from reinvestment of clubbed income (second-generation income).

Section 97 — Transfer of Income and Revocable Transfers

Section 97 of the Income Tax Act, 2025 consolidates three provisions formerly in the Income Tax Act, 1961:

Transfer of Income Without Transfer of Asset (Formerly Section 60)

Where a person transfers income from any source to another person without transferring the asset from which the income arises, the income shall be included in the total income of the transferor (the person who transfers the income).

Essential conditions:

1. There must be a transfer of income (not the asset itself)
2. The transfer must be to any person (need not be a relative)
3. The asset generating the income must continue to belong to the transferor

Example: Mr. A owns a commercial property and executes a deed directing that the rental income from the property shall be paid directly to his wife Mrs. B. Since the property continues to belong to Mr. A and only the income stream is transferred, the rental income will be clubbed in Mr. A's total income under Section 97.

Practical Distinction

If Mr. A transfers the property itself (the asset) to Mrs. B through a valid gift deed registered under the Registration Act, Section 97 (as to income without asset transfer) will not apply. However, Section 99 may apply if the transfer is without adequate consideration.

Revocable Transfer of Assets (Formerly Section 61)

Where the owner of any asset transfers that asset under a revocable transfer, any income arising from the asset shall be treated as the income of the transferor and clubbed in their total income.

A transfer is revocable if it contains any provision for the re-transfer of the asset (directly or indirectly) to the transferor, or gives the transferor a right to reassume power over the asset or income therefrom.

Exceptions to Revocable Transfers (Formerly Section 62)

Section 97 also provides two important exceptions where the revocable transfer clubbing rule shall not apply:

1. Transfer not revocable during the lifetime of the beneficiary: If the transfer is irrevocable during the lifetime of the transferee (beneficiary) or the transferor, the income is assessed in the hands of the transferee.

2. Transfer not revocable for a period exceeding 6 years: If the transfer contains a condition that it shall not be revocable for a period exceeding 6 years, the clubbing rule does not apply for the duration of the irrevocable period.

Once the transfer becomes revocable (after the irrevocable period expires), Section 97 begins to apply.

Section 98 — Definition of Transfer and Revocable Transfer

Section 98 of the Income Tax Act, 2025 (formerly Section 63) provides inclusive definitions:

• "Transfer" includes any settlement, trust, covenant, agreement, arrangement, or disposition.
• "Revocable transfer" includes any transfer that contains a provision giving the transferor the right to reassume power, directly or indirectly, over the whole or any part of the assets or income.

Important: The transfer is treated as revocable even if the power to reassume is exercisable only with the consent of any person, or only on the happening of a specified event. The courts have interpreted these provisions broadly to cover indirect and constructive arrangements.

Section 99 — Income of Spouse, Minor Child and Joint Assets

Section 99 of the Income Tax Act, 2025 (formerly Section 64 of the Income Tax Act, 1961) is the most frequently invoked clubbing provision and targets several categories of transfers within the family unit.

Income from Assets Transferred to Spouse (Formerly Section 64(1)(ii))

Where an individual transfers (directly or indirectly) any asset to their spouse, otherwise than for adequate consideration or in connection with an agreement to live apart, any income arising from the transferred asset is included in the total income of the transferor.

Key conditions:

• The transfer must be without adequate consideration (gift qualifies)
• The relationship of husband and wife must exist at the time of transfer and at the time income arises
• If the transfer was made before marriage, clubbing does not apply (since the spouse relationship did not exist at the time of transfer)
• If the spouses are legally separated under an agreement to live apart, clubbing does not apply

Income from Assets Transferred to Son's Wife (Formerly Section 64(1)(iv))

Where an individual transfers any asset (directly or indirectly) to the son's wife (daughter-in-law), otherwise than for adequate consideration, any income arising from that asset after 1 June 1973 is included in the total income of the transferor.

