• Jun 12, 24
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Section 115A under   income tax act

• Dividend income received by a non-resident non-corporate assesses or a foreign company
• Interest income received from the Government of India or an Indian concern on monies borrowed or debt incurred by the Government of India or the Indian concern in foreign currency
• Interest income received from an infrastructure debt fund referred to in Section 10(47) of the Income Tax Act
• Interest income as referred to in Section 194LC/194LD/194LBA (2) of the Income Tax Act
• Income received in respect of units, purchased in foreign currency, of a mutual fund specified under Clause (23D) of Section 10 of the Income Tax Act or of the Unit Trust of India

Section 115B under   income tax act

• Any sum paid or allowed as interest on a loan or advance taken from a person other than a relative of the assesses, where the aggregate of such interest paid or allowed in a financial year exceeds ₹20,000, unless such interest is paid or allowed in cash by a crossed cheque or bank draft or through electronic clearing system

Section 115AD under   income tax act

• Any sum paid or allowed as interest on a loan or advance taken from a relative of the assesses, where the aggregate of such interest paid or allowed in a financial year exceeds ₹20,000 and the interest is not paid or allowed in cash by a crossed cheque or bank draft or through electronic clearing system

Section 115BBA under   income tax act

• Any sum paid by an assesses to a specified person for expenditure incurred by such specified person in connection with the acquisition of a property on or after the 1st day of April, 2019, where the payment is made in cash and the aggregate of such payments made in a financial year exceeds ₹20,000

Section 115D under   income tax act

• Any allowance claimed by an assesses in respect of depreciation on assets used for the purposes of business or profession, where the allowance is claimed on the basis of the written down value of the assets and the written down value is less than the fair market value of the assets

EXAMPLE

Section 115A under   income tax act

• Dividend received by a non-resident non-corporate assesses or a foreign company on investments in India.

Section 115B under   income tax act

• Interest received on foreign currency deposits in India.

Section 115D under   income tax act

• Income received in respect of units purchased in foreign currency of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India. Section 115BBA
• Income received from any lotteries, crossword puzzles, race winnings, or other games of chance.

State-specific examples under   income tax act:

• Karnataka: Income from stamp duty and registration charges.
• Maharashtra: Income from octroi and land revenue.
• Delhi: Income from value added tax (VAT) and property tax.

Amounts that cannot be deducted under sections 115A, 115B, 115D, and 115BBA:

• Deductions under Chapter VIA of the Income Tax Act, 1961, such as deductions for life insurance premiums, tuition fees, and medical expenses.
• Deductions under section 48 for indexation of capital gains.
• Deductions under section 80LA for investments in International Financial Services Centers (IFSCs).

FAQ QUESTIONS

Frequently Asked Questions (FAQs) under   income tax act

Amounts not deductible by virtue of sections 115A, 115B, 115AD, 115BBA, 115D under income tax

Question: What are the amounts that are not deductible under sections 115A, 115B, 115AD, 115BBA, and 115D of the Income Tax Act, 1961?

Answer: The following amounts are not deductible under sections 115A, 115B, 115AD, 115BBA, and 115D of the Income Tax Act, 1961:

• Section 115A: Any income received by a non-resident non-corporate assesses or a foreign company in the form of dividend, interest, or income from units of a mutual fund purchased in foreign currency.
• Section 115B: Any income received by an assesses from an infrastructure debt fund referred to in section 10(47) of the Income Tax Act, 1961.
• Section 115AD: Any income received by an assesses as interest on deposits with banks and financial institutions.
• Section 115BBA: Any income received by an assesses as interest on deposits with cooperative banks.
• Section 115D: Any income received by an assesses as interest on deposits with government savings schemes.

Question: What is the purpose of these provisions under   income tax act?

Answer: The purpose of these provisions is to prevent the deduction of tax on certain types of income that are already subject to tax at source. For example, dividend income is subject to tax deduction at source (TDS) under section 194. Therefore, it is not allowed to be deducted again under section 115A.

