Clubbing of income

Clubbing of income stops couples and families from splitting income just to lower tax. Under section 99 of the Income-tax Act, 2025, income from assets you transfer to your spouse without adequate consideration is taxed in your hands. The gift itself stays tax-free.

Why the rule exists

Without it, a person in a high tax bracket could simply gift money to a lower-earning spouse or minor child, have the income arise in their name, and pay less tax on it as a family. Clubbing closes that loophole: the law looks past whose name the asset is in and taxes the income with the person who really provided the money. It is about income, not the gift.

How it works, with an example

Say you gift your spouse ₹5 lakh and they put it in a fixed deposit. The gift is not taxed, because a spouse is a relative under the Act and gifts between relatives are exempt. But the interest that deposit earns is added to your income and taxed at your slab, not theirs. The same logic covers assets transferred to a minor child and some other relatives.

What it does not catch

Clubbing does not apply to your spouse’s own salary or to income from their own skills and qualifications, and income on income (what the clubbed interest itself later earns) generally escapes. It is a specific anti-avoidance rule, not a blanket one. See couples financial planning and tax on gifts.