Income Tax 2025

Appearance

Section 99: Income of individual to include income of spouse, minor child, etc. ​

99(1) ​

The total income of any individual, for a tax year, shall include the income arising directly or indirectly,––

  • (a) to the spouse,—

    • (i) by way of salary, commission, fees or any other form of remuneration, whether in cash or kind, from a concern in which such individual has a substantial interest but shall not exclude income solely attributable to the application of technical or professional knowledge, experience and professional qualification of the spouse;
    • (ii) from assets transferred directly or indirectly to him or her by such individual otherwise than for adequate consideration or in connection with an agreement to live apart, subject to the provisions of section 25(a);
    • (iii) from assets transferred directly or indirectly to any person or association of persons otherwise than for adequate consideration to the extent to which the income from such assets is for the immediate or deferred benefit of the spouse;

  • (b) to the son’s wife,––

    • (i) from assets transferred directly or indirectly on or after the 1st June, 1973, to her by such individual, otherwise than for adequate consideration; or
    • (ii) from assets transferred directly or indirectly on or after the 1st June, 1973, to any person or association of persons otherwise than for adequate consideration to the extent to which the income from such assets is for the immediate or deferred benefit of the son’s wife;

  • (c) to the minor child of the individual but shall not include in the total income of the individual where the income arising or accruing to the minor child is from manual work done by such child, or from activities where his skill, talent, specialised knowledge or experience is applied, or where such minor child is suffering from disability of the nature specified in section 154.

99(2) ​

If the asset transferred under sub-section (1)(a) or (b) is invested by the spouse or son’s wife, in any business or capital contributed as a partner in a firm, or, as the case may be, for being admitted to the benefits of partnership in a firm, then, the income to be included in the hands of the individual for the tax year shall be as follows:–– A = B × ( 𝐶 𝐷 ) where,–– A = Income to be included in the hands of individual for the tax year; B = Income and interest or both, arising to the spouse or son’s wife from the business or the firm, as applicable during the tax year; C = Value of such assets invested, or contributed as capital by the spouse or son’s wife as on the first day of the tax year; D = Total investment or total capital contribution, as the case may be, by the spouse or son’s wife as on the day for which A is being computed.

99(3) ​

Where a property owned by an individual is converted into property belonging to the Hindu undivided family of which he is a member, through––

  • (a) the act of impressing such separate property with the character of property belonging to the family; or
  • (b) throwing it into the common stock of the family; or
  • (c) transfer, directly or indirectly to the family, without adequate consideration, then, irrespective of any other provision of this Act or any other law in force for computing the total income of such individual,–– (i) the individual shall be deemed to have transferred such property, through the family, to the members of such family for being held jointly, and the income derived from such property or part thereof, shall be deemed to be income of the individual; (ii) upon partition (whether partial or total) of the family, the income derived from such property as is received by the spouse of the individual on partition, shall be deemed to arise to the spouse from assets transferred indirectly to the spouse and the provisions of sub-section (1)(a) shall apply; (iii) the income referred to in clauses(i) and (ii) shall, on being included in the total income of the individual, be excluded from the total income of the family or, the spouse.

99(4) ​

The provisions of sub-section (3) shall not apply where the property of the individual has been converted into property belonging to the family on or before the 31st December, 1969.

99(5) ​

In this section,––

  • (a) for sub-section (1)(a),–– (i) the income referred to in that clause shall be included in the hands of either of the spouse whose total income before such inclusion is greater; and (ii) such income, once included in the total income of either spouse, for a tax year, shall not be included in the income of the other spouse for any succeeding tax year, unless the Assessing Officer is so satisfied, after giving the other spouse an opportunity of being heard; (iii) “substantial interest in a concern” means,— (A) in case of a company, if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than 20% of the voting power are, at any time during the tax year, owned beneficially by the individual or jointly with one or more of his relatives; (B) in any other case, if such person is entitled, or such person and one or more of his relatives are jointly entitled, to atleast 20% of the profits of such concern at any time during the tax year;
  • (b) for sub-section (1)(d), income of minor child shall be included— (i) in the income of that parent whose total income before such inclusion is greater in case where the marriage of his parents subsists; or (ii) in the income of the parent who maintains such child during the tax year in case where marriage of his parents does not subsist, and such income, once included in the total income of either parent, for a tax year, shall not be included in the income of the other parent for any succeeding tax year, unless the Assessing Officer is so satisfied, after giving the other parent an opportunity of being heard;
  • (c) for sub-section (3), “property” includes–– (i) interest in property; or (ii) movable or immovable property; or (iii) proceeds of sale of such property and any money, property or investment representing such proceeds; or (iv) where property is converted into any other property by any method, such other property;
Explanation

Section Summary: ​

Section 99 of the Income Tax Act deals with the inclusion of certain incomes of an individual’s spouse, minor child, or son’s wife in the individual’s total income for tax purposes. The section aims to prevent tax avoidance by attributing income earned through assets transferred without adequate consideration or income derived from businesses where the individual has a substantial interest. It also addresses the treatment of income when property is converted into Hindu Undivided Family (HUF) property.

