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

Meera, a resident individual, owns a flat let out at a rent of Rs 20,000 per month. On 1 April 2026 she transfers the flat to her husband Arun without any consideration. Arun continues to receive the rent for the whole of tax year 2026-27. Arun has no connection with Meera's business. How will the rental income be treated?

The rent is taxed in Meera's hands. A transfer of an asset to the spouse without adequate consideration triggers clubbing, so the income from the transferred flat is included in the transferor's total income, even though Arun is the legal owner and receives the rent.

  1. ATaxed in the hands of Arun as he is the legal owner
  2. BTaxed in the hands of Meera under the clubbing provisions, since the transfer to the spouse was without adequate considerationCorrect
  3. CExempt in both hands because it is a transfer between spouses
  4. DTaxed half in the hands of Meera and half in the hands of Arun

Explanation

Income from an asset transferred directly or indirectly to the spouse without adequate consideration is clubbed with the income of the transferor. Meera transferred the flat to Arun for nothing, so the rent of Rs 2,40,000 (before house property deductions) is included in Meera's income. Taxing it in Arun's hands ignores the clubbing rule, and a spousal transfer is not exempt for this purpose.

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