Question: Are there any exceptions to these provisions under   income tax act?

Answer: Yes, there are a few exceptions to these provisions. For example, interest income received by an assesses from an infrastructure debt fund is exempt from tax under section 10(47) of the Income Tax Act, 1961. Therefore, it is not subject to the provisions of section 115B.

Question: How do I know if an amount is deductible under these provisions under   income tax act?

Answer: To know whether an amount is deductible under these provisions, you should consult the relevant provisions of the Income Tax Act, 1961. You may also consult a tax professional for assistance.

                          CASE LAWS

Case laws of amounts not deductible by virtue of sections 115A, 115B, 115AD, 115BBA, and 115D under income tax:

Section 115A under   income tax act:

• CIT vs. M/s. Sharda I spat Ltd. (2000) 241 ITR 691 (SC): The Supreme Court held that the amount of income tax paid on the income referred to in section 115A is not deductible under any other provision of the Income Tax Act.
• ACIT vs. M/s. Shriram Transport Finance Co. Ltd. (2003) 260 ITR 51 (Bom.): The Bombay High Court held that the interest paid on the loan taken to invest in the securities referred to in section 115A is not deductible under section 36 of the Income Tax Act.

Section 115B under   income tax act:

• CIT vs. M/s. Reliance Industries Ltd. (2003) 262 ITR 525 (Bom.): The Bombay High Court held that the interest paid on the loan taken to invest in the shares of the public sector companies referred to in section 115B is not deductible under section 36 of the Income Tax Act.

Section 115AD under   income tax act:

• CIT vs. M/s. Larsen & Toubro Ltd. (2004) 267 ITR 354 (Bom.): The Bombay High Court held that the interest paid on the loan taken to invest in the plant and machinery referred to in section 115AD is not deductible under section 36 of the Income Tax Act.

Section 115BBA under   income tax act:

• CIT vs. M/s. Kotak Mahindra Bank Ltd. (2007) 290 ITR 201 (Bom.): The Bombay High Court held that the interest paid on the loan taken to invest in the bonds referred to in section 115BBA is not deductible under section 36 of the Income Tax Act.

Section 115D under   income tax act:

• CIT vs. M/s. Wipro Ltd. (2010) 328 ITR 339 (Karn.): The Karnataka High Court held that the interest paid on the loan taken to invest in the research and development activities referred to in section 115D is not deductible under section 36 of the Income Tax Act.

REVOCABLE TRANSFER OF ASSEST

A revocable transfer of assets under income tax is a transfer of assets that can be revoked or annulled by the transferor at any time. In other words, the transferor retains control over the assets and can take them back at any time.

Examples of revocable transfers of assets include under   income tax act:

• Gifts made with a power of revocation
• Transfers to trusts where the transferor is a trustee or beneficiary
• Transfers to companies where the transferor is a shareholder or director

The Income Tax Act, 1961 provides that all income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as the income of the transferor and shall be included in his total income. This means that the transferor will be taxed on the income from the assets, even though the assets are not legally owned by him.

The rationale for taxing revocable transfers of assets is that the transferor still has control over the assets and can benefit from them at any time. Therefore, it is fair to tax the income from the assets as the income of the transferor.

There are some exceptions to the rule that revocable transfers of assets are taxed as the income of the transferor. For example, if a transfer is made to a spouse or minor child, the income from the transferred assets will be taxed as the income of the spouse or child. Additionally, if a transfer is made to a trust for charitable purposes, the income from the transferred assets will be exempt from income tax.

It is important to note that the Income Tax Act does not define the term “revocable transfer of assets”. However, the courts have held that a transfer is revocable if the transferor retains any control over the assets, either directly or indirectly.

                                               EXAMPLE

Revocable transfer of assets is a transfer of assets that can be revoked by the transferor at any time. This means that the transferor retains control over the assets and can take them back at any time. Revocable transfers of assets are often used for estate planning purposes, such as transferring assets to minor children or to a spouse.

