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Clubbing of minor income

CA SUNIL K GARG 
on 27 January 2017

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In the present article the author has explained the provisions relating to clubbing of Minor Income. It is a general perception that income of minor child is clubbed with the parent’s income. However, there is an exception to the rule that if the minor earns income by skills, then this income will not be clubbed. The author has explained the various provisions of clubbing in the present article.

Clubbing of Income means income of another person is taxed in other person hand. As per section 64(1A), If Minor child earns any income, then it will be included in the hands of parents/guardian whose income is higher. However if minor child earns this income by way of any manual work or from an activity which uses his talent or special knowledge and experience, then the clubbing provisions will not apply.

In case the income of an individual (i.e. the parent) includes the income of his minor child in terms of section 64(1A), such parent shall be entitled to exemption of Rs. 1500 in respect of each minor child as per the provisions of section 10(32) of Income Tax Act. However, if income of any minor child so includible is less than Rs. 1500 then the entire income shall be exempt.

If the minor child works as an artist in any show on TV media and earns income thereon by acting as an artist. Whether the income will be clubbed in the hands of parent?

If the minor child earns income by way of any manual work or from an activity by his/her talent or special knowledge and experience, then the clubbing provisions will not apply i.e. income will not be clubbed in the hands of parents and income will be taxable in the hand of minor child itself. He will have to pay tax separately on this income, if applicable and even have to file a return, if it exceeds beyond the threshold limit of Rs 2.5 lakh for that assessment year.

If the child invests his/her income amount in bank by way of fixed deposit and derives interest income then such interest derived from the bank fixed deposit will be clubbed with the parent’s income. However for better tax planning  income can be invested in instruments where the maturity amount isn't taxed like Public Provident Fund, Sukanya Samriddhi Scheme, equity mutual funds held for more than a year, life insurance policies, etc. or a person can choose a plan where the maturity happens when minor child turns major.

Filling of Return by Minor

For filing of income tax return, minor child has to apply for the PAN card. The parents or legal guardian of the minor would be required to submit an application of PAN along with their identity and address proof. After that minor can file income tax return under the signature of parents or legal guardian. On attaining the majority, the applicant can file for correction in data of PAN card after furnishing fresh documents.

If the minor child is suffering from any disability and earns income thereon. Whether the income will be clubbed in the hands of parent?

If the minor child is suffering from any disability of the nature specified in Section 80-U of the Act, then the provisions of clubbing shall neither be attracted nor taxable in the hands of minor itself.

If the minor child is partner in firm. What are the tax implications of his income?

The minor can be made a partner in a family firm. In such a case, no interest should be given to the minor on his capital. If the minor child gets interest on capital, then the provisions of clubbing shall apply and clubbed in the hands of either parent’s.  The share of income/profit received by a minor from the partnership firm would be completely exempt from income tax under Section l0(2A) of the IT Act and thus would not be includible in the hands of the parent.

If the minor gets remuneration from working in the firm and earns income by way of his own skills, which uses his special knowledge and experience, that income will be included in the minor child itself. However if he gets remuneration from firm other than by way of his skills then the income will be clubbed with either of his parents income.


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CA SUNIL K GARG 

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