Class – 1 Clubbing of

Income
Module 3– Clubbing of Income, Aggregation of Income, Deductions, Set-
Offs and Carry Forward of Losses

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Module Contents
1. Clubbing of Income
2. Aggregation of Income
3. Set Offs and Carry forward of Losses
4. Computation of Gross Total Income
5. Deductions
6. Computation of Total Income

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Clubbing - Meaning
• Clubbing is the process of including the income of others also in the
income of the assessee.
• Normally an assessee is taxed in respect of his own income only.
• Bu tin certain cases the income of another person or persons is also
included in the income of the assessee.
• For Example, the income of a minor child is added with the income of
the parent with the higher income
• This process of including another person’s income also in the income
of the assessee is called clubbing of income

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Cases of clubbing
1. Transfer of income without transfer of the asset (u/s 60)
2. Revocable transfer of assets (u/s 61)
3. Income of spouse (u/s 64(1) (ii)
4. Transfer of assets for the benefit of the spouse
5. Income of daughter in law (u/s (64) (1) (vi)
6. Transfer of assets for the benefit of Son’s Wife (u/s 64(1) (viii)
7. Income of the minor (u/s (64) (1A)
8. Cross Transfers
9. Conversion of self acquired property into the property of the HUF (u/s (64)(2)
10. Benami Transactions

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1. Transfer of Income without Transfer of
Assets (u/s 60)
• If a person transfers the income from as asset to another person
without transferring the asset, such income will be included in the
income of the transferor.
• Example. If a person transfers his right to receive rent of a building to
his wife without transferring the building to her name, the income will
be included in the income of the husband

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2. Revocable Transfer of Assets (u/s 61)
• Revocable transfer is the transfer where in the transferor can
repossess the asset.
• Any income arising to any person as a result of a revocable transfer
shall be deemed to be the income of the transferor.
• Such income will be clubbed with the income of the transferor

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Income of Spouse (u/s 64(1) (ii)
• The following income of the spouse of an individual shall be clubbed with
the income of the individual:
a. Income of the spouse by way of salary, commission, fee or any other form
of remuneration from a concern in which such individual has substantial
interest
(Substantial interest means having not less than 20% voting right or share of profit)
b. However, if the payment to spouse is purely due to the technical or
professional qualification of the spouse, such income shall not be clubbed
c. If an asset is transferred to spouse without adequate consideration,
unless for living apart, such income is to be clubbed

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4. Transfer of assets for the benefits of the
spouse u/s (64) (1) (vii)
• If an individua transfers an asset without adequate consideration to
another person for the benfit of the spouse, the income from the
transferre4d assets shall be clubbed with the income of the individual

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5. Income of Daughter in Law u/s (64) (1)
(vi)
• Any income arising from an asset transferred to the daughter in law
without adequate consideration, shall be clubbed with the income of
the individual

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6. Transfer of assets for the benefit of Son’s Wife (u/s 64(1)
(viii)

• Any income from assets transferred to any person without adequate

consideration, for the immediate or deferred benefit of he daughter
in law, will be included in the income of the transferor

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7. Income of the minor (u/s (64) (1A)
• The income of a minor child will be added with the income fo the
parent with greater income
• The income earned by the minor child from manual activity or activity
which needs skill or knowledge shall not be clubbed
• When income of the minor child is clubbed, an amount of Rs.1,500
per minor child can be deducted, not exceeding the total income

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8.Cross Transfers
• If two persons make mutual transfers indirectly, the respective
income will be added with the original transfers.
• A gives a gift of house property to B’s minor son and B gives a gift
debentures to A’s minor son.
• In such a case the income from house property will be added with the
income of A and income from Debentures will be added with the
income of B
• OK?