Note: The relationship of the son and his wife must exist at the time of transfer. If assets are transferred to a woman who later marries the transferor's son, clubbing does not apply as the relationship did not exist at the time of transfer.

Income from Assets of HUF Transferred to Individual (Formerly Section 64(1)(vi))

Where the assets of an HUF have been converted into, or treated as, the property of an individual member, the income from such converted property shall be clubbed with the income of the individual member.

This commonly arises on partial partition of HUF or when HUF assets are informally appropriated by individual members.

Income of Minor Child (Formerly Section 64(1A))

All income of a minor child is included in the total income of the parent whose total income (before clubbing) is greater. If the parents' incomes are equal, it is included in the income of the father.

Exemption Under Schedule II (Formerly Section 10(32)):

The parent in whose income the minor's income is clubbed gets an exemption of Rs. 1,500 per minor child per year under Schedule II of the Income Tax Act, 2025 (formerly Section 10(32) of the Income Tax Act, 1961).

Exceptions — When Minor's Income Is NOT Clubbed:

| Exception | Detail | |-----------|--------| | Manual work | Income earned by the minor through their own manual work | | Skill, talent, specialised knowledge | Income earned through the minor's own skill, talent, or specialised knowledge (e.g., child actor, child prodigy) | | Disability | Minor child suffering from a disability specified under Section 154 (formerly Section 80U) — income is assessed separately in the minor's name |

Practical requirement: Where a minor child's income is clubbed, the parent must disclose the minor child's income in the relevant schedule of the ITR form. The minor child's PAN is not mandatory if income is clubbed, but a PAN is required if the minor files a separate return (applicable only in exception cases).

Liability in Case of Joint Income (Formerly Section 65)

Where any income from a joint asset cannot be definitely allocated between the co-owners, the Assessing Officer shall compute the total income of the association or body of individuals and assess tax on the total income of such body, or apportion the income between the members in such manner as the AO deems fit.

Landmark Judgement

Worked Example — Family Income Planning with Clubbing Provisions

Scenario: Mr. Vikram Mehta (income Rs. 18,00,000) wants to reduce his tax burden by distributing income among family members.

Transactions During Tax Year 2025-26

| Transaction | Amount | Recipient | Income from Asset | |-------------|--------|-----------|-------------------| | Gift of Rs. 10,00,000 FD to wife Mrs. Nisha | Rs. 10,00,000 | Wife | Interest: Rs. 70,000 @ 7% | | Gift of Rs. 5,00,000 FD to daughter-in-law Pooja | Rs. 5,00,000 | Son's wife | Interest: Rs. 35,000 @ 7% | | Gift of Rs. 3,00,000 to married daughter Kavita | Rs. 3,00,000 | Daughter | Interest: Rs. 21,000 @ 7% | | Minor son Arjun's FD from his grandfather | Rs. 2,00,000 | Minor child | Interest: Rs. 14,000 @ 7% | | Minor daughter Meera earns from acting | Rs. 50,000 | Minor child | Professional fee | | Mrs. Nisha reinvests interest income in MF | Rs. 70,000 | Wife | MF gains: Rs. 8,000 |

Clubbing Analysis

| Income | Clubbed with Mr. Vikram? | Reason | |--------|-------------------------|--------| | Rs. 70,000 — Wife's FD interest | Yes | Section 99 — gift to spouse without consideration | | Rs. 35,000 — Daughter-in-law's FD interest | Yes | Section 99 — gift to son's wife without consideration | | Rs. 21,000 — Married daughter's FD interest | No | No clubbing provision for gifts to major children (daughter is adult and married) | | Rs. 14,000 — Minor son's FD interest | Yes (Rs. 14,000 - Rs. 1,500 = Rs. 12,500) | Section 99 — minor child income clubbed with parent having higher income; Rs. 1,500 exempt under Schedule II | | Rs. 50,000 — Minor daughter's acting income | No | Exception — income from minor's own skill/talent | | Rs. 8,000 — MF gains from reinvested interest | No | Second-generation income — not clubbed (only income from the original transferred asset is clubbed, not income from reinvestment by the transferee) |

