You gifted your spouse a house. A heartfelt gesture, right? Until you realize—you’re still the one footing the tax bill on the rental income.
Welcome to one of Income Tax Act’s quietest but most cunning rules: Clubbing of Income under Section 64.
In this blog, we’ll walk you through how gifting property to your spouse or child can still keep you in the tax net, what to watch out for, and how to gift smart—not just emotionally, but financially too.
Let’s say you’re a smart taxpayer (which you probably are, if you’re reading this). You earn good money and own a house. Now imagine this:
“What if I gift this house to my spouse? She’s in a lower tax slab… or maybe doesn’t even file returns. The rent will be hers, the income will be hers—and bingo! Less tax for the family!”
Seems like a brilliant idea, right?
The Income Tax Department saw this coming from miles away.
That’s exactly why Section 64 of the Income Tax Act exists. It’s designed to prevent tax avoidance through gifts to close relatives—especially spouses, minor children, and daughter-in-laws.
In Simple Terms:
Clubbing of Income means:
Even if you transfer an asset to your spouse (or a few other relatives), any income from that asset is still treated as YOUR income—and taxed in YOUR hands.
It’s like: “You gave the gift, but we’ll give you the bill.”
Who Exactly Falls Under the Clubbing Radar?
Section 64 doesn’t come after all relatives—only a select few that the law considers “too close for tax comfort.”
Here’s a breakdown of the relationships that trigger clubbing of income rules:
Spouse (Husband or Wife)
If you gift any income-generating asset (like property, FD, shares) to your spouse without adequate consideration, then any income from that asset is clubbed with your income.
“Gifted your wife a flat? The rental income is yours for tax purposes.”
Minor Children (Under 18 years of age)
Any income earned by your minor child—whether from a gifted asset or otherwise—is clubbed with your income, usually that of the parent with higher income.
Exception: If the income is from the child’s own skill, talent, or specialized knowledge (e.g., child actor income), clubbing doesn’t apply.
A ₹1,500 exemption per child is available though.
(Not much, but hey, it’s there.)
Son’s Wife (Daughter-in-Law)
If you gift something to your daughter-in-law and she earns income from that, you’re taxed—not her.
“You thought you’re building family goodwill; the tax authority says you’re building your own tax bill.”
Indirect Transfers via HUF
If a person transfers assets to a Hindu Undivided Family (HUF) for the benefit of family members, future income may be clubbed with the transferor’s individual income.
Notably Excluded Relations:
If you gift something to the following, clubbing doesn’t apply:
- Parents
- Siblings
- Married daughters
- Major children (18+)
- Grandparents, uncles, cousins, etc.
- Even to your spouse, if you charge full market price (called “adequate consideration”).
So gifting to your brother, father, or even major son? No clubbing! (But other tax angles may still apply)
Real-Life Scenarios That Make It Crystal Clear
Scenario 1: Gifting a House to Wife
Mr. Sharma gifts a residential flat to his wife. She puts it on rent and earns ₹25,000 per month.
Tax Outcome?
Though the property is in Mrs. Sharma’s name, the ₹3,00,000 yearly rent income will be clubbed with Mr. Sharma’s income under Section 64(1)(iv). He pays tax on it.
Tip: If the wife had bought the property using her own funds or paid full value for it, no clubbing would apply.
Scenario 2: Gifting Shares to Son’s Wife
Mr. Gupta gifts ₹5 lakh worth of shares to his daughter-in-law. A year later, she earns ₹1.2 lakh as dividend and capital gains.
Tax Outcome?
Both incomes are clubbed with Mr. Gupta’s income, as the gift was to a son’s wife without consideration. She’s not taxed—he is.
Scenario 3: Income from FD in Minor Daughter’s Name
Mrs. Roy opens a fixed deposit of ₹4 lakh in her 10-year-old daughter’s name. It earns ₹24,000 interest in a year.
Tax Outcome?
The interest income is clubbed with Mrs. Roy’s income. She gets an exemption of ₹1,500, and pays tax on ₹22,500.
Scenario 4: Gift to Major Daughter
Mr. Iqbal gifts ₹3 lakh to his 19-year-old daughter. She uses it to start a small business and earns ₹70,000 profit.
Tax Outcome?
No clubbing! Since the daughter is major (18+), her income is taxable in her own hands, even if it came from a gift.
Scenario 5: Gift to Father
Ms. Neha gifts ₹10 lakh to her father, who invests it in stocks and earns ₹80,000 in capital gains.
Tax Outcome?
No clubbing. Father is not a covered relative under Section 64. The income is taxed in father’s hands only.
What to Maintain, What Not to Do, and Common Traps to Avoid:
What You Should Always Maintain
- A Proper Gift Deed (Preferably Registered):
– For immovable property, registration is legally mandatory.
– For movable property (cash, shares, etc.), have a signed deed on stamp paper. - Clear Trail of the Gift:
– Bank transfer proofs, demat instructions, cheque copies, or RTGS/NEFT slips should be maintained.
– Avoid cash transactions—even if legally allowed for certain gifts, they often trigger suspicion. - Recipient’s PAN and ITR Disclosure:
– The recipient should show the asset/income in their return, even if clubbing applies in donor’s case.
