Clubbing of Income

Meaning of Representative Assessee under 160 of Income Tax Act

January 17, 2013January 17, 2013 admin 2 Comments

Meaning of Representative assessee(RA) as per section 160 of the Income Tax Act, 1961.

Following Person will be treated as Representative assessee (RA) Under Income Tax Act .i.e Also know as Category of Representative Assessee for Apply PAN Card Application

Agent Defined Under Section 163 for non-resident (Read Section 163: RA in Special Cases)
Guardian or Manager for minor, lunatic or idiot
Trustee for trust declared by a duly executed instrument in writing
Trustee who is appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees.

Every representative assessee shall be deemed to be an assessee for the purposes of this Act which means all the provisions of Income tax will be applicable on RA for the Income of other person.

Reference Section 160 of the Income Tax Act, 1961: Representative Assessee(RA)

160. (1) For the purposes of this Act, “representative assessee” means—

(i) in respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163;

(ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot;

(iii) in respect of income which the Court of Wards, the Administrator- General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager;

(iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees;

(v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees.

Explanation 1.—A trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] shall be deemed, for the purposes of clause (iv), to be a trust declared by a duly executed instrument in writing if a statement in writing, signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the ⁵³[Assessing] Officer,—

(i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day; and

(ii) in any other case, within three months from the date of declaration of the trust.

Explanation 2.—For the purposes of clause (v), “oral trust” means a trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing.]

(2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act.

Meaning of Agent Under Income Tax and Representative Assessees for NRI

January 10, 2013March 4, 2014 admin Leave a comment

Who is Treated as Agent for Non Resident India (NRI) under Income Tax? Following Person are treated as Agent for NRI under Income Tax Act.

Person Employed by or on behalf of NRI
Person having Business Connection with NRI (Business Connection defined in Section 9)
Person from or through whom NRI receives any sum
Trustee of NRI

and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India :

Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:—

the transactions are carried on in the ordinary course of business through the first-mentioned broker; and
the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.

Who may be regarded as agent : Representative assessees NRI Special cases

163. (1) For the purposes of this Act, “agent”, in relation to a non-resident, includes any person in India—

(a) who is employed by or on behalf of the non-resident; or

(b) who has any business connection with the non-resident; or

(d) who is the trustee of the non-resident;

and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India :

(i) the transactions are carried on in the ordinary course of business through the first-mentioned broker; and

(ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal.

Explanation.—For the purposes of this sub-section, the expression “business connection” shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act.

(2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such.

Clubbing of Income in Case Transfer of Asset is Revocable in Nature

October 17, 2012October 17, 2012 admin Leave a comment

As per section 61 of the Income Tax Act, 1961 any asset those ownership is transferred but it is revocable in nature means transferor can take back his asset whenever is he/she wants then any income generating from such asset will be taxed in hands of the transferor.

Revocable transfer of asset [section 61]

Income arising to any person as a result of transfer of asset is deemed as income of the transferor if:

The transfer is revocable or
It contains any provision for the retransfer, directly or indirectly, of the whole or any part of the income or assets to the transferor or
It gives the transferor a right to reassume power, directly or indirectly, over the whole or any part of the income or assets.

Exception to above section is that by virtue of section 62, income from the assets transferred will not be included in the income of transferor when:

Transfer, if effect through trust, is not revocable during the lifetime of beneficiary
In the case of any other transfer ,the same is not revocable within the lifetime of transferee
The transfer was before 1 April, 1961 and the same not revocable for a period of 6 year or more

When Income of Other Person is Clubbed with Your Income

October 17, 2012October 17, 2012 admin Leave a comment

Generally, an assessee is taxed in respect of his own income, in some cases; however the income tax act deviates from this principal and the assessee may be taxed under sec 60 to 64, in respect of income which legally belongs to some other person. Provision incorporated in these section deal with cases where tax payer make an attempt to reduced the tax bill by transferring their asset in favour of their family members or by arranging their sources of income in such a manner that tax incidence falls on others, whereas benefit of income, directly or indirectly, is derived by them. The income which is to clubbed shall be included in the same head in the return. Income includes loss.

