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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), the clubbing provisions are mainly intended to achieve which of the following purposes?

The clubbing provisions exist to prevent tax avoidance. Where a person diverts income or transfers assets to a spouse, minor child or other specified person while keeping the benefit, that income is included in the transferor's total income and taxed at his own rates.

  1. ATo prevent an assessee from reducing tax by diverting income or assets to a spouse, minor child or other specified person while retaining the benefitCorrect
  2. BTo allow every family member to pay tax at the same slab rate irrespective of who earns the income
  3. CTo tax gifts received by relatives in the hands of the donor in all cases
  4. DTo exempt income of minor children from tax

Explanation

Clubbing provisions counter tax avoidance through transfer of income or assets to specified persons while the transferor keeps the benefit. They do not equalise slab rates, do not tax all gifts in the donor's hands, and do not exempt minors' income.

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