Clause 37 of the Finance Bill, 2026 proposes a consequential and technical amendment to section 99 of the Income-tax Act, 2025, which deals with clubbing of income, the inclusion of income of a spouse, minor child, or other specified persons in the hands of an individual.
The amendment corrects an inadvertent cross-reference error in section 99 and ensures that the mechanics of clubbing operate exactly as intended. The proposal does not expand, restrict, or alter the scope of clubbing provisions.
The amendment will take effect from 1 April 2026, i.e., from tax year 2026-27 onwards.
Overview of Clubbing Provisions Under Section 99
Section 99 of the Income-tax Act, 2025 governs situations where income legally arising to another person is clubbed with the income of an individual, primarily as an anti-avoidance measure. Relevant provisions include:
Section 99(1)(a)(i): Income of the spouse by way of salary, commission, fees, or remuneration from a concern in which the individual has a substantial interest.
Section 99(1)(a)(ii): Income arising to the spouse from assets transferred directly or indirectly by the individual.
Section 99(2): Lays down the manner and proportion in which income is to be included in the hands of the individual where income arises from transferred assets.
Nature of the Drafting Error
Although section 99(2) is meant to apply only in cases of transfer of assets to a spouse, it inadvertently referred to:
Section 99(1)(a)(i) (salary/commission from a concern),
instead of the correct provision:
Section 99(1)(a)(ii) (income from transferred assets).
This incorrect reference created a technical inconsistency within section 99, even though the substantive intent of the provision was clear.
What Does Clause 37 of Finance Bill 2026 Propose?
Clause 37 proposes to:
Correct the cross-reference in section 99(2) by substituting the incorrect reference to section 99(1)(a)(i) with the correct reference to section 99(1)(a)(ii).
In addition, a consequential amendment is proposed in section 402(27) to reflect the corrected reference and maintain internal consistency in the Act.
Meaning of the Amendment
In effect, the amendment ensures that:
Section 99(2) applies only to cases involving transfer of assets to a spouse,
The proportion of income to be clubbed is computed by reference to the correct charging provision, and
The internal structure of section 99 is legally coherent.
The amendment is clarificatory and corrective, not substantive.
What the Amendment Does Not Do
❌ It does not introduce any new category of clubbed income
❌ It does not expand the scope of section 99
❌ It does not increase tax liability
❌ It does not affect cases covered under section 99(1)(a)(i)
The amendment merely fixes a drafting error.
Implications of the Change
1. Improved Statutory Clarity
Removes internal inconsistency within section 99
Ensures precise application of clubbing rules
2. Reduced Scope for Technical Litigation
Prevents challenges based on incorrect statutory references
Strengthens enforceability of anti-avoidance provisions
3. Alignment With Legislative Intent
Confirms that section 99(2) is limited to asset-transfer cases, not employment-income cases
Maintains continuity with the Income-tax Act, 1961, from which these provisions are derived
Effective Date
✔ Applicable from 1 April 2026. Applies to tax year 2026–27 and subsequent tax years.
Conclusion
Clause 37 of the Finance Bill, 2026 introduces a necessary technical correction to section 99 of the Income-tax Act, 2025 by rectifying an incorrect statutory cross-reference. The amendment ensures that the clubbing provisions operate with precision and consistency, without altering their substantive scope.
The change represents legislative housekeeping, safeguarding the integrity of anti-avoidance rules rather than modifying taxpayer obligations.
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