Mr. Vikram's Total Income After Clubbing

| Component | Amount (Rs.) | |-----------|-------------| | Own income | 18,00,000 | | Wife's FD interest (Section 99) | 70,000 | | Daughter-in-law's FD interest (Section 99) | 35,000 | | Minor son's FD interest (Section 99) less Schedule II exemption | 12,500 | | Total Income | 19,17,500 |

Mrs. Nisha's Separate Income

| Component | Amount (Rs.) | |-----------|-------------| | MF capital gains (second-generation income) | 8,000 | | Own salary/other income (if any) | As applicable |

Expert Tip: The most effective tax-efficient family transfers are: (1) gifts to major children (no clubbing applies); (2) gifts to parents (no clubbing, and parents may be in lower brackets or qualify for senior citizen benefits); (3) loans at reasonable interest to spouse (interest paid is deductible against the income, and capital growth belongs to the spouse). Avoid gifting income-generating assets to spouse or daughter-in-law, as all income will be clubbed under Section 99. Also, remember that accretion to the gifted asset (e.g., capital appreciation on shares gifted to wife) is not clubbed — only the income (dividend, interest, rent) is clubbed.

Section Interconnect

• Chapter 9 — Deductions (Sections 122-154): Section 154 (formerly Section 80U) disability exemption is relevant for determining whether a minor child's income should be clubbed or assessed separately.
• Chapter 6 — Capital Gains (Sections 67-91): When a gifted asset is sold by the transferee, the cost of acquisition is determined under Section 73 (formerly Section 49, cost to previous owner). Capital gains tax applies to the transferee, but the capital gain itself may be clubbed under Section 99 if the original transfer attracted clubbing.
• Chapter 7 — Income from Other Sources (Sections 92-95): Gifts received from specified relatives are exempt under Section 92 (formerly Section 56(2)(x)). However, the exemption from gift tax does not prevent clubbing of income from the gifted asset.
• Chapter 16 — Returns & Filing (Section 263): Income clubbed under Section 99 must be disclosed in the relevant ITR schedule. The ITR form requires separate disclosure of minor child income.

Frequently Asked Questions

1. If I gift money to my wife and she invests in a business, is the business income clubbed?

Yes, if the business capital originated from the gifted amount. Section 99 clubs income arising from assets transferred to the spouse without adequate consideration. The income from the business funded by the gifted amount would be clubbed. However, if Mrs. A contributes her own skill and labour, only the income attributable to the capital (and not her personal effort) may be clubbed.

2. Does clubbing apply if I transfer an asset to my spouse for adequate consideration?

No. Section 99 specifically excludes transfers made for adequate consideration. If you sell an asset to your spouse at fair market value and receive the consideration, the income from that asset in her hands will not be clubbed. However, the source of consideration (whether from her own independent income) may be scrutinised by the AO.

3. Is the income of a minor child always clubbed with the father?

No. The income is clubbed with the parent whose total income (before such clubbing) is higher. If the mother has higher income, the minor's income is clubbed with the mother. Only when both parents have equal income is it clubbed with the father.

4. What happens to clubbing if the husband and wife divorce?

Clubbing under Section 99 applies only when the relationship of husband and wife subsists at the time the income arises. If the couple is divorced or living apart under an agreement to live apart, the clubbing provisions cease to apply from the date of the divorce/agreement. Income arising after divorce belongs independently to the erstwhile spouse.

5. Does clubbing apply to gifts made to the spouse before marriage?

No. The Supreme Court and various High Courts have consistently held that clubbing under Section 99 requires the relationship of husband and wife to exist at the time of transfer. If Mr. A gifts assets to Ms. B (his girlfriend) and later marries her, the income from those assets is not clubbed because the spousal relationship did not exist when the transfer was made.

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