A client wants to transfer a rental property he owns personally into his family HUF so that the rent is taxed in the HUF's lower slab. He says the HUF will be a separate assessee with its own basic exemption. Does that work?
No. Section 64(2) applies where an individual who is a member of a Hindu undivided family converts property that was his separate property into property belonging to the family — by impressing it with the character of family property, or by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration. From the assessment year beginning 1 April 1971, and notwithstanding anything in any other provision of the Act or in any other law, the income derived from the converted property is deemed to arise to the INDIVIDUAL and not to the family. And the clubbing survives a partition: where the converted property has been the subject-matter of a partition, whether partial or total, the income from so much of it as is received by the SPOUSE on partition is deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse, and s.64(1) then applies so as to bring it back into the individual's hands.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1971-04-01, reported as Income-tax Act, 1961, s.64(2), as printed on the departmental Year 2025, Year 2024 (No. 1), Year 2019 (No. 1), Year 2012, Year 2009 and Year 2000 pages. It bears on section 64(2), section 64(1), section 64, section 10(2), section 171 of the Income Tax Act 1961, in Assessment & Scrutiny, Gifts, Shares & Angel Tax and How Tax Law Is Read matters.
This is the provision that defeats the most common piece of family tax planning in Indian practice. Six features decide the outcome. First, the trigger is deliberately wide: it catches the unilateral act of blending as well as an outright transfer to the family for less than adequate consideration, which matters because blending is not a transfer at all as a matter of Hindu law. Second, the cut-off is 31 December 1969 for the conversion and assessment year 1971-72 for the computation, so a conversion made before those dates is outside the sub-section — a point worth checking before conceding an old family arrangement. Third, clause (a) deems the individual to have transferred the converted property, through the family, to the members of the family for being held by them jointly; that deemed transfer is the hinge on which clauses (b) and (c) hang. Fourth, clause (c) is the part practitioners forget: a partition does not break the clubbing, it merely redirects it — the income from the share received by the SPOUSE on partition is treated as income from assets transferred indirectly to the spouse and comes back through s.64(1). Note the asymmetry: clause (c) names the spouse and no one else, so a share taken on partition by a son does not fall within clause (c). Fifth, the proviso prevents double taxation: income included in the individual's total income under clause (b) or clause (c) is excluded from the total income of the family or of the spouse, as the case may be. Sixth, the definition in Explanation 1 is expansive — "property" includes any interest in property, movable or immovable, the proceeds of sale of it, any money or investment for the time being representing those proceeds, and where the property is converted into any other property by any method, that other property. So selling the converted asset and reinvesting does not shake the clubbing off. Explanation 2 adds that "income" includes loss. Read this alongside s.10(2), which exempts a sum received by a member out of family income but opens with the words "subject to the provisions of sub-section (2) of section 64".
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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As printed identically on the three departmental pages read, sub-section (2) provides: "Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,— (a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ; (b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family ; (c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly : Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of the individual. Explanation 1.—For the purposes of sub-section (2),— "property" includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property. Explanation 2.—For the purposes of this section, "income" includes loss."
Where an individual who is a member of a Hindu undivided family converts his separate property into property of the family after 31 December 1969 — by impressing it with the character of family property, by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration — then for any assessment year commencing on or after 1 April 1971 he is deemed to have transferred the converted property through the family to its members to be held jointly, and the income derived from the converted property is deemed to arise to him and not to the family. Where the converted property is later the subject of a partial or total partition, the income from the share received by the spouse is deemed to arise to the spouse from assets indirectly transferred by the individual, and s.64(1) applies to it. Income so included in the individual's total income is excluded from the total income of the family or the spouse. "Property" for this sub-section follows the sale proceeds and any property into which the converted property is converted by any method, and "income" includes loss.
Not applicable — this is a statement of statutory text taken from departmental pages. No judicial reasoning is involved.
