Section 65 of the Income-tax Act: Liability for Income Included in Another Person's Total Income
Section 65 of the Income-tax Act, 1961 deals with recovery of the tax attributable to income that is legally included in someone else's total income under the clubbing provisions. For tax years beginning on or after 1 April 2026, the corresponding provision is Section 100 of the Income-tax Act, 2025.
What is Section 65 of the Income-tax Act, 1961?
Ordinarily, a person pays income tax on their own taxable income. Under Chapter V of the 1961 Act, however, specified income arising to another person may be included in the assessee's total income. This is commonly called clubbing of income. Section 65 provides a related recovery mechanism: the person in whose name the asset stands, or the relevant member of a firm, may be required to pay the portion of tax attributable to that included income after the Assessing Officer serves a notice of demand.
Section 65 is a rule about liability to pay an attributable amount of tax. It does not, by itself, create a new category of taxable income or mean that every gift or family arrangement automatically attracts clubbing.
When can liability arise under Section 65?
- Inclusion under Chapter V: Income from an asset or membership of a firm belonging to someone other than the assessee must be included in the assessee's total income under the applicable clubbing provisions.
- Alternative house-property reference: The section also refers to Section 27(i) of the 1961 Act, concerning deemed ownership of house property in specified circumstances.
- Person connected with the asset or firm: The person against whom liability is sought must be the person in whose name the asset stands or the relevant member of the firm.
- Notice of demand: Liability under this recovery mechanism is invoked upon service of a demand notice by the Assessing Officer.
- Limited attributable amount: The amount is the portion of tax levied on the assessee attributable to the income included, rather than automatically the whole of the assessee's tax bill.
For context, see Section 60 (transfer of income without transfer of assets), Section 61 (revocable transfers) and Section 64 (income of spouse, minor child and others).
Jointly held assets: joint and several liability
The proviso to Section 65 states that, where an asset is held jointly by more than one person, those persons are jointly and severally liable to pay the tax attributable to income from that asset which has been included in the assessee's total income. This means the demand need not be divided into separate equal shares merely because the asset is jointly held. The statutory limitation to the attributable tax still matters.
Practical examples of Section 65
| Situation | Potential treatment |
|---|---|
| An individual transfers an income-producing asset to a spouse without adequate consideration, and the relevant income is clubbed with the transferor's income. | If the statutory conditions are met, the person in whose name the asset stands may face a demand for the portion of tax attributable to that income. |
| Two people jointly hold an asset producing income that is included in a different assessee's total income under an applicable provision. | Section 65's proviso can impose joint and several liability for the attributable tax. |
| A person earns independent income from an asset with no applicable clubbing or deemed-ownership provision. | Section 65 does not apply merely because the person is related to another taxpayer. |
Illustration: Assume income of Rs. 1,00,000 from a covered asset is lawfully clubbed with another person's income. The Assessing Officer must determine the tax attributable to the included income under the applicable computation and issue the required demand. The attributable tax cannot be assumed to be Rs. 1,00,000 or calculated using an arbitrary flat rate.
Section 100 of the Income-tax Act, 2025
For tax year 2026-27 onward, Section 100 is the corresponding provision. It covers income of another person arising from an asset or membership of a firm included in the assessee's total income under Chapter V or Section 25(a). Its clauses address (a) payment of the attributable tax after notice of demand, (b) joint and several liability for jointly held assets, and (c) application of Chapter XIX-D recovery provisions.
These updated cross-references replace the references in Section 65 of the 1961 Act to Section 27(i) and Chapter XVII-D. The two sections should not be mixed in a notice, representation or appeal relating to a specific tax year.
Section 65: Original statutory wording
Read the full Section 65 text and historical amendment note
Where, by reason of the provisions contained in this Chapter or in clause (i) of section 27, the income from any asset or from membership in a firm of a person other than the assessee is included in the total income of the assessee, the person in whose name such asset stands or who is a member of the firm shall, notwithstanding anything to the contrary contained in any other law for the time being in force, be liable, on the service of a notice of demand by the Assessing Officer in this behalf, to pay that portion of the tax levied on the assessee which is attributable to the income so included, and the provisions of Chapter XVII-D shall, so far as may be, apply accordingly:
Proviso: Provided that where any such asset is held jointly by more than one person, they shall be jointly and severally liable to pay the tax which is attributable to the income from the assets so included.
Historical amendment note retained: The words "Assessing Officer" were substituted for "Income-tax Officer" by Act 4 of 1988, section 2, with effect from 1 April 1988.
Frequently asked questions
Does Section 65 tax the same income twice?
The section concerns recovery of tax attributable to income already included in the assessee's total income. It does not itself prescribe a second, independent charge of income tax on that income.
Can the Assessing Officer demand the entire tax liability from the asset holder?
Section 65 refers to the portion of tax attributable to the included income. A demand under this provision should be assessed against that statutory limitation.
Is Section 65 still applicable in 2026?
It remains relevant for tax years governed by the 1961 Act and related proceedings. Section 100 of the Income-tax Act, 2025 governs corresponding matters under the new Act from 1 April 2026.
Official legislative sources
- Income Tax Department - Section 65, Income-tax Act, 1961
- Income Tax Department - Income-tax Act, 1961 (consolidated PDF)
- Income Tax Department - Objective and scope of the Income-tax Act, 2025
- Income Tax Department - legislation and tax resources
This article provides general information. Application of clubbing and recovery provisions depends on the facts, relevant tax year, applicable law and valid statutory notices.