– This avoids mismatch notices from CPC. - Maintain Purpose & Independence:
– Ensure the recipient uses the gift independently. Income from reinvestment or future investment may not get clubbed if properly structured (more on this later).
What Not to Do
- Don’t Assume “Relative = Tax-Free Always”
– Yes, gifts to relatives are exempt in recipient’s hands, but that doesn’t mean the donor is off the hook. Clubbing rules override that for specific relationships. - Don’t Gift to Minor Children Without a Plan
– Clubbing applies, and while ₹1,500 exemption is allowed per child, it’s not much.
– Invest in tax-free bonds, PPF, or in the name of spouse (with proper structuring). - Don’t Try to Hide Beneficial Ownership
– If you gift an asset but still enjoy benefits (like rent or dividends), the taxman will see through it. That’s benami-like behaviour.
Common Traps People Fall Into:
| Trap | Why It’s Risky |
|---|---|
| “I gifted the house, she pays the tax.” | Nope. If clubbing applies, you pay the tax, not her. |
| “Gifted shares to son’s wife—she’s family!” | Still clubbed. She’s specifically listed under Section 64. |
| “Used wife’s name to buy property, but I paid.” | This might trigger clubbing, benami suspicion, and denial of deductions. |
| “Minor’s income is small, won’t show.” | CPC cross-verifies PANs. It may lead to mismatch or underreporting notices. |
| “I’ll show the income in spouse’s ITR.” | Clubbing means it must be in your ITR, or the system may flag it. |
While this blog focused mainly on gifting property within the family, clubbing of income applies to other types of assets and relationships too—not just immovable property.
To give you the complete picture, here’s a summary chart of all clubbing provisions under Section 64 of the Income Tax Act, including some less obvious scenarios that often go unnoticed.
Use this as your quick-reference guide before planning any tax-smart transfers.
Clubbing of Income – Summary Chart (Section 64, Income Tax Act)
| Clause | Relationship | Type of Transfer | Asset Type | Clubbing Applies To | Conditions/Exceptions |
|---|---|---|---|---|---|
| 64(1)(ii) | Spouse | Salary/remuneration from concern where individual has substantial interest | Any (Cash/Remuneration) | Individual (donor spouse) | Clubbing not applicable if spouse has professional skill and income is due to that |
| 64(1)(iv) | Spouse | Gift/transfer without adequate consideration | Any income-generating asset (e.g. property, shares, FD) | Individual (donor spouse) | Doesn’t apply if gift is under divorce agreement |
| 64(1)(vi) | Son’s Wife | Gift/transfer without adequate consideration | Any income-generating asset | Individual (father-in-law/mother-in-law) | No exceptions |
| 64(1)(vii) | Any person or AOP | Indirect gift for benefit of spouse | Any | Individual (donor) | Includes routed/structured transfers |
| 64(1)(viii) | Any person or AOP | Indirect gift for benefit of son’s wife | Any | Individual (donor) | Includes routed/structured transfers |
| 64(1A) | Minor Child (excluding disabled) | Income accrual (even from gifted asset) | Any | Parent with higher income | Exception: income from child’s talent/manual work |
| 64(2) | HUF (when member contributes separate property) | Conversion of personal property into HUF property | Any | Individual (donor) | Income from converted property is clubbed back to member |
| Explanation 3 to 64 | Spouse or son’s wife | Gift invested in business | Business Income | Individual (proportionate clubbing) | Clubbing only to extent of proportion of investment |
Finally, Gifts are beautiful gestures, especially within family. But the Income Tax Department doesn’t care about emotions—it cares about documentation and tax rules.
From the donor’s point of view, while giving a gift may feel like a one-way street, the taxability doesn’t always end there. You may still have to report it, and worse—bear the tax burden if clubbing provisions apply.
So the golden rule is simple:
Give, but don’t forget to declare. Gift, but don’t give away your tax planning.
Need Help Figuring It All Out?
Our firm (yes, that’s us) specializes in handling complex tax matters like gift reporting, clubbing, HUF gifting, and property transfers within family.
Talk to us before you sign that gift deed. It’s easier to do it right than fix it later. We love talking taxes!
Frequently Asked Questions (Advanced & Practical):
Can I gift my wife ₹10 lakhs and let her invest it?
You can, but the income from that ₹10 lakhs (interest, FD returns, etc.) gets clubbed with your income. So no tax saving there unless she invests in tax-free options.
What if I gift a flat to my adult daughter who is financially independent?
Perfectly allowed. No clubbing if she’s a major and not dependent. She’ll have to show it in her ITR and may pay tax on future rent or capital gains.
Can I claim capital gains exemption (like 54, 54F) if I gift a property?
No. Gift is not a transfer for consideration, so there’s no capital gain in your hands. Hence, no exemption like 54/54F applies. But if she sells it later, she can claim exemptions, if eligible.
Can my HUF gift to my brother’s wife?
Technically yes, but check the clubbing implications if she’s indirectly benefiting your own family or minor children. It’s a grey zone—get expert help.
I gifted shares to my wife and she made profit in F&O—will it be clubbed?
Yes. Even if the nature of income is business, it can still be clubbed unless she uses her own funds or significantly contributes. It’s a common trap in stock trading families.