Aggregation of Income

Aggregation of income refers to the process of adding or combining different sources of income to arrive at the total income of an individual for tax purposes. In other words, it is the sum total of all income earned or received by a taxpayer during a particular financial year.

The Income Tax Act, 1961 provides for the aggregation of income earned by an individual from different sources, which are classified into five heads of income – income from salaries, income from house property, profit and gains of business or profession, capital gains, and income from other sources.

Aggregation of Income is governed by Section 60-64 of the Income Tax Act, 1961. These sections deal with the aggregation of income of different persons and from different sources under certain circumstances.

• Section 60 deals with income of an individual that is to be included in the income of another person. It states that if an individual transfers his or her income to another person for the benefit of the latter, then such income shall be included in the income of the other person. For example, if a husband transfers his income to his wife for her benefit, then such income shall be included in the income of the wife.
• Section 61 deals with income of a minor child. It states that if a minor child has any income from any source, such income shall be included in the income of the parent whose total income, before including such income, is greater. For example, if a minor child has an income of Rs. 1,00,000 and his father has a total income of Rs. 10,00,000, then such income shall be included in the income of the father.
• Section 62 deals with income of spouse, son’s wife, etc. It states that if an individual transfers his or her income to his or her spouse, son’s wife, etc. without adequate consideration, then such income shall be included in the income of the individual making the transfer. For example, if a husband transfers his income to his wife without any consideration, then such income shall be included in the income of the husband.
• Section 63 deals with income of a partner in a firm. It states that if a partner in a firm has any income from the firm, such income shall be included in his or her total income.
• Section 64 deals with clubbing of income. It states that if an individual transfers his or her income to any other person with the intention of avoiding tax, then such income shall be included in the income of the individual making the transfer. For example, if a husband transfers his income to his friend with the intention of avoiding tax, then such income shall be included in the income of the husband.

Apart from the above sections, there are some other provisions under which the income of different persons or from different sources can be aggregated. These include:

• Income of a person who is not a resident in India but earns income from India.
• Income of a person who is a partner in a firm and also earns income from other sources.
• Income of a person who is a member of a co-operative society and also earns income from other sources.
• Income of a person who is a director of a company and also earns income from other sources.

The process of aggregation of income is important as it helps in calculating the total income of an individual and determining the tax liability. Let us now look at the aggregation of income from each head of income in detail.

Income from Salaries:

Income from salaries refers to the salary or wages received by an individual from an employer for services rendered. This includes basic salary, allowances, perquisites, bonuses, commissions, etc.

The Income Tax Act provides for the aggregation of all salary income received during a financial year, irrespective of the number of employers an individual has worked for. However, if an individual has worked for more than one employer during a financial year, he/she needs to disclose all the salaries received from each employer in the income tax return.

For example, if Mr. X worked for two companies during the financial year and received a total salary of Rs. 8 lakhs, he needs to disclose the salaries received from both the companies separately in his income tax return.

Income from House Property:

Income from house property refers to the income earned by an individual from a house or building that he/she owns. This includes rental income received from the property.

The Income Tax Act provides for the aggregation of all income earned from house property during a financial year. This means that if an individual owns multiple houses or buildings, the income earned from all such properties needs to be added together to arrive at the total income from house property.

For example, if Mr. X owns two houses and earns a rental income of Rs. 5 lakhs from one house and Rs. 3 lakhs from the other, the total income from house property for the financial year will be Rs. 8 lakhs.

Profit and Gains of Business or Profession:

Profit and gains of business or profession refer to the income earned by an individual from a business or profession that he/she is engaged in. This includes income earned by self-employed professionals such as doctors, lawyers, consultants, etc.

The Income Tax Act provides for the aggregation of all income earned from business or profession during a financial year. This means that if an individual is engaged in multiple businesses or professions, the income earned from all such sources needs to be added together to arrive at the total income from business or profession.

For example, if Mr. X is a doctor and earns a professional income of Rs. 10 lakhs and also runs a pharmacy business with a profit of Rs. 5 lakhs, the total income from business or profession for the financial year will be Rs. 15 lakhs.

Capital Gains:

Capital gains refer to the gains or profits earned by an individual from the sale of a capital asset such as property, shares, mutual funds, etc.

The Income Tax Act provides for the aggregation of all capital gains earned by an individual during a financial year. This means that if an individual has sold multiple capital assets during the financial year, the gains or profits earned from all such sales need to be added together to arrive at the total capital gains for the financial year.