Clubbing of Income: Key Changes in the 2025 Income Tax Bill

What is Clubbing of Income

Clubbing of income refers to bringing into the total income of the taxpayer specified incomes of members of the family, like spouse, minor children, or daughter-in-law. The concept, though brought under Sections 60 to 64 of the Income Tax Act, is aimed at stopping tax evasion that may be done through indirect passing on of income within the family. It seeks to cover various income sources like property, fixed deposits, shares, mutual funds, and other assets.

Income Tax Bill 2025 Highlights

Income Tax Bill 2025 has introduced more clarity and simplicity in the provisions of clubbing. While the underlying principles and methods are not different, language has been curtailed, redundant provisions avoided, and fresh formulas added so that calculations are simplified. It is especially noteworthy that provisions related to clubbing of income of a spouse have been amended so as to accord recognition to work experience and skill sets rather than sticking to mere formal qualification.

Specific Provisions and Reforms

1. Clubbing of Spouse's Income

• Previous Provision: Income from the business in which the assesses had substantial interest (20% or more) was clubbed unless the spouse possessed formal qualifications relating to the income generated.
• 2025 Amendment: Income shall not be clubbed if it arises from the technical expertise or experience of the spouse, with a focus on practical skills and not formal qualifications.

Example: A spouse who is receiving a salary in terms of their professional qualification working for the taxpayer's business is not clubbed even though he or she may not possess a degree.

2. Clubbing of Minor Child's Income

• The income of a minor child, and also that of adopted and step children, is added to that of the earning parent before clubbing. Exceptions:
• Income derived from physical work or the professional skills of the child is not clubbable.
• Income received by a minor child suffering from a disability under Section 80U is not clubbable.
• A deduction of ₹1,500 per annum for each child is allowed, but only under the erstwhile tax regime.
• In case of custody, the income is taxed with the parent in whose custody the child is.

3. Transfers of Assets to Son's Wife or Spouse

• Where assets are transferred to a son's wife or spouse for consideration that is less than fair, any income arising on such assets will be brought to the book of the transferor.

• Fair consideration in this context refers to the market value—not affection or goodwill.

• Pre-marriage transfers are not clubbed, although they may still be persisted with after marriage.

• Income from property bequeathed to a daughter-in-law after June 1, 1971, with insufficient consideration is also clubbed.

4. Clubbing in HUF (Hindu Undivided Family)

• Property gifted to an HUF will have their income clubbed with the income of the giver.
• Post partition, interests in incomes of transferred assets accruing to a spouse or minor children remain clubbed with the income of the transferor.

5. Revocable Transfers

• Income which arises on assets transferred subject to revocable conditions will remain clubbed with the income of the transferor.

Points to Remember for Taxpayers

• Rules of clubbing apply in direct as well as indirect transactions.
• The spouse's income is not clubbed if earned in actual terms based on his/her know-how regardless of formal qualification.
• Income accruing on house property given to a spouse will not be clubbed.
• Allowance for household purposes (generally referred to as pin money) is exempt from clubbing.
• Investment by a major child (above the age of 18) out of amounts received as gifts will not be subject to clubbing.

Summary Table: Clubbing Provisions (2025)

Provision	Clubbed With Whom?	Exemption/Condition
Spouse's business income	Taxpayer (if 20%+ interest)	Not clubbed if on account of spouse's knowledge/experience
Minor child's income	Higher-earning parent	Not clubbed if from skill/manual work/disability
Asset to wife/son's wife	Transferor	Not clubbed if for sufficient consideration or pre-marriage
Asset to HUF	Transferor	Clubbed until partition; then clubbed with spouse/minor
Revocable transfer	Transferor	Always clubbed

Conclusion

The provisions under Section 64 for clubbing income are a robust shield against tax evasion. The 2025 revisions further fortify the equity and utility of such rules, particularly for spouses who have useful skills. Taxpayers are encouraged to examine their financial situations to ensure compliance with the new rules and prevent potential tax charges.