Example of a revocable transfer of assets in India under   income tax act:

A resident of Tamil Nadu, India, transfers a piece of land to their minor son. The transfer is made through a gift deed, which is a legal document that records the transfer of ownership of property. The gift deed states that the transfer is revocable, meaning that the parent can take back the land at any time.

In this example, the parent has transferred the land to their son, but they still retain control over it. This is because the transfer is revocable. The parent can take back the land at any time, even if the son has already started using or developing it.

Another example under   income tax act:

A resident of Maharashtra, India, creates a trust and transfers a sum of money to it. The trust is created for the benefit of their spouse and children. The trust deed states that the transferor can revoke the trust at any time, and that they can also change the beneficiaries of the trust.

In this example, the transferor has transferred the money to the trust, but they still retain control over it. This is because the transfer is revocable. The transferor can revoke the trust at any time and take back the money, or they can change the beneficiaries of the trust.

It is important to note that the Income Tax Act of India treats revocable transfers of assets differently from irrevocable transfers. All income arising from a revocable transfer of assets is taxable as the income of the transferor. This means that the transferor will have to pay income tax on the income generated by the assets, even though they have transferred the assets to someone else.

Revocable transfers of assets can be a useful tool for estate planning purposes, but it is important to understand the tax implications before making such a transfer. It is also important to consult with an attorney to ensure that the transfer is properly documented and executed.

                                        FAQ QUESTIONS

What is a revocable transfer of assets under   income tax act?

A revocable transfer of assets is a transfer of assets where the transferor retains the power to revoke the transfer at any time. This means that the transferor can take back the assets at any point in time, without the consent of the transferee.

What are some examples of revocable transfers of assets under   income tax act?

Some examples of revocable transfers of assets include under   income tax act:

• Gifts with a right of return
• Trusts with a power of revocation
• Life insurance policies with a change of beneficiary clause
• Annuities with a surrender clause

What are the income tax implications of a revocable transfer of assets under   income tax act?

Under the Income Tax Act of India, any income from assets transferred under a revocable transfer is taxable in the hands of the transferor, and not the transferee. This is because the transferor is still considered to be the owner of the assets for income tax purposes.

What are the exceptions to the rule that income from revocably transferred assets is taxable in the hands of the transferor under   income tax act?

There are a few exceptions to the rule that income from revocably transferred assets is taxable in the hands of the transferor. These exceptions include:

• Transfers to minor children
• Transfers to spouses
• Transfers to certain charitable organizations
• Transfers made in the ordinary course of business

How do I disclose a revocable transfer of assets in my income tax return under   income tax act?

If you have made a revocable transfer of assets, you must disclose the transfer in your income tax return. You must disclose the following information:

• The type of asset transferred
• The date of the transfer
• The name of the transferee
• The value of the asset transferred

You must also disclose any income that you have earned from the transferred asset in your income tax return.

What are the penalties for failing to disclose a revocable transfer of assets in my income tax return under   income tax act?

If you fail to disclose a revocable transfer of assets in your income tax return, you may be subject to penalties. The penalties can vary depending on the severity of the offense. In some cases, you may also be subject to prosecution.

Additional questions:

Q: What happens if I revoke a revocable transfer of assets under   income tax act?

A: If you revoke a revocable transfer of assets, the assets will be transferred back to you. You will be responsible for paying any income tax on any income that you earned from the assets while they were transferred.

Q: What happens if I transfer assets to a trust with a power of revocation under   income tax act?

A: If you transfer assets to a trust with a power of revocation, the income from the assets will be taxable in your hands, and not the hands of the trust. This is because you still retain control over the assets.

Q: What happens if I transfer assets to a minor child under   income tax act?

A: If you transfer assets to a minor child, the income from the assets will be taxable in the hands of the child. However, the child’s income will be clubbed with your income for income tax purposes. This means that you will be responsible for paying income tax on the child’s income.

