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CS Executive · Tax Laws and Practice · Clubbing Provisions and Set Off and Carry Forward of Losses

Under the clubbing provisions, which of the following best describes the effect of a transfer of an asset by an individual to his spouse without adequate consideration, where the asset is not transferred in connection with an agreement to live apart?

Income from an asset transferred by an individual to the spouse without adequate consideration is clubbed in the transferor's hands. The transfer does not shift the tax burden, so the transferor is taxed on it, unless the transfer is under an agreement to live apart.

  1. AIncome from the asset is clubbed in the hands of the transferorCorrect
  2. BIncome from the asset is taxed only in the hands of the spouse transferee
  3. CIncome is taxed half in the hands of each spouse
  4. DIncome is exempt in the hands of both spouses

Explanation

The general rule is that where an individual transfers an asset to his or her spouse otherwise than for adequate consideration, the income from that asset is included in the transferor's total income. Taxing it only with the spouse ignores the clubbing rule, and a half-and-half split has no basis in the law.

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