Clubbing of a spouse's income and a minor child's income

Why income is clubbed

A person could lower his tax by shifting income to a spouse or child with a lower income. Clubbing provisions add such income to his own. Section 64 of the Income-tax Act, 1961 is section 99 of the Income-tax Act, 2025; the question names section 64(1A), the rule for a minor child, and the rules for a spouse are in the same section. Clubbed income keeps its head of income and is taxed at the rate of the person in whose income it is included.

Spouse: remuneration from a concern with substantial interest (section 99(1)(a)(i))

Salary, commission, fees or other remuneration received by the spouse from a concern in which the individual has a substantial interest is clubbed with the individual's income.

1. Substantial interest: in a company, shares carrying at least 20% of the voting power are, at any time in the tax year, owned beneficially by the individual alone or jointly with relatives (shares carrying a fixed rate of dividend do not count); in any other concern, the individual, alone or jointly with relatives, is entitled to at least 20% of the profits at any time in the year (section 99(5)(a)(iii)).
2. Exception: not clubbed where the income is solely attributable to the spouse's application of technical or professional knowledge and experience together with a technical or professional qualification (for example, a qualified chartered accountant paid a market salary).
3. In which spouse's income: the remuneration is included with the spouse whose total income, before that inclusion, is greater (section 99(5)(a)(i)). Once included in one spouse's income, it is not included in the other spouse's income in a later tax year unless the Assessing Officer, after giving the other spouse an opportunity of being heard, is satisfied that it should be (section 99(5)(a)(ii)).

Spouse: income from assets transferred (section 99(1)(a)(ii))

Income from an asset transferred, directly or indirectly, by an individual to his or her spouse without adequate consideration is clubbed with the transferor's income. It does not apply to a transfer under an agreement to live apart, or to an asset transferred before marriage. If the spouse invests the asset in a business, or contributes it as capital to a firm as a partner, only the income in proportion to the asset is clubbed: A = B × C ÷ D, where A is the income included in the individual's hands, B the income or interest (or both) arising to the spouse from the business or firm in the tax year, C the value of the transferred asset so invested or contributed, and D the spouse's total investment or capital contribution, C and D both taken as on the first day of the tax year (section 99(2), whose reference the Finance Act, 2026, section 45, corrected to section 99(1)(a)(ii) or (b)).

Minor child (section 99(1)(c); formerly section 64(1A))

All income of a minor child (below 18) is included in the income of a parent, except income:

1. on account of work done by the child (section 99(1)(c)(i));
2. from activities in which the child's skill, talent, specialised knowledge or experience is applied (section 99(1)(c)(ii)); and
3. of a minor child with a disability of the kind specified in section 154 (section 99(1)(c)(iii)).

The proviso to section 64(1A) of the 1961 Act was narrower: it excluded income from manual work done by the child, or from activity involving his skill, talent or specialised knowledge and experience. The 2025 Act excludes income from any work done by the child.

It is included with the parent whose total income before inclusion is greater (where the marriage subsists), or with the parent who maintains the child (where it does not), and stays with that parent in later years unless the Assessing Officer, after giving the other parent an opportunity of being heard, is satisfied that it should be (section 99(5)(b)).

Exemption of ₹1,500 (Schedule III, Sl. No. 17)

The parent may exclude up to ₹1,500 a year for each minor child whose income is clubbed. This exemption is not available under the default regime (section 202(2)(a)(i)).

Illustration (our own)

Mr. Roy holds 30% of the shares of Roy Traders Pvt. Ltd., which pays his wife, who has no professional qualification, ₹4,00,000 a year as a manager; this is clubbed with Mr. Roy's income, his being the greater before inclusion. Their daughter, aged 12, earns ₹20,000 interest on a deposit gifted by an uncle and ₹50,000 from a dance performance. The ₹50,000 is her own (skill); the interest, less ₹1,500 under the old regime (₹18,500), is clubbed with the parent having the higher income.