Clubbing of Income: Structural Continuity and Changes under the New Income-tax Framework
Clubbing of income is one of the most litigated and misunderstood concepts under Indian income-tax law. While the new tax regime has altered slab rates and deductions, the core structure of clubbing provisions remains largely unchanged. What has changed is the way these provisions interact with modern tax planning strategies.
Let’s break this down clearly.
What Is Clubbing of Income
Clubbing of income refers to situations where income earned by one person is taxed in the hands of another, usually to prevent tax avoidance through artificial transfers.
These provisions are anti-abuse in nature and are strictly interpreted by tax authorities.
Structural Continuity in Clubbing Provisions
The fundamental clubbing provisions continue to operate without dilution. Income continues to be clubbed in cases involving:
Transfer of assets to spouse without adequate consideration
Income of minor children
Revocable transfers
Transfer of income without transfer of underlying asset
The logic remains the same:
You cannot shift tax liability without shifting real ownership and control.
The new tax regime has not disturbed this legislative intent.
Income of Spouse: No Change in Principle
Income arising from assets transferred to a spouse continues to be clubbed, except where the transfer is for adequate consideration or in connection with an agreement to live apart.
However, income earned by a spouse from independent skills, profession, or technical knowledge remains outside clubbing provisions.
This distinction is crucial and frequently tested during scrutiny.
Minor’s Income: Exemption Still Applies
Income of a minor child is clubbed with that of the parent having higher income, except:
Income from manual work
Income from application of skill or talent
Income of a child with disability
The small exemption per minor child continues, even under the new tax regime.
What Has Practically Changed
While statutory provisions remain intact, data-driven scrutiny has increased.
Tax authorities now rely heavily on:
Bank transaction analysis
PAN-based asset tracking
Family-linked financial profiling
What this really means is simple:
Aggressive tax planning using family members is far easier to detect today than earlier.
Common Compliance Risks
Clubbing issues typically arise when:
Capital is routed through family members without documentation
Loan arrangements lack commercial substance
Income is shown in a lower tax bracket entity without control transfer
Once invoked, clubbing provisions can lead to additions, interest, and penalties.
Conclusion
Clubbing of income provisions have shown structural continuity, not relaxation. The law still targets substance over form.
Under the new income-tax framework, the real shift is not in law, but in enforcement intensity. Taxpayers who understand this distinction stay compliant and avoid avoidable disputes.
Written by:
Abhishek Gupta
Chartered Accountant
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