Key Changes: ​

  1. Clarification on Income Attribution: The section explicitly clarifies that income from assets transferred to a spouse, son’s wife, or minor child without adequate consideration will be included in the individual’s income.
  2. Exclusion for Professional Income: Income earned by the spouse solely due to their professional skills or qualifications is excluded from the individual’s income.
  3. Formula for Income Calculation: A specific formula is introduced to calculate the income to be included in the individual’s hands when assets are invested in a business or partnership.
  4. HUF Property Conversion: Provisions are added to address the tax implications when an individual’s separate property is converted into HUF property without adequate consideration.
  5. Substantial Interest Definition: The term "substantial interest in a concern" is defined as owning at least 20% of voting power in a company or being entitled to at least 20% of the profits in other concerns.

Practical Implications: ​

  1. Taxpayers with Transferred Assets: Individuals who transfer assets to their spouse, son’s wife, or minor child without adequate consideration must include the income from such assets in their own taxable income.
  2. Business Owners: If an individual has a substantial interest in a business and their spouse earns income from that business, such income may be included in the individual’s income unless it is attributable to the spouse’s professional skills.
  3. HUF Members: Individuals converting their separate property into HUF property without adequate consideration will have the income from such property taxed in their hands.
  4. Minor Child’s Income: Income earned by a minor child (except from manual work, skill-based activities, or disability-related income) will be included in the parent’s income, typically the parent with the higher income.

Critical Concepts: ​

  1. Substantial Interest: An individual has a substantial interest in a concern if they own at least 20% of the voting power in a company or are entitled to at least 20% of the profits in other concerns.
  2. Adequate Consideration: Transfers made without adequate consideration are those where the value of the asset transferred is not fairly compensated.
  3. Formula for Income Inclusion:
    • A = B × (C/D):
      • A: Income to be included in the individual’s hands.
      • B: Income earned by the spouse or son’s wife from the business or partnership.
      • C: Value of assets invested or contributed by the spouse or son’s wife.
      • D: Total investment or capital contribution by the spouse or son’s wife.
  4. HUF Property Conversion: When an individual’s separate property is converted into HUF property without adequate consideration, the income from such property is deemed to be the individual’s income.

Compliance Steps: ​

  1. Document Transfers: Maintain records of any asset transfers to spouses, son’s wife, or minor children, including the consideration involved.
  2. Calculate Income Inclusion: Use the formula provided in Section 99(2) to determine the income to be included in the individual’s hands if assets are invested in a business or partnership.
  3. Report Minor Child’s Income: Include the income of a minor child in the parent’s tax return, unless it is exempt under the specified conditions.
  4. Monitor HUF Property Conversions: Ensure proper documentation and valuation when converting separate property into HUF property to avoid unintended tax consequences.

Examples: ​

  1. Spouse’s Income from Business:

    • An individual owns 25% of a company (substantial interest). Their spouse earns ₹5,00,000 as salary from the company. Unless the salary is solely due to the spouse’s professional skills, the ₹5,00,000 will be included in the individual’s income.

  2. Asset Transfer to Minor Child:

    • An individual transfers a rental property worth ₹50,00,000 to their minor child without adequate consideration. The rental income of ₹3,00,000 per year will be included in the individual’s income.

  3. HUF Property Conversion:

    • An individual converts their separate property (worth ₹1,00,00,000) into HUF property without adequate consideration. The rental income of ₹6,00,000 from this property will be deemed as the individual’s income, not the HUF’s.

  4. Formula Application:

    • A spouse invests ₹10,00,000 (C) in a partnership where the total capital contribution is ₹50,00,000 (D). The spouse earns ₹2,00,000 (B) from the partnership. The income to be included in the individual’s hands is:
      • A = 2,00,000 × (10,00,000 / 50,00,000) = ₹40,000.