Introduction
Taxation serves as the lifeblood of any fiscal system, functioning on the bedrock principle of individual income attribution where income is taxed in the hands of the person who earns it. This principle upholds economic autonomy and ensures that tax liability is proportionate to one’s financial capacity. However, Section 64 of the Income Tax Act, 1961 disrupts this foundational norm by imposing a clubbing mechanism, attributing a person’s income to another based on relational proximity rather than actual control or ownership.
While the ostensible legislative intent behind this provision is to curb tax avoidance through artificial income transfers, its sweeping application raises profound constitutional concerns. By disregarding the autonomy of individuals in financial matters, Section 64 arguably runs afoul of Article 14 (Right to Equality) by treating unlike individuals alike without a rational nexus.
Further, by coercively attributing income to someone who neither earned it nor exercised dominion over it, the provision infringes upon Article 21 (Personal Liberty), undermining the fundamental principle of economic self-determination. Thus, while Section 64 operates under the guise of anti-tax-avoidance, its rigid structure and presumptive nature necessitate urgent constitutional scrutiny, as it risks converting taxation from a legitimate state function into an arbitrary encroachment on financial independence.
Understanding Section 64: Nature, Objective and Scope
The provision operates across multiple sub-clauses—Section 64(1)(ii) to 64(1)(vi)—each targeting specific income arrangements deemed susceptible to tax evasion. Section 64(1)(ii) mandates clubbing of remuneration received by a spouse from a concern in which the other spouse has a substantial interest, unless the remuneration is derived from technical or professional qualifications.[1]
Section 64(1)(iv) and (vi) extend this principle by attributing income from assets transferred to a spouse or daughter-in-law, respectively, without adequate consideration.[2] Further, Section 64(1)(vii) and (viii) club income arising from transferred assets to a minor child, reinforcing the legislative presumption that such transactions are devised to evade tax liability.[3]
The underlying rationale of Section 64 is rooted in anti-avoidance principles, aiming to prevent tax arbitrage through artificial income transfers within familial and dependent relationships.[4] However, while the provision seeks to maintain tax neutrality and curb revenue leakage, its scope extends beyond clear cases of evasion and assumes a presumption of tax avoidance in every intra-family transaction. This raises concerns about overreach, particularly where there is no demonstrable intent to manipulate tax obligations.[5]
Constitutional Analysis
The clubbing provisions under Section 64 of the Income Tax Act, 1961, sit uneasily with constitutional guarantees, particularly those enshrined in Articles 14, 21 of the Indian Constitution.
A. Violation of Article 14 – Equality before Law
Article 14 guarantees equality before the law and equal protection of laws, which includes a safeguard against arbitrary classification.[6] Any deviation from uniform treatment must be based on an intelligible differentia that bears a rational nexus to the objective sought to be achieved.[7] Section 64, however, adopts a presumptive and relational classification, whereby income arising to a spouse, daughter-in-law, or minor child from certain transfers is clubbed with the transferor’s income, regardless of the transferee’s economic independence or absence of tax avoidance intent.
For example, Section 64(1)(iv) mandates that income from assets transferred directly or indirectly to a spouse without adequate consideration shall be included in the income of the transferor. In contrast, a transfer of similar value and nature to a friend, sibling, or even a live-in partner attracts no such clubbing provision. This classification is not based on actual economic benefit or control over the income, but purely on the nature of the familial relationship rendering it both over-inclusive and under-inclusive. There is no uniform test of beneficial enjoyment, dominion, or actual receipt of income, which makes the provision prone to abuse and unfair taxation.
The Supreme Court in E.P. Royappa v. State of Tamil Nadu,[8] and later in Maneka Gandhi v. Union of India expanded Article 14 to encompass the doctrine of non-arbitrariness, holding that any state action must be reasonable, fair, and just.[9] A law that arbitrarily burdens one category of persons (spouses, minor children) while exempting similarly placed others (non-relatives or major children) clearly fails this constitutional mandate. The presumptive assumption of tax avoidance simply by virtue of a relationship is unsupported by empirical evidence and ignores legitimate reasons for such transfers, such as support, care, or trust-based arrangements.
B. Violation of Article 21 – Right to Personal Liberty
The expanded interpretation of Article 21 post-Maneka Gandhi includes within its fold the right to dignity, privacy, and economic autonomy.[10] Section 64 infringes upon this by attributing the legally and beneficially earned income of one person to another without evaluating the actual control, intention, or involvement of the latter. This is especially problematic in cases where a spouse or a minor child, having received property or investments as a gift, earns income through its prudent management. Regardless of their financial competence or agency, the state continues to treat them as mere extensions of the transferor—thus denying them legal recognition as independent economic actors.
This dynamic is particularly gendered in its operation, disproportionately affecting women, who are often the recipients of property transfers due to customary or cultural norms. Even where a wife may manage or multiply gifted assets through skill or effort, the resultant income remains clubbed with the husband’s income, thereby stripping her of economic identity and reinforcing patriarchal assumptions of dependency. This violates the constitutional vision of substantive equality and gender justice under Article 15(3) read with Article 21.
Gender and Family Bias Embedded in the Section
A deeper examination of Section 64 reveals a structural bias that goes beyond mere fiscal policy; it actively discourages women’s financial independence and reinforces traditional family hierarchies. By attributing a wife’s income from assets gifted by her husband back to the husband for tax purposes, the provision disincentivizes wealth transfers that could empower women. In a country where financial literacy among women remains disproportionately low and where property ownership is skewed in favour of men, such a provision perpetuates the economic dependency of wives by legally ensuring that their financial gains remain tied to their husbands. This creates an economic disempowerment loop, where even when a woman is given financial resources, she does not receive full fiscal recognition for her wealth creation.