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9. Conversion of self acquired property
into the property of the HUF (u/s (64)(2)
• If a member of a HUF transfers for adequate consideration, his self
acquired property to the HUF, the income so earned will be
considered as the income of the individual

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10.Benami Transactions
• When a person enters into a transaction in the name of another
person to avoid tax , it is called benami transaction and the person in
whose name the transaction is effected is called benamidar
• If the Assessing officer feels that a transaction is benami transaction,
the income will be treated as the income of the real person

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Problem 1 (ill1, tjj, p.75)
• From the following information find the income of all the family
members Mr.Anil
a. Income from business of Mr. Anil Rs.3,00,000
b. Salary income of Mrs.Anil Rs.1,60,000
c. Interest income of Raj, the minor child Rs.20,000
d. Income from stage show of Ajay, another minor child Rs.1,20,000
e. Income of Remya, the minor girl child Rs.3,000

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Answer to Problem 1
Income of Mr.Anil
1 Income from business 3,00,000
2 Income of Minor child, Raj (20,000 – 1,500) 18,500
3 Income of Minor child Remya (3,000 – 1,500) 1,500
Total Income of Mr.Anil 3,20,000
Income of Mrs.Anil
Income from salary 1,60,000
Total Income of Mrs. Anil 1,60,000
Income of Ajai
Income from stage show 1,20,000
Total Income of Ajai 1,20,000

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Problem 2 (ill1, tjj, p.73)
• Master Anand (aged 15) and his family have the following incomes
during the financial year 2019-20. find put the income of each
member as per the provisions of the Income Tax Act
a. Interest on bank deposit Rs.75,000
b. Interest on govt.securities Rs. 80,000
c. Interest on debentures Rs. 40,000
d. Income from acting in a film Rs.2,00,000
e. Income from singing in a concert Rs.50,000
f. His father Ajay’s income Rs.2,09,000
g. His mother Ammu’s income Rs.2,09,100

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Answer to Problem 2
Income of Master Anand
1 Income from acting in a film 2,00,000
2 Income from singing in a concert 50,000
Total Income of Master Anand 2,50,000
Income of Mr.Ajay
1 Own income 2,09,000
Total Income of Mr. Ajay 2,09,000
Income of Mrs.Ammu
1 Own income 2,09,100
2 Income of Master Anand
Interest on securities : 75,000
Interest on govt.securities : 80,000
Interest on debentures : 40,000
Less Deduction : -1,500 1,93,500
Total Income of Mrs.Ammu 4,02,600

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Problem 3 (ill1, tjj, p.74)
• The family income of Mr.Nataraj included the following.
a. Business income of Mr.Nataraj Rs.3,00,000
b. Income of Mrs. Nataraj from salary Rs.1,60,000
c. Income of minor daughter Arya from interest on securities Rs.18,500
d. Income of minor son Anil from acting in a fashion show Rs.1,21,500
e. Income of minor son Naveen from bank deposit Rs.13,500
• Determine the income of each member as per the Income Tax Act

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Answer to Problem 2
Income of Mr.Nataraj
1 Business income 3,00,000
2 Income of minor daughter Arya (18,500-1,500) 17,000
2 Income of minor son Naveen (13,500-1,500) 12,000
Total Income of Mr. Nataraj 3,29,000
Income of Mrs,Nataraj
1 Income from salary 1,60,000
Total Income of Mr. Nataraj 1,60,000
Income of Minor daughter Arya - Nil
Income of minor son Anil
1 Income from acting 1,21,500
Total Income of Anil 1,21,500
Income of minor Son Naeen - Nil

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Problem 4 (ill1, tjj, p.75)
• From the following details, compute the income of Mr.Kannan for the
assessment year 2020-21
a. Income frombusiness Rs.85,000
b. Income of minor chiuld from acting in film Rs.25,000
c. Winning from lottery, ticket in the name of minor daughter Rs.36,500
d. Interest income of minor son Rs.41,500
e. Income of Mrs. Kannan from salary Rs.84,500
f. Interest income on debentures gifted by Mr.Kannan to his wife Rs.18,000

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Answer to Problem 4
Sl No Item Amount
1 Income from business 85,000
2 Income of minors:
a. Winning from lottery Rs.36,500
b. Interest income Rs. 41,500
Less deductons (Rs.3,000) 75,000

