Salary/Remuneration received from Spouse’s concern

Example of Tax Planning

-ex-

Suppose a person has business income of 350000

Tax Applicable on it is 6180 as shown below

He does tax planning and shows salary of his wife working in his office at Rs 120000

Hence his net business income =350000-120000=230000

Income of wife-120000 which is also tax free

Tax Saved=6180

To prevent such tax planning,this section has been introduced

  and now income of spouse will be clubbed with income of person as shown below

 -eex-

As per Section 64(!)

If a person has substantial interest in a concern and spouse receives salary/ remuneration from it, then salary/remuneration of spouse will be clubbed in hands of person having substantial interest.

Exception

No clubbing done if

the spouse has required technical professional qualification

And

Income solely attributed to such technical professional qualification 

What is Substantial Interest

It means

 Note:-

1. Beneficial Ownership is Important [Not Actual Ownership]

          i.e. person in whose name shares are registered

2. Share of wife & relatives also included while calculating 20% limit

3. Relative means Wife / Brother/ Sister / linear ascendant( parents)/ Linear Descendants (Children )

• (Brother in Law / Sister in Law Not Covered)

EXAM QUESTION

During the previous year 2015-16, the following transactions occurred in respect of Mr. A.

Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of Rs 25,000 from the firm for promoting the sales of the firm. Mrs. A possesses no technical or professional qualification