where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly
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Handle my notice → Ask a CA on WhatsAppNo. Section 64(2) applies where an individual who is a member of a Hindu undivided family converts property that was his separate property into property belonging to the family — by impressing it with the character of family property, or by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration. From the assessment year beginning 1 April 1971, and notwithstanding anything in any other provision of the Act or in any other law, the income derived from the converted property is deemed to arise to the INDIVIDUAL and not to the family. And the clubbing survives a partition: where the converted property has been the subject-matter of a partition, whether partial or total, the income from so much of it as is received by the SPOUSE on partition is deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse, and s.64(1) then applies so as to bring it back into the individual's hands. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 64(2), section 64(1), section 64, section 10(2), section 171 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.64(2), as printed on the departmental Year 2025, Year 2024 (No. 1), Year 2019 (No. 1), Year 2012, Year 2009 and Year 2000 pages. This is the provision that defeats the most common piece of family tax planning in Indian practice. Six features decide the outcome. First, the trigger is deliberately wide: it catches the unilateral act of blending as well as an outright transfer to the family for less than adequate consideration, which matters because blending is not a transfer at all as a matter of Hindu law. Second, the cut-off is 31 December 1969 for the conversion and assessment year 1971-72 for the computation, so a conversion made before those dates is outside the sub-section — a point worth checking before conceding an old family arrangement. Third, clause (a) deems the individual to have transferred the converted property, through the family, to the members of the family for being held by them jointly; that deemed transfer is the hinge on which clauses (b) and (c) hang. Fourth, clause (c) is the part practitioners forget: a partition does not break the clubbing, it merely redirects it — the income from the share received by the SPOUSE on partition is treated as income from assets transferred indirectly to the spouse and comes back through s.64(1). Note the asymmetry: clause (c) names the spouse and no one else, so a share taken on partition by a son does not fall within clause (c). Fifth, the proviso prevents double taxation: income included in the individual's total income under clause (b) or clause (c) is excluded from the total income of the family or of the spouse, as the case may be. Sixth, the definition in Explanation 1 is expansive — "property" includes any interest in property, movable or immovable, the proceeds of sale of it, any money or investment for the time being representing those proceeds, and where the property is converted into any other property by any method, that other property. So selling the converted asset and reinvesting does not shake the clubbing off. Explanation 2 adds that "income" includes loss. Read this alongside s.10(2), which exempts a sum received by a member out of family income but opens with the words "subject to the provisions of sub-section (2) of section 64". If it applies to you, the first step is this: Before advising any transfer into a family HUF, put s.64(2) in front of the client in terms and show that the rent or interest will continue to be assessed in his own hands.
As printed identically on the three departmental pages read, sub-section (2) provides: "Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,— (a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ; (b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family ; (c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly : Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of the individual. Explanation 1.—For the purposes of sub-section (2),— "property" includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property. Explanation 2.—For the purposes of this section, "income" includes loss." The matter was decided on 1971-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Where an individual who is a member of a Hindu undivided family converts his separate property into property of the family after 31 December 1969 — by impressing it with the character of family property, by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration — then for any assessment year commencing on or after 1 April 1971 he is deemed to have transferred the converted property through the family to its members to be held jointly, and the income derived from the converted property is deemed to arise to him and not to the family. Where the converted property is later the subject of a partial or total partition, the income from the share received by the spouse is deemed to arise to the spouse from assets indirectly transferred by the individual, and s.64(1) applies to it. Income so included in the individual's total income is excluded from the total income of the family or the spouse. "Property" for this sub-section follows the sale proceeds and any property into which the converted property is converted by any method, and "income" includes loss.
Not applicable — this is a statement of statutory text taken from departmental pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly"
It was decided by the CBDT Circulars & Instructions on 1971-04-01 and is reported as Income-tax Act, 1961, s.64(2), as printed on the departmental Year 2025, Year 2024 (No. 1), Year 2019 (No. 1), Year 2012, Year 2009 and Year 2000 pages. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 64(2), section 64(1), section 64, section 10(2), section 171, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Where an individual who is a member of a Hindu undivided family converts his separate property into property of the family after 31 December 1969 — by impressing it with the character of family property, by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration — then for any assessment year commencing on or after 1 April 1971 he is deemed to have transferred the converted property through the family to its members to be held jointly, and the income derived from the converted property is deemed to arise to him and not to the family. Where the converted property is later the subject of a partial or total partition, the income from the share received by the spouse is deemed to arise to the spouse from assets indirectly transferred by the individual, and s.64(1) applies to it. Income so included in the individual's total income is excluded from the total income of the family or the spouse. "Property" for this sub-section follows the sale proceeds and any property into which the converted property is converted by any method, and "income" includes loss. It arises in Assessment & Scrutiny, Gifts, Shares & Angel Tax and How Tax Law Is Read matters, on section 64(2), section 64(1), section 64, section 10(2), section 171 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Establish the date of the conversion. The sub-section reaches conversions at any time after 31 December 1969 and computations for assessment years commencing on or after 1 April 1971; a genuinely older arrangement is outside it. Do not treat a subsequent partition as an exit. Check clause (c) for what the SPOUSE receives on partition — that share's income is deemed to arise to the spouse from assets indirectly transferred by the individual and is drawn back under s.64(1). Trace the converted property through sales and reinvestments. Explanation 1 follows the proceeds and any property into which the converted property is converted by any method. Where the department has assessed the same income twice, invoke the proviso: income included in the individual's total income under clause (b) or (c) must be excluded from the total income of the family or the spouse. Do not offer s.10(2) as an answer to a s.64(2) inclusion. Clause (2) of section 10 is expressly made subject to section 64(2).
