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CA Intermediate · Taxation · Income of Other Persons included in Total Income of Assessee

Arvind Kulkarni gifted Rs 10,00,000 in cash to his wife Sunita, who has no other source of funds. She placed the amount in a bank fixed deposit and earned interest of Rs 80,000 in tax year 2026-27. She invested the entire interest in a small tailoring business she started, which earned a profit of Rs 15,000 during the same year. What amount is clubbed in Arvind's total income for the year in respect of these transactions?

Rs 80,000 is clubbed in Arvind's income. Interest on money gifted to the spouse without consideration is taxed in the transferor's hands. The profit from the business funded by that interest is income on income, so it is not clubbed and is taxed in the spouse's own hands.

  1. ARs 95,000
  2. BRs 15,000
  3. CNil
  4. DRs 80,000Correct

Explanation

Income arising from an asset transferred to the spouse without adequate consideration is clubbed in the hands of the transferor, so the Rs 80,000 interest is clubbed with Arvind. The profit of Rs 15,000 comes from reinvesting that interest, which is income on income. Such secondary income is not clubbed and is taxed in Sunita's hands. Rs 95,000 wrongly includes the profit on reinvestment.

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