Think gifting to your spouse saves tax? Big mistake. Here's what the law says

The Income Tax Act has provisions that prevent tax avoidance through income transfers within the family. Under Sections 60 to 64, income transferred to a spouse, minor child, or even a Hindu Undivided Family (HUF) may still be taxed in your hands.

Here’s how the clubbing provisions work:

Section 60
If income is transferred without transferring the asset, the income is still taxed in the hands of the transferor.

Section 61
Income from a revocable transfer of an asset is taxable to the transferor.

Section 64(1)(ii)
If a spouse receives a salary from a firm or concern in which the individual has a substantial interest, the income is clubbed with the individual’s income.

Section 64(1)(iv)
Income from assets transferred to a spouse without adequate consideration is taxable to the transferor.

Section 64(1)(vi)
Income from assets transferred to a daughter-in-law without consideration is taxable to the transferor.

Section 64(1A)
Income of a minor child, except from manual work or talent-based activities, is clubbed with the parent with higher income.

Section 64(2)
Income from self-acquired property transferred to a HUF without consideration is taxable to the individual who transferred it.

Proviso to Section 64(1A)
Income earned by a minor child from their own skill or due to disability is not clubbed and is taxable in the child’s hands.

Gifting income or routing it through family members may not reduce your tax burden. These provisions ensure that any attempt to shift tax liability through such means comes back to your taxable income.