You do not know what happens to the income earned by your child or spouse? Read it.
It is not uncommon these days for young children to have their own bank accounts and learn financial skills early on. Many parents choose to set aside fixed deposits on behalf of their children that they can use when they grow up. Spouses with no income may also have bank accounts or deposits given to them by their spouse. Let’s understand how this income is taxed.
Aditya received Rs 50,000 from the elders of the family on her first birthday. Her parents decided to add an additional Rs 50,000 and create a fixed deposit with a 5-year term in the name of Aditya. Aditya also has a bank account that her father transfers 2,000 rupees to each month, in the hopes of creating a secure corpus that can be used upon admissions to Aditya’s school. The money is invested in Aditya’s name and the parents intended to put it aside for him. However, according to the Income Tax Law, such income is taxable. The income of a minor child is clubbed with the income of the parent whose total income is higher (before taking into account the minor’s income). Clubbing simply means adding to the parent’s income and taxing it as if it were their own income. If the parents are divorced, the income is clubbed with the caregiver.
Clubbing is applied for all investments and deposits made in the name of a minor child. Except where the miner has earned income because of his talent or some special knowledge and experience, that income is not clubbed. In the case of a disabled minor and receiving an income, this income will not be clubbed either. Disability for this purpose has been defined in Article 80U of the Income Tax Law. Aditya’s father can request an exemption of up to Rs 1500 on the bludgeoned income. If the clubbed income is, say Rs 800, the exemption is limited to that lesser amount, Rs 800 in this case. He will have to report the interest income as income from other sources on his tax return.
Let’s see what happens when Aditya turns 18 and comes of age. These revenues will no longer be clubbed. If you have given money to your adult child, who may or may not earn, and the adult child invests this money, any income from these investments will not be taxable in your hands but will be taxed in the hands of the adult child. adult child. There will be no income clubbing in the event of an adult child.
Meet Surbhi, her husband offered fixed deposits worth Rs 5 lakhs. He also transfers Rs 20,000 to her account each month so that she can meet household and personal expenses. She earned Rs 42,000 as deposit interest and an additional Rs 18,000 as savings account interest during the year. This income should be clubbed in Surbhi’s husband’s income tax return and added to income from other sources in his return. Unfortunately, no exemption is allowed when a spouse’s income has been clubbed.
If you transfer an asset to your spouse directly or indirectly without receiving adequate consideration (does not include the case where the asset is transferred as part of a divorce settlement), the income from that asset will be associated with your income. . For example, when the husband, to reduce his tax payable, transfers an asset worth Rs 1,000,000 to his wife for Rs 25,000. In this case, 3/4 of the income from that property will be taxed between the hands of the husband. If he does not receive any consideration, in this case, the entire income of that asset will be clubbed with the income of the husband. Likewise, if a husband transfers ownership of the house to his wife and does not receive adequate consideration, according to the law, you will still be considered the “deemed owner” and the income from the asset will be associated with your income. . In this case, the income will be clubbed under the income from the ownership of the house and all tax benefits will be given to the husband as if he were the real owner.
Remember to include this income on your tax return. You must declare them under the heading to which they belong and pay the tax as if it were your own income.
Guest Column By ClearTax.in which is the largest electronic income tax filing website for individuals and businesses.