Your spouse's or child's income is taxed in your hands in four situations. Your spouse draws a salary or fee from a business in which you hold a substantial interest. Your spouse earns income from an asset you gave without adequate consideration. Your daughter-in-law earns income from an asset you gave her the same way. Or the income belongs to your minor child. This is clubbing of income: the income is still earned by the family member, but the law adds it to your total income and you pay the tax at your slab rate.
For tax year 2026-27 onwards the rule is section 99 of the Income-tax Act, 2025. For FY 2025-26 and earlier years it is section 64 of the Income-tax Act, 1961. The Income Tax Department's note on the scope of the new Act confirms that the 1961 Act was repealed on 1 April 2026 but continues to govern all tax years that began before that date. The substance of the two sections is the same. The section numbers, and one detail of the minor child exemption, are what change.
Old and new section numbers side by side
Notices, ITR schedules and older advice still use the 1961 numbering, so keep this map handy. The left column applies to the return for AY 2026-27 (income of FY 2025-26). The right column applies to income earned from 1 April 2026.
| Situation | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Spouse's salary, commission or fees from a concern where you have a substantial interest | Section 64(1)(ii) | Section 99(1)(a)(i) |
| Income from an asset transferred to your spouse without adequate consideration | Section 64(1)(iv) | Section 99(1)(a)(ii) |
| Income from an asset transferred to your son's wife without adequate consideration | Section 64(1)(vi) | Section 99(1)(b) |
| Income of a minor child | Section 64(1A) | Section 99(1)(c) |
| Exemption of ₹1,500 for each minor child whose income is clubbed | Section 10(32) | Schedule III, Table Sl. No. 17 |
| Transferor treated as owner of house property given to spouse or minor child | Section 27(i) | Section 25(a) |
Your spouse's salary from a business you control
Clause (a)(i) of section 99(1) catches salary, commission, fees or any other remuneration your spouse receives from a concern in which you have a substantial interest. Sub-section (5) defines that interest. In a company it means equity shares carrying at least 20% of the voting power. In any other concern, such as a firm or proprietorship, it means entitlement to at least 20% of the profits. The holding can be yours alone or yours together with your relatives, so splitting shares across family members does not get you below the line.
There is one exception. If your spouse has a technical or professional qualification and the remuneration is solely attributable to applying that knowledge and experience, it stays in your spouse's hands. A qualified chartered accountant who actually runs the finance function of the family company is the typical case. A spouse on the payroll with a title and no professional role is not.
Where both of you hold a substantial interest and both draw remuneration, both amounts are added to the income of the spouse whose total income, before this inclusion, is greater. Once the income has been included with one spouse, it is not moved to the other in a later year unless the Assessing Officer, after giving a hearing, finds it necessary.
Illustration: salary paid by a family company
Ankit holds 30% of the voting shares of a private company. His wife Pooja, a commerce graduate with no professional qualification, is paid ₹7,20,000 a year as an administrative manager. Pooja holds no shares. Because Ankit has a substantial interest and Pooja's pay is not earned through professional knowledge, the full ₹7,20,000 is added to Ankit's income for tax year 2026-27. Pooja shows it in her return as clubbed income, not as her taxable salary. Had Pooja been a qualified company secretary handling the company's secretarial work, the exception would have kept the salary with her.
Gifts to your spouse and daughter-in-law
Under clause (a)(ii), income arising directly or indirectly from an asset you transfer to your spouse is your income, unless the transfer was for adequate consideration or was made in connection with an agreement to live apart. Clause (b) applies the same test to an asset you transfer to your son's wife. Clause (d) covers the indirect route: a transfer to any other person or association for the immediate or deferred benefit of your spouse or daughter-in-law.
The gift itself is not taxed in the recipient's hands, because spouses and daughters-in-law are relatives for gift tax purposes. The rules on when a gift is taxable deal with that first question. Clubbing is the second question: what happens to the interest, rent, dividends or capital gains the gifted asset produces later.
- Bank deposits. If you gift ₹20,00,000 to your wife and she puts it in a fixed deposit, the interest is yours for tax every year the deposit runs.
- Shares and mutual funds. Dividends and later capital gains on gifted securities follow the same rule. The demat steps and stamp duty for this kind of gift are set out in the guide to gifting shares through an off-market transfer.
- House property. Section 25(a), read with the rules on income from house property, goes one step further. An individual who transfers a house without adequate consideration to a spouse (other than under an agreement to live apart) or to a minor child (other than a married daughter) is treated as the deemed owner under section 25(a). The rent is assessed to the transferor as owner.
A genuine sale at a fair price, or a loan on commercial terms, is outside clause (a)(ii), because there is adequate consideration. Keep the paperwork that shows it: the agreement, the bank transfer and evidence that the price or interest was actually paid.
When the gifted money goes into your spouse's business
Section 99(2) stops the rule from swallowing your spouse's entire business income. Only a proportion is clubbed. The share added to your income is the business income (or, for a partner, the interest from the firm) multiplied by the value of the gifted asset invested, divided by your spouse's total investment or capital. Both values are taken as on the first day of the tax year.