3 Interest on debentures gifted to wife 18,000

4 Gross Total Income of Mr.Kannan 1,78,000

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Problem 5 (ill 2, app, 412)
• The income of the members of the family of Mr.John for the financial
year 2019-20: Compute income of each
1. John: Income from business Rs.2,00,000; Lottery winnings
Rs.1,00,000
2. Johncy, wife of John: Salary Rs.1,00,000; income from tuition
Rs.50,000
3. Jain, minor son of John: Interest on bank deposit Rs.10,000;
Remuneration from acting in films Rs.2,50,000
4. Joyal, physically handicapped minor son of John: Interest on bank
deposit Rs.15,000; Income from running a call centre Rs.20,000
5. Jincy, minor daughter of John: Income from interest on securities
Rs.40,000; Income from dance programme Rs.5,000

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Problem 6 (ill 3, app, 413)
• The income of a family is as under:
1. Mr.A – Business income Rs.3,00,000
2. Mrs.A – Salary from school Rs.1,60,000
3. X, minor son of Mr.A – Rs.40,000 from a company as gross interest on
debentures (the amount for investment was given by his grandfather)
4. Y, minor son of Mr.A – Rs.1,00,000 from acting in films and Rs.5,00,000 from
lottery winnings (Tickets purchased out of money gifted by his uncle)
5. Z, minor daughter of Mr.A – Rs.10,000 as interest on bank deposit
6. P, major son of Mr.A- Rs.50,000 from business
• During the year, Mr.A transferred a building worth Rs.5,00,000 to his wife, on her
birthday. From the property she got rent at the rate of Rs.5,000 p. for 11 months.
She paid during the year Rs.5,000 municipal taxes and Rs.5,000 for repairs.
• Find out the income of each individual as per the provisions of the Income Tax Act

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Problem 7 (ill 5, app, 414)
• Business income of Mr.X duringthe financial year 2019-20 was
rs.5,00,000 while Mrs.X had income from profession Rs.1,90,000.
• They have two minor children A and B. Income of A and B fromstage
shows is Rs.60,000 and Rs.70, 000 respectively.
• Besides, interest on company deposits of A and B (deposits were made
out of income from acting) during the yeare was Rs.30,000 and Rs.1,000
respectively
• A and B received the following gifts also:
• On 20 May 2019 B got a gift from his grandfather Rs.80,000.
• On 14 September 2019 A got a gift from Mr.X’s friend and Rs.35,000 from his
maternal uncle
• Find out the incomes of each person
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Problem 8 (ill 6, app, 415)
• From the following particulars compute total income of Mr.X for the
assessment year 2020-21
1. Income from Profession - Rs.15,00,000
2. Income of minor son (professional singer) -Rs.50,000
3. Winning from lottery (Ticket purchased in the name of Mr.X’s minor
daughter P - Rs.1,00,000
4. Mr.X’s father gifted debentures in an Indian company to Mr.X’s minor son Q
and the company paid gross interest Rs.20,000
5. MrX’s wife is a government employee and her income from salary is
Rs.6,00,000
6. Interest on debentures purchased by Mr.X but gifted to Mrs.X Rs.40,000
7. Interest on bank deposit in the name of minor daughter R (handicapped)
Rs.2,00,000

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Aggregation of Income - Meaning
• In certain cases some amounts are deemed as the income of the
assessee though they are actually not his income.
• These items are also included in the total income of the assess for tax
purpose
• Inclusion of the deemed incomes in the total income is called
aggregation

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Items of undisclosed or deemed incomes
1. Unexplained credits of cash to the account of the assessee (Sec 68)
2. Unexplained investment (Sec 69)
3. Unexplained money (Sec 69A)
4. Not fully disclosed investments (Sec 69B)
5. Unexplained expenditure (Sec 69C)
6. Hundi Borrowals / Repayments (Sec 69D)

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Setoff - Meaning
• Set off is the process of cancellation of losses in one head of income
with profits of another head or heads of income.
• If losses cannot be set off in any year due to inadequacy of income,
such losses can be carried forwarded to subsequent years to be st off
• The set off may be within a head (intra-head) or between heads
(inter-heads)

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Intra-Head Set Off
• Under intra-head set off, losses of one source of income under a
particular head is set off against income from another source under
the same head.
• Example: The loss from one house property can be set off against
income from another house property.
• However, there are certain exceptions for intra-head set off.