Still good law. Six departmental editions spanning Year 2000 to Year 2025 print sub-section (2) in identical words, and this entry's text was transcribed from editions stamped Year 2025 and Year 2019 (No. 1), so this is a reading of a current edition. I could not read a footnote tying a specific amending Act to any particular words of sub-section (2), and none is asserted. The link to s.10(2) stated in this entry was verified independently on two departmental s.10 pages (Year 2007 and Year 2024 (No. 2)), both of which print clause (2) as opening "subject to the provisions of sub-section (2) of section 64". I did not carry out any check of judicial treatment of s.64(2). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Sub-section (2) of s.64 was transcribed in full this pass from three separate departmental pages, each of which printed the Act name "Income-tax Act, 1961" and the section heading "Income of individual to include income of spouse, minor child, etc." alongside a "Year:" stamp: https://www.incometaxindia.gov.in/w/section-64 (Year: 2000), /w/section-64-1 (Year: 2009) and /w/section-64-9 (Year: 2012). All three print clauses (a), (b) and (c), the proviso and Explanations 1 and 2 in the same words; the Year 2012 page additionally shows the opening words of sub-section (2) enclosed in the square brackets that mark substituted text. The Year 2000 page printed a footnote list for the section which included "Substituted by the Finance Act, 1979, w.e.f. 1-4-1980" and other entries, but the page did not tie a numbered footnote to a specific clause in a way I could read with confidence, so I make NO statement about which words of sub-section (2) were last amended or when. CURRENCY OF THE TEXT: sub-section (2) as set out in this entry has been confirmed against CURRENT departmental editions. https://www.incometaxindia.gov.in/w/section-64-64 (Act name "Income-tax Act, 1961"; heading "Income of individual to include income of spouse, minor child, etc"; Year: 2025) prints clause (c) and the proviso in these exact words; https://www.incometaxindia.gov.in/w/section-64-66 (Year: 2019 (No. 1)) prints the whole of sub-section (2) — opening words, clauses (a) to (c), proviso, Explanation 1 and Explanation 2 — in these exact words; and https://www.incometaxindia.gov.in/w/section-64-62 (Year: 2024 (No. 1)) prints the opening words identically. With the three older editions that is six editions spanning Year 2000 to Year 2025 in the same words. The suffixes do not track vintage: -1 = Year 2009, -9 = Year 2012, -62 = Year 2024 (No. 1), -64 = Year 2025, -66 = Year 2019 (No. 1), unsuffixed = Year 2000. The reader should note that s.64 as a whole HAS been amended in that period in other sub-sections (the minor-child provisions), so the absence of change in sub-section (2) across these three editions is evidence about sub-section (2) only. 'decided_on' is 1 April 1971, the date from which sub-section (2) operates on its own words — it applies "for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971". I did not establish which amending instrument inserted the sub-section or the date of that instrument's commencement, and I assert none. It is not a decision date. 'bench' and 'favours' are inapplicable to a statutory entry. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Where an individual who is a member of a Hindu undivided family converts his separate property into property of the family after 31 December 1969 — by impressing it with the character of family property, by throwing it into the common stock, or by transferring it to the family otherwise than for adequate consideration — then for any assessment year commencing on or after 1 April 1971 he is deemed to have transferred the converted property through the family to its members to be held jointly, and the income derived from the converted property is deemed to arise to him and not to the family. Where the converted property is later the subject of a partial or total partition, the income from the share received by the spouse is deemed to arise to the spouse from assets indirectly transferred by the individual, and s.64(1) applies to it. Income so included in the individual's total income is excluded from the total income of the family or the spouse. "Property" for this sub-section follows the sale proceeds and any property into which the converted property is converted by any method, and "income" includes loss.
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