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

Kiran gifted ₹5,00,000 to his wife Radha in April 2026. She invested it in a business and earned ₹60,000 in tax year 2026-27. Out of the profit of ₹60,000 she reinvested ₹40,000 in the same business, and the year's profit in the next tax year from this reinvested amount is ₹10,000. In tax year 2026-27, how much will be clubbed in Kiran's income, and what about the next tax year's ₹10,000 earned on reinvested profits?

₹60,000 is clubbed in Kiran's income this year, while the ₹10,000 earned next year is not clubbed. The gift was invested in business, so the profit attributable to it is clubbed. Profit earned on reinvested profit is income on income and remains taxable for Radha.

  1. A₹60,000 clubbed this year; ₹10,000 clubbed next year
  2. B₹60,000 clubbed this year; ₹10,000 not clubbed next yearCorrect
  3. C₹20,000 clubbed this year; ₹10,000 not clubbed next year
  4. DNothing clubbed in either year as business income is excluded

Explanation

Where the gifted money is invested in a business by the spouse, the business income is clubbed only to the extent of the capital gifted, here ₹5,00,000, and the whole ₹60,000 arises from that. So ₹60,000 is clubbed this year. Income on accumulated profits is not clubbed since it arises from the spouse's own accumulated profits, so the ₹10,000 is Radha's. Clubbing it next year would tax income on income.

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