Clubbing of income is are under following cases

Transfer of income without transfer of asset under section 60
Revocable transfer of asset under section 61
Income of minor child under section 65(1A)
Transfer of assets to son’s wife under section 64(vi)
Transfer of assets for the benefit of the spouse under section 64(vii)
Transfer of assets for the benefit of the son’s wife under section 64(viii)
Individual is assessable in respect of remuneration of spouse under section 64(ii)
Transfer of assets to spouse under section 64(iv)

When Income of Your Child is Clubbed with Your Income

October 17, 2012October 17, 2012 admin Leave a comment

Income of minor child [section 65(1A)]

As per section 65(1A) of the Income Tax Act, 1961 all income which arises or accrues to the minor child shall be clubbed in the income of parents. The income of minor will be clubbed in the income of that parent whose total income (excluding the income includible under section 64(1A) is greater and where the marriage of the parents does not subsist, the income of minor will be includible in the income of that parents who maintains the minor child in the previous year

Note 1: No clubbing will be done in the case of income earned by manual work, personal skill or of minor child suffering from any disability of the nature specified u/s 80U

Note 2: In case of clubbing, such individual shall be entitied to exemption of Rs.1500/- in respect of each minor child. However, if the income of any minor is less than Rs. 1500/- the aforesaid shall be restricted to the income so included in the total income of individual

Note 3: Minor means age of person in less than 18 Years

Clubbing of Income in Case Transfer of Income without Transfer of Asset

October 17, 2012October 17, 2012 admin 1 Comment

Transfer of income without transfer of asset under section 60 of the Income Tax Act, 1961

As per section 60 of the income tax act, 1961 Income arising to any person by virtue of transfer of income related to any particular asset but ownership of that asset is not transferred which means asset will remain the property of the person who made the transfer, then income arising from that property/asset is deemed to be the income of transferor and is taxable in his hand. It will not make any difference whether transfer of income is revocable or irrevocable in nature. Also Read Clubbing of Income for Minor Child or Also Read Clubbing of Income of your Spouse/Wife or Son’s Wife

Clubbing of Income for Asset Transferred to Your Spouse or Son’s Wife

October 17, 2012October 17, 2012 admin Leave a comment

As per section 64 of the Income Tax Act, 1961 clubbing of income will be done is any assets are transferred without adequate consideration to his or spouse or son’s wife then any income from such assets will be added back to transferor income. If Assets are transferred for the benefit of his/her spouse or son’s wife then also any income generating from such assets will be added back to transferor income.

Transfer of assets to son’s wife [section 64(vi)]

Where an asset is transferred (after May, 1973) by an individual to his or her son’s wife, directly or indirectly, otherwise than for adequate consideration, any income from such asset will be deemed to be the income of the transferor.

Transfer of assets for the benefit of the spouse [section 64(vii)]

Where an asset is transferred by an individual, directly or indirectly, otherwise than for adequate consideration to a person or association of person, for the immediate or deferred benefits of his or her spouse, any income from such assets will be deemed to be the income of the transferor.

Transfer of assets for the benefit of the son’s wife [section 64(viii)]

Where an asset is transferred by an individual, directly or indirectly, otherwise than for adequate consideration to a person or association of person, for the immediate or deferred benefits son’s wife, any income from such assets will be deemed to be the income of the transferor.

Individual is assessable in respect of remuneration of spouse [section 64(ii)]

An individual is chargeable to tax in respect of any remuneration received by the spouse from a concern in which the individual has substantial interest. Exception is that remuneration, which is solely attributable to that application of technical knowledge or professional knowledge and experience of the spouse, then such income will not be clubbed.

Note 1: an individual is deemed to have substantial interest, if he (individually or along with his relatives) beneficially hold equity share carrying not less than 20% voting power in case of a company or is entitled to not less than 20% of the profit in the case of a concern other than the company at any time during the previous year. Relative in relation to an individual means husband, wife, brother or sister or any lineal ascendant or descendent of that individual.

Note 2: when both husband and wife have substantial interest in the concern and both are in receipt of the remuneration from such concern, remuneration will be included in the total income of husband or wife whose total income, excluding such remuneration, is greater. Where such income is once included in the total income of either spouse, any such income arising in any subsequent year cannot be included in the income of the other spouse unless the A.O. is satisfied after giving that spouse an opportunity of being heard that it is necessary to do so.

Transfer of assets to spouse [section 64(iv)]

Where an asset is transferred (after May, 1973) by an individual to his or her son’s wife, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live apart, any income from such asset will be deemed to be the income of the transferor.

Note 1; natural love and affection will not be treated as adequate consideration.

Note 2: The relationship of husband and wife should subsist both at the time of transfer of asset and at time when income is occurred

Note 3: If the transfers are inter connected and are part of the some transaction, the aforesaid rule of clubbing is applicable

Note 4: Income arising from accretions to transferred assets shall not be clubbed