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Inter-head set off
• Under inter-head set off, loss in one head of income is set off against
income from another head or heads of income.
• Exceptions: (page 421 of APP)

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Exceptions to Set Off
1. No set off of loss against income from salary other than loss up to Rs.2,00,000 from
residential house property
2. Loss exceeding Rs.2,00,000 from house property cannot be set off against income from any
other head
3. Loss from speculation business can be set off only against income from speculation business
4. Loss from illegal business cannot be set off against income from lawful business
5. Long-term capital loss can be set off only against long term capital gains
6. Short term capital loss can be set of against any capital gain
7. Loss from owning and maintain race horses can be set of only against income from same
source
8. Loss from business cannot be set off against income from salary
9. No loss can be set off against oncome from lottery, crossword puzzles, card game etc
10.Losses of lottery, crossword puzzles, card games cannot be set off against income from any
other head
11.Set off of loss is not allowed against exempted income
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Carry Forward of Losses
• If any loss could not be set off in any year through intra-head or inter-
head adjustment, such loss can be carried forward to be set off in
subsequent years
• In order to be eligible for carry forward and set off the assessee must
have filed the income tax return
• The duration of set off of carry forward losses differ among different
losses.
• Current year loss can be set off against income from other heads,
subject to rules whereas carried forward losses can be set off against
income from same head only

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Losses Which Can be carried Forward and
Set Off – with Duration
Sl No Head of Income under which the Loss comes Duration
1 Loss from house property 8 years
2 Loss from non-speculation business or profession 8 years
3 Loss from speculation business 4 years
4 Short Term Capital Loss 8 years
5 Long Term Capital Loss 8 years
6 Loss from owning and maintaining race horses 4 years

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Unabsorbed Depreciation
• If the depreciation could not be charged against profit completely the
unwritten off depreciation is called unabsorbed depreciation.
• It occurs because of the inadequacy of profits
• The unabsorbed depreciaiton can be written off profits of another business
of the assessee.
• The balance of unabsorbed depreciation if any can be written off against
income of any other head other than salary (subject to rules)
• The balance of the unabsorbed depreciation if any can be carried forward
to the following year
• This carried forward unabsorbed depreciation shall be treatd as part of the
current year’s depreciation
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Order of Set Off of Unabsorbed
Depreciaiotn
• From the current year business loss
• Less Current year depreciation
• Less brought forwarded business losses if any
• Less Brought forwarded unabsorbed depreciation
• If there is a balance of unabsorbed depreciation still, it can be set off
against any other head (other than salary) subject to conditions

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Problem 1 (ill 5, tjj, p.81)
• Mr.A gives the following particulars relating to the assessment year
2020-21
• Income from salary (computed) Rs.4,00,000
• Loss from house property Rs.70,000
• Business Loss RS.1,00,000
• Bank interest received Rs.80,000

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Answer to Problem 1
Calculation C/F Income
1 Income from salary 4,00,000
2 Less Loss from house property 70,000
3 Balance income 3,30,000
4 Income from Other Source 80,000
5 Less Loss from business 1,00,000 20,000
7 Total 20,000 3,30,000

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Problem 2 (ill 6, tjj, p.82)
• Mr.B furnishes the following particulars . Compute GTI of B
• Income from salary (computed) Rs.45,000
• Loss from house property Rs.24,000
• Loss from business Rs.22,000
• Loss from speculation business Rs.4,000
• Short term capital loss Rs.25,000
• Long term capital gain Rs.19,000

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Answer to Problem 1
Calculation Carried Taxable
forward income
1 Income from salary 45,000 -
2 Less loss from house property 24,000 -
3 Balance - 21,0000
4 Loss from business 22,000
5 Long term capital gain 19,000
6 Short term capital loss 25,000 6,000
7 Short term capita loss carried forward
Total 28,000 21,000

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Problems to be worked out
• Illustrations 1 to 16 of APP

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