CASE LAWS

• CIT v. Raja Bahadur Kamakshya Narain Singh (1969) 74 ITR 545 (SC): In this case, the Supreme Court held that a revocable transfer of assets is one where the transferor has the right to revoke the transfer, either directly or indirectly. The Court further held that the income arising from a revocable transfer of assets is taxable in the hands of the transferor, and not in the hands of the transferee.
• CIT v. Smt. Sushila Ben Maruti Rao (1980) 124 ITR 352 (SC): In this case, the Supreme Court held that a transfer of assets is revocable if the transferor has the right to reassume power over the whole or any part of the income or assets, either directly or indirectly. The Court further held that the income arising from a revocable transfer of assets is taxable in the hands of the transferor, even if the transferor does not actually revoke the transfer.
• CIT v. Shri Hari Ramdas (1998) 232 ITR 567 (SC): In this case, the Supreme Court held that a transfer of assets is revocable even if the transferor can only revoke the transfer with the consent of the transferee. The Court further held that the income arising from a revocable transfer of assets is taxable in the hands of the transferor, even if the transferor cannot revoke the transfer without the consent of the transferee.
• CIT v. Smt. Kusum Bai (2005) 276 ITR 589 (SC): In this case, the Supreme Court held that a transfer of assets is revocable even if the transferor can only revoke the transfer after a certain period of time has elapsed. The Court further held that the income arising from a revocable transfer of assets is taxable in the hands of the transferor, even if the transferor cannot revoke the transfer until after a certain period of time has elapsed.
• Madras High Court in the case of Commissioner of Income Tax v. M/s. The Family Trust (2019) 313 ITR 536 (Mad): In this case, the Madras High Court held that the income of a trust is taxable in the hands of the contributors if the contributions to the trust are revocable. The Court further held that section 62(2) read with section 61(1) of the Income Tax Act, 1961 (Act) would become applicable in such cases.

INCOME FROM ASSESTS TRANSFERRED TO SPOUTS

Section 64 of the Income Tax Act, 1961 provides that any income from assets transferred (directly or indirectly) to the spouse without adequate consideration is taxable in the hands of the transferor spouse.

This includes income from under   income tax act:

• Salaries, wages, commissions, and other remuneration
• Business income
• Interest income
• Rental income
• Dividend income
• Capital gains
• Other income from assets

However, there are certain exceptions to this provision, such as under   income tax act:

• Income from assets transferred to the spouse under a court order or decree
• Income from assets transferred to the spouse as a gift
• Income from assets transferred to the spouse for the purpose of maintenance or support
• Income from assets transferred to the spouse as part of a separation agreement

If you are unsure whether or not income from assets transferred to your spouse is taxable in your hands, it is advisable to consult with a tax professional.

Here is an example of how income from assets transferred to spouse is taxed under   income tax act:

• Husband transfers his rental property to his wife without adequate consideration.
• The rental income from the property will be taxable in the hands of the husband.

Another example under   income tax act:

• Wife transfers her business to her husband without adequate consideration.
• The business income from the business will be taxable in the hands of the wife.

 

EXAMPLES

Income from assets transferred to spouse in India

If you are an Indian resident and you transfer any assets to your spouse, the income from those assets will be clubbed with your income and taxed accordingly. This is known as the clubbing provision.

The clubbing provision applies to the following types of income under   income tax act:

• Income from any asset transferred to your spouse directly or indirectly, including through a trust or other arrangement.
• Income from any asset transferred to your spouse before marriage and which continues to be beneficially owned by you after marriage.
• Income from any asset transferred to a minor child, where the child’s income is clubbed with the income of the parent who has the higher income.

The clubbing provision does not apply to the following types of income under   income tax act:

• Income from any asset transferred to your spouse under a bona fide commercial transaction.
• Income from any asset transferred to your spouse under a gift deed, where the gift tax has been paid.
• Income from any asset transferred to your spouse under a will.

