A recent Income Tax Appellate Tribunal (ITAT) ruling in Lucknow has established a significant precedent for income tax clubbing provisions. The case involved a Lucknow-based man who gifted approximately ₹1.15 crore to his wife, who subsequently used the funds for futures and options trading that resulted in net losses. According to reports from Mint, the taxpayer successfully claimed these losses against his own income under clubbing provisions, despite the tax officer's initial denial.
The tribunal held that losses arising from gifted money can be set off against the gifter's income under Section 64(1)(iv), as reported by Mint. Ashish Karundia, founder of chartered accounting firm Ashish Karundia & Co., explained that the provision was never meant to apply only when there is a gain. "If you fund the income-generating asset, the result is yours, whether it is profits or losses," he stated. The ruling establishes that once a gift is proved by a gift deed and affidavit, and the department has no contrary evidence, the loss follows the money back to the original donor.
According to Mint reports, losses under two specific heads of income can be clubbed using this provision. For capital gains, if you fund your spouse's investments in mutual funds, shares, or house property that are later sold at a loss, the loss can be set off against your own capital gains. Short-term capital losses can offset both short-term and long-term gains, while long-term losses can only offset long-term gains. Under the old tax regime, losses up to ₹2 lakh can be set off against any income, with the balance carried forward for setoff against rental income in subsequent years.
For house property income, if you pay for a property registered in your spouse's name and let out on rent, any home loan interest that exceeds the rent in a year results in a loss that is yours to set off. Under the new tax regime, losses from house property can be set off up to ₹2 lakh against rental income only, with anything above that amount lapsing without carry-forward. However, under the old regime, losses up to ₹2 lakh can be set off against any income, with the balance carrying forward for setoff against rental income in subsequent years.
As reported by Mint, Karundia emphasized that the law permits losses to be clubbed, but this also means taxpayers cannot leave out profits from their income tax returns and follow clubbing only when losses arise. "If a tax officer notices that pattern, he can reopen your earlier assessments, and then the benefit goes away for both of you," he warned. The provision applies only to losses from money actually provided, and taxpayers should not view it as a loophole for exploitation.
