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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), what is the basic principle behind the clubbing provisions?

Clubbing provisions include the income of another person in an assessee's total income in specified cases. They prevent tax avoidance through transfers to spouses, minors or others, so the income is taxed in the transferor's or specified person's hands, not in the recipient's.

  1. AIncome of another person is included in the total income of an assessee in specified cases, even though the assessee did not earn it directlyCorrect
  2. BEvery person's income is taxed only in that person's own hands, with no exceptions
  3. CIncome of a minor is always exempt from tax
  4. DIncome transferred to a relative is taxed at a flat rate of 30% in the transferee's hands

Explanation

Clubbing provisions are anti-avoidance rules. In specified cases, income arising to another person (such as a spouse or minor child) is added to the total income of the assessee who transferred the asset or who is the specified person. Option B ignores these exceptions, which are the point of clubbing.

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