How To Eliminate Clubbing/Combining of Income

Best Ways To Lower Tax and How To Eliminate Clubbing/Combining of Income to reduce Income Taxes in India

• To eliminate clubbing of income of the minor child with the income of the parents, a trust for the welfare of the minor child with a specific condition of the minor child with a specific condition that no part of income be spent on the minor child during the period of minority, can be create.

• No income tax is payable on gifts received from relatives – and from parents other than relatives upto a sum of Rs.50,000 and any amount at the time of marriage.

• Such gifts received is not considered as your income but a capital receipt.

• However care should be taken to ensure that any gift received should be a genuine gift. Donor i.e., the person making the gift, should have proof for having source for making the gift.

• Since gifts made between spouses and to their minor children attract the provisions of Section 64.

• Thus a husband should not make any gift to his wife; likewise wife should not make a gift to her husband.

• This leads to clubbing of the incomes of the Spouses.

• Clubbing provisions do not apply when a gift is made to your major children, who are your great tax savers, to whom you can make liberal gifts without attracting the payment of gift tax.

• For example, if you have fixed deposits let us say of Rs.10 lakh and you have a major son as well as a major son as well as a major daughter then it makes sense to gift away Rs.5,00,000 to each of them.

• The gift amount so received by the children can be invested let’s say in bank fixed deposit.

• Each of them will get yearly interest of say, Rs. 45,000. Since this amount is below the exemption limit of Rs.1,60,000 and Rs.1,90,000 respectively, no income tax need be paid.