Section 64(1)(vi), which mandates that income arising from assets transferred to a daughter-in-law be clubbed with the transferor’s income, but no such provision exists for a son-in-law. This distinction lacks any reasonable justification under Article 14, as it assumes a dependent status for daughters-in-law while granting financial autonomy to sons-in-law. The provision effectively codifies an outdated socio-legal norm where a woman, upon marriage, is expected to integrate into her husband’s family structure, with even her financial identity being subsumed under the control of male relatives. However, no such assumption is made for sons-in-law, highlighting the asymmetrical and patriarchal foundation of India’s tax laws.
Furthermore, Section 64’s silence on modern family structures exposes its failure to adapt to contemporary social realities. It assumes a traditional, heteronormative household model, where income and assets flow unidirectionally from the husband to the wife, failing to account for situations where women are primary earners, co-equal contributors, or financial decision-makers. The provision does not consider non-traditional partnerships, LGBTQ+ relationships, or single-parent households, thereby reinforcing outdated family norms that do not align with constitutional ideals of equality (Article 14) and non-discrimination (Article 15).
Comparative Analysis
A comparative analysis of international taxation laws reveals that India’s Section 64 follows an outdated, rigid approach that prioritizes familial relationships over economic reality, unlike progressive tax systems in countries like the United Kingdom, Canada, the United States, and Australia, which have adopted more nuanced and equitable approaches to income attribution. In the United Kingdom, the ‘settlements legislation’ under the Income Tax (Trading and Other Income) Act 2005 prevents tax avoidance through artificial arrangements but does not impose blanket clubbing of spousal or family member incomes. Instead, it requires proof of tax evasion intent, ensuring that genuine financial transactions are not unfairly penalized.
In contrast, Canada’s Income Tax Act applies attribution rules contextually, incorporating statutory exceptions that respect individual financial autonomy. The Supreme Court of Canada in Neuman v. MNR ruled that clubbing should not apply unless the transferor retains de facto control over the income,[11] a principle India should adopt to prevent arbitrary attribution solely based on familial status. The United States takes an even more taxpayer-friendly approach, allowing married couples to elect joint or separate taxation, rather than assuming a dependent financial relationship.
This provides flexibility and recognizes that financial control varies within households, unlike India’s one-size-fits-all clubbing rule, which presumes male financial dominance. Similarly, Australia’s tax framework follows an anti-avoidance approach without gendered assumptions—its Income Tax Assessment Act (ITAA) 1936 targets income splitting only in cases of artificial arrangements, while ensuring that spouses and family members maintain independent tax identities. Unlike India, Australia does not presume that a wife’s or daughter-in-law’s income is inherently subject to male oversight, reinforcing principles of individual economic agency.
Recommendation and Reform
Given the constitutional infirmities and socio-legal criticisms surrounding Section 64, a calibrated and principle-based reform is imperative. While the objective of preventing tax avoidance remains valid, the current clubbing mechanism is overly broad, relationship-specific, and insufficiently nuanced. Instead of attributing income based solely on familial ties often in the absence of control or intent, India should adopt anti-avoidance frameworks that are both targeted and proportionate.
One potential model is the introduction of a consent-based attribution regime, where income is clubbed only if the recipient lacks independent decision-making power or the transferor retains de facto control. This would mirror international best practices and respect constitutional values such as autonomy, equality, and due process. Furthermore, a relationship-neutral formulation would help eliminate the gender bias embedded in the current provision—for instance, where income of a daughter-in-law can be clubbed, but not that of a son-in-law, reinforcing patriarchal assumptions.
To ensure fidelity with Articles 14, 21, the legislature could consider amending Section 64 to insert a requirement of ‘control or benefit retention’ as a precondition for clubbing, similar to substance-over-form doctrines in jurisdictions like Canada and Australia. Alternatively, the Supreme Court may issue judicial guidelines laying down constitutional guardrails, ensuring that anti-avoidance provisions remain proportionate, non-arbitrary, and justifiable. Ultimately, reforming Section 64 is not just a matter of tax policy, but a necessary constitutional realignment in a legal system that aspires to be substantively equal, gender-sensitive, and rights-oriented.
[1] Income Tax Act 1961, s 64(1)(ii).
[2] Income Tax Act 1961, ss 64(1)(iv), (vi).
[3] Income Tax Act 1961, ss 64(1)(vii), (viii).
[4] Deepak Singh, ‘Clubbing of Income’ (Tax Guru) https://taxguru.in/income-tax/clubbing-income-income-tax-act-1961-section-64 accessed 29 March 2025 at 5:00pm.
[5] Subhash Lakhotia, ‘Clubbing of Minor Child’s Income: Tax Planning’ (1992) 34 Journal of the Indian Law Institute 593.
[6] Constitution of India 1950, art 14.
[7] Tarunabh Khaitan, ‘Equality: Legislative Review under Article 14’ in Sujit Choudhry and others (eds), The Oxford Handbook of the Indian Constitution (OUP 2016) 701–702.
[8] E.P. Royappa v State of Tamil Nadu AIR 1974 SC 555.
[9] Maneka Gandhi v Union of India AIR 1978 SC 597.
[10] Constitution of India 1950, art 21.
[11] Neuman v MNR [1998] 1 SCR 770.
Author: Vaishali is a fourth-year B.A. LL.B. (Hons.) student at NALSAR University of Law, Hyderabad.