Illustration. Meera runs a boutique. On 1 April 2026 her capital is ₹20,00,000, of which ₹14,00,000 came as a gift from her husband in an earlier year and ₹6,00,000 is her own money. The boutique earns ₹4,50,000 in tax year 2026-27. The husband's income includes ₹4,50,000 × 14,00,000 ÷ 20,00,000 = ₹3,15,000. Meera is taxed on the remaining ₹1,35,000.
Your minor child's income
Clause (c) adds all income of a minor child to a parent's income, with three exclusions:
- Income from work done by the child, such as fees for acting or modelling.
- Income from activities in which the child applies skill, talent, specialised knowledge or experience. Prize money from a sports tournament is the common example.
- All income of a minor child suffering from a disability of the nature specified in section 154 of the 2025 Act (section 80U under the 1961 Act).
The exclusion covers only the earning itself. The Department's FAQ on clubbing of a minor child's income says that where the child's skill-based earnings are invested, the income from that investment is clubbed. Interest on a child actor's fees parked in a fixed deposit therefore goes to the parent.
The definition of "child" in section 2(25) of the 2025 Act includes a step-child and an adopted child, so those children are covered too.
Which parent pays
Sub-section (5)(b) settles this. While the parents' marriage subsists, the child's income goes to the parent whose total income, before the inclusion, is greater. If the marriage has ended, it goes to the parent who maintains the child in that tax year. As with spouses, once it is included with one parent, it stays there in later years unless the Assessing Officer decides otherwise after a hearing.
The ₹1,500 exemption works only in the old regime
The parent can exclude up to ₹1,500 for each minor child whose income is clubbed. Under the 2025 Act this is Serial No. 17 of the Table in Schedule III to the Income-tax Act, 2025 as amended by the Finance Act, 2026, and under the 1961 Act it was section 10(32). The default new regime denies it. Section 202(2)(a) of the 2025 Act computes income without Schedule III Serial No. 17, just as section 115BAC(2)(i) of the 1961 Act excluded section 10(32). A parent in the new regime adds the child's income in full.
Illustration: one child, two kinds of income
Riya is 12. In tax year 2026-27 she earns ₹62,000 interest on a fixed deposit made from her grandmother's gift. She also wins ₹40,000 in a chess tournament, and the bank deposit in which that prize is placed earns ₹2,800 interest. Her father's own income is ₹18 lakh and her mother's is ₹22 lakh.
| Item | Old regime (mother) | New regime (mother) |
|---|---|---|
| Interest on the grandmother's gift | ₹62,000 clubbed | ₹62,000 clubbed |
| Chess prize | Not clubbed (skill) | Not clubbed (skill) |
| Interest on the invested prize | ₹2,800 clubbed | ₹2,800 clubbed |
| Less: Schedule III Sl. No. 17 | ₹1,500 | Not available |
| Added to the mother's income | ₹63,300 | ₹64,800 |
The prize itself is Riya's own income. Whether it is taxable in her hands, and whether she needs to file a return, is assessed separately for her.
Clubbed income is part of the parent's total income for every purpose, including slab rates and rebate limits. A parent sitting just under the new-regime threshold can lose the section 87A rebate (section 156 of the 2025 Act) because of a child's interest income.
Reporting clubbed income and claiming the TDS
Clubbed income is reported in the clubbing parent's or spouse's return, not left out because it was paid to someone else. The ITR-2 user manual for AY 2026-27 tells taxpayers to add the income of specified persons, such as a spouse or minor child, in Schedule SPI. Clubbed income is one of the reasons a return may need ITR-2 or ITR-3 rather than a simpler form; the comparison of the main ITR forms sets out which form fits.
Banks deduct TDS in the name of the child or spouse who holds the deposit, which leaves the credit in the wrong PAN. The Department's FAQ points to the procedure in Rule 37BA(1) of the Income-tax Rules, 1962. The person in whose name the income stands gives the deductor a declaration. The deductor then reports the TDS in the name of the person in whose hands the income is assessable. Ask the bank for this at the start of the year, before the quarterly TDS returns are filed, because correcting it later means asking the bank to revise its return.
Section 100 of the 2025 Act adds a recovery point. Where income from an asset is included in your total income, the person in whose name the asset stands is liable, once a demand notice is served, to pay the part of your tax attributable to that income. So the tax can be recovered from your spouse or child's asset if you do not pay.
Situations that do not attract clubbing
Several common arrangements fall outside section 99 entirely:
- Gifts to an adult son or daughter. Their income from the gifted asset is theirs, because clause (c) covers only minor children and clause (b) covers only a son's wife.
- A spouse's salary from an unrelated employer, or from a family concern in which neither of you holds 20%.
- Assets your spouse bought with their own savings or inherited, even if the two of you manage the money together.
- Transfers for adequate consideration, including a properly documented interest-bearing loan.
- Income of a minor child with a section 154 disability, which is assessed in the child's own hands.
HUF property has its own clubbing rule in section 99(3) and (4), which applies when a member throws personal property into the family pool. That case is covered in how HUF income, clubbing and partition work.
The order to check is always the same: who earned the income, from which asset, and how that asset reached them. If the answer runs back to a gift from you to your spouse, your son's wife or your minor child, or to a salary from your own concern, the income belongs in your return for that tax year. Claim the matching TDS through the Rule 37BA declaration.