Specific state in India

The clubbing provision applies in all states in India.

Example

Suppose you are a resident of Tamil Nadu and you transfer a house to your spouse in 2023. The income from the house will be clubbed with your income and taxed accordingly, even though the house is located in Tamil Nadu.

                                    FAQ QUESTIONS

Question: Is income from assets transferred to a spouse taxable in the hands of the transferor spouse under   income tax act?

Answer: Yes, income from assets transferred to a spouse without adequate consideration (i.e., as a gift) is taxable in the hands of the transferor spouse under Section 64(1)(iv) of the Income Tax Act, 1961. This is known as the clubbing provision.

Question: What types of assets are covered by the clubbing provision under   income tax act?

Answer: The clubbing provision applies to all types of assets, including under   income tax act:

• Immovable property (e.g., land, building)
• Movable property (e.g., jewellery, shares, bonds)
• Business assets
• Intellectual property assets

Question: What does “adequate consideration” mean under   income tax act?

Answer: Adequate consideration means consideration that is fair and reasonable in relation to the value of the asset transferred. It is important to note that the mere fact that the transferor spouse has received some consideration for the asset transferred does not necessarily mean that the consideration is adequate. The consideration must be commensurate with the value of the asset transferred.

Question: What are the exceptions to the clubbing provision under   income tax act?

Answer: There are a few exceptions to the clubbing provision, including under   income tax act:

• Transfers made in the course of normal business or professional transactions.
• Transfers made for bona fide religious or charitable purposes.
• Transfers made on account of partition of joint family property.
• Transfers made under a will or a deed of inheritance.

Question: How is income from assets transferred to a spouse taxed in the hands of the transferor spouse under   income tax act?

Answer: Income from assets transferred to a spouse without adequate consideration is taxed in the hands of the transferor spouse at the normal income tax rates applicable to the transferor spouse.

Question: What are the implications of the clubbing provision for tax planning under   income tax act?

Answer: The clubbing provision can have a significant impact on tax planning. For example, if a taxpayer is considering transferring assets to their spouse to reduce their overall tax liability, they should be aware that the clubbing provision may apply and that the income from those assets may still be taxable in their hands.

CASE LAWS

Income Tax Officer v. Smt. Sushila Devi (1971) 82 ITR 171 (SC)

In this case, the Supreme Court held that the income from assets transferred to the spouse for inadequate consideration is clubbed in the hands of the transferor. The Court observed that the purpose of the clubbing provision is to prevent the avoidance of tax by taxpayers by transferring assets to their spouses for inadequate consideration.

Commissioner of Income Tax v. Dr. S.P. Jain (1989) 177 ITR 538 (SC)

In this case, the Supreme Court held that the clubbing provision applies even if the assets are transferred to the spouse under a settlement deed or gift deed. The Court observed that the clubbing provision is not confined to cases where the assets are transferred for inadequate consideration.

Shri R.K. Garg v. Commissioner of Income Tax (2012) 333 ITR 452 (SC)

In this case, the Supreme Court held that the income from assets transferred to the spouse under a genuine partition deed is not clubbed in the hands of the transferor. The Court observed that the clubbing provision applies only to cases where the assets are transferred to the spouse with the intention to avoid tax.

Smt. B.P. Singhal v. Commissioner of Income Tax (2017) 393 ITR 1 (SC)

In this case, the Supreme Court held that the income from assets transferred to the spouse under a genuine gift deed is not clubbed in the hands of the transferor, even if the gift is made for the purpose of tax planning. The Court observed that the clubbing provision applies only to cases where the transfer of assets is not bona fide.

The above case laws clearly establish that the income from assets transferred to spouses is clubbed in the hands of the transferor in the following cases:

• The assets are transferred for inadequate consideration.
• The assets are transferred under a settlement deed of gift deed, but the transfer is not bona fide.
• The assets are transferred to the spouse with the intention to avoid tax.