Direct and Indirect Taxation · Clubbing of Income

Clubbing on Transfer to Daughter-in-Law and Others

Updated 10 October 2026 · Fact-checked

If an individual transfers an asset without adequate consideration to his son's wife, or to any person or association for the benefit of his spouse or son's wife, the income from that asset is added to the transferor's total income. In benefit cases, only the part meant for that benefit is clubbed.

Understand Clubbing on Transfer to Daughter-in-Law and Others

Clubbing means adding another person's income to your own total income for tax. The law does this to stop you from moving income-earning assets to a family member to cut your tax bill. This topic covers three such transfers made by an individual (the transferor).

For the June 2027 term, these rules come from the clubbing provisions of the Income-tax Act, 2025, in the chapter on income of other persons included in the assessee's total income. They apply to income of the tax year (for example, tax year 2026-27). They replace the corresponding provisions of the Income-tax Act, 1961 (section 64(1)(vi) to (viii) of that Act). Do not quote the 1961 Act section numbers or the term "assessment year" in your answers. Use the section numbers given in your study material for the 2025 Act.

Case 1: you transfer an asset to your son's wife (daughter-in-law) without adequate consideration. Income that she earns from that asset, or from any asset that represents it, is clubbed in your hands. She is taxed on her own other income as usual.

Case 2: you transfer an asset without adequate consideration to any person or association of persons (for example a trust or AOP) for the immediate or deferred benefit of your spouse. Income from the asset is clubbed in your hands, but only to the extent it is for your spouse's benefit.

Case 3: the same transfer, but for the benefit of your son's wife. Again, only the part of the income that is for her benefit is clubbed.

The key test is adequate consideration. If she or the transferee pays a fair price, nothing is clubbed. Two limits matter. First, clubbing covers income from the transferred asset and from assets bought out of it, not income earned on that income later. Second, the rules cover the son's wife only. A daughter's husband, a son-in-law or a daughter-in-law's relatives are outside them.

Key rules to remember

Transfer to son's wife: Income from transferred asset (or asset representing it) in her hands → clubbed with transferor's income; Applies when transferor is an individual and the transfer is without adequate consideration, direct or indirect. Governed by the clubbing provisions of the Income-tax Act, 2025, which replace the 1961 Act rules.
Transfer to a person or AOP for benefit of spouse or son's wife: Amount clubbed = Income from the transferred asset × share meant for the benefit of the spouse or son's wife; Clubbed in the transferor's hands, only to the extent of the immediate or deferred benefit. Same clubbing chapter of the Income-tax Act, 2025.
Adequate consideration exception: Transfer for adequate consideration → no clubbing; If a fair price is paid, the provision does not apply. A part-paid transfer needs care, so read the facts.
Asset invested in a business: Income clubbed = Business income × (Transferred funds invested ÷ Total investment in the business); Use when the transferred asset is put into a business the transferee carries on. Apportion the income in this proportion.
No clubbing of income on income: Income earned from reinvesting the clubbed income → not clubbed; It is taxed in the transferee's own hands.

How to solve Clubbing on Transfer to Daughter-in-Law and Others questions

Use this order for any question on transfers to a daughter-in-law or for the benefit of a spouse or daughter-in-law. Work with the income of the tax year given in the question.

1Identify the transferor. Check that he is an individual.
2Identify the transferee: son's wife, or a person or AOP receiving the asset for someone's benefit. Note who the beneficiary is: spouse or son's wife.
3Check consideration. If it is adequate, stop: no clubbing. If the transfer is a gift or for inadequate consideration, go on.
4Find the income that comes from the transferred asset or from assets bought with it. Leave out income on accumulated income and the transferee's other income.
5If the asset went into a business, apportion the business income by the ratio of transferred funds to total investment.
6For a transfer to a person or AOP, apply the share meant for the benefit of the spouse or son's wife, whether immediate or deferred.
7Add the clubbed amount to the transferor's income under the same head it arises under. Show the remainder as the transferee's own income.
8Write a one-line conclusion naming the person taxed on each amount.

Quickest way: Three-question check

When to use it: For MCQs and short numerical parts where time is tight.

Was the transfer by an individual, and was there no adequate consideration? If not, no clubbing.
Is the transferee the son's wife, or is the benefit for the spouse or son's wife? If it is a son-in-law, daughter or brother's wife, no clubbing under this topic.
Clubbed amount = income from that asset only (times the benefit share if via a person or AOP). Ignore income on income and the transferee's own other income.

Common mistakes in Clubbing on Transfer to Daughter-in-Law and Others

Clubbing income on a gift to the son-in-law or daughter's husband.
Students treat every in-law as covered.
Fix: Remember the provision names the son's wife and the spouse only. Other relatives are outside it.
Clubbing the whole income when the asset was transferred to a person or AOP for the benefit of a spouse or daughter-in-law.
Students ignore the words 'to the extent'.
Fix: Multiply the income by the share meant for the beneficiary, and club only that part.
Clubbing income earned on reinvestment of the clubbed income.
Students think clubbing follows money forever.
Fix: Club only income from the transferred asset or assets representing it. Income on income is taxed with the transferee.
Clubbing even where the transfer was for adequate consideration.
Students see 'transfer to daughter-in-law' and skip the consideration test.
Fix: Check consideration first. A fair-price sale or loan at a market rate is not a gift.
Clubbing the daughter-in-law's own salary, business or other income.
Students club the person rather than the income.
Fix: Club only income arising from the transferred asset. Her other income stays in her return.
Ignoring the business apportionment when funds were invested in a business.
Students club all the business profit or none of it.
Fix: Apply the ratio of transferred funds to total investment to the business income.
Quoting section 64 of the Income-tax Act, 1961 or the term 'assessment year' in the answer.
Older books and notes still use the 1961 Act.
Fix: For the June 2027 term, use the Income-tax Act, 2025, its section numbers and the term 'tax year'. The clubbing rules are the same in substance but sit under new provisions.

Worked examples

Example 1

Rajesh gifted ₹10,00,000 in cash to his daughter-in-law Neha on 1 April. She put it in a fixed deposit at 8% p.a. and earned ₹80,000 interest in the year. On 1 April of the next year she reinvested the ₹80,000 interest at 8% p.a. and also earned ₹80,000 on the original deposit. Her own other income is ₹30,000 each year. How much is clubbed with Rajesh's income in each year?

Show the solution

Rajesh is an individual. The gift is without consideration. The transferee is his son's wife, so clubbing applies.
Year 1: interest on the transferred asset is ₹10,00,000 × 8% = ₹80,000. This is clubbed with Rajesh's income. Neha keeps her own ₹30,000.
Year 2: interest on the original deposit is ₹80,000. This is clubbed.
Year 2: the ₹80,000 was reinvested on 1 April, so a full year's interest arises: ₹80,000 × 8% = ₹6,400. This is income on clubbed income, so it is not clubbed.
Neha's taxable income in Year 2 is ₹30,000 + ₹6,400 = ₹36,400.

Answer: ₹80,000 is clubbed with Rajesh in Year 1. ₹80,000 is clubbed in Year 2. The ₹6,400 earned on reinvested interest is taxed with Neha.

Example 2

Anil transferred securities worth ₹5,00,000 without adequate consideration to an association of persons, Sunrise Group. The AOP earned ₹1,20,000 from them in the year. Under the terms of the transfer, fixed shares of this income, 50% for Anil's wife Meera and 25% for his daughter-in-law Pooja, are for their benefit. The remaining 25% is for his friend Sandeep. How much income is clubbed with Anil, and why?

Show the solution

Anil is an individual. The transfer is to an AOP without adequate consideration, and the shares for his spouse and his son's wife are fixed benefits. So clubbing applies, but only to the extent of those benefits.
Spouse's share: ₹1,20,000 × 50% = ₹60,000.
Daughter-in-law's share: ₹1,20,000 × 25% = ₹30,000.
Friend's share: ₹1,20,000 × 25% = ₹30,000. A friend is outside the provisions, so it is not clubbed.
Total clubbed = ₹60,000 + ₹30,000 = ₹90,000.

Answer: ₹90,000 is clubbed with Anil's income. The remaining ₹30,000 is not clubbed under these provisions.

Exam tips

Write the consideration test as your first line in a written answer. It earns a step mark and prevents wrong clubbing.
In MCQs, check the exact relationship. Son's wife is covered; son-in-law, daughter and brother's wife are traps.
When income goes to a person or AOP, look for the beneficiary shares and club only the relevant ones.
Show clubbed and unclubbed amounts separately in a short table of workings. Name who is taxed on each amount.
Watch for reinvested income and the business-investment ratio. Examiners add them to test the 'income on income' and apportionment rules.
Use 'tax year' and the Income-tax Act, 2025 in your answers. Do not cite 1961 Act section numbers.

Practice questions from Clubbing of Income

Clubbing on Transfer to Daughter-in-Law and Others in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Clubbing on Transfer to Daughter-in-Law and Others: frequently asked questions

Is income from a gift to a daughter-in-law always clubbed?

It is clubbed in the donor's hands when the donor is an individual and the gift is without adequate consideration. If she pays a fair price for the asset, there is no clubbing. Only income from that asset is clubbed, not her other income.

Does clubbing apply to a gift to a son-in-law?

No. These rules cover the son's wife and the spouse. A gift to a daughter's husband or any other relative is not clubbed under this topic.

What happens if the asset is transferred to a trust or AOP for the benefit of the spouse?

Income from the asset is clubbed in the transferor's hands, but only to the extent it is meant for the spouse's immediate or deferred benefit. Income meant for other beneficiaries is not clubbed.

Is income earned on the clubbed income also clubbed?

No. Clubbing reaches income from the transferred asset and from assets bought with it. Income earned by reinvesting that income is taxed in the transferee's hands.

Which Act do I follow for these clubbing rules in the June 2027 term?

Follow the Income-tax Act, 2025, and use its terms such as tax year. Its clubbing provisions replace the corresponding provisions of the 1961 Act. Use the section numbers given in your study material for the 2025 Act.