To build a secure future most of the parents start their investments in fixed deposits. As per the taxation in India the Minor income is clubbed with the income of the parent with the higher income.
Who is a Minor Under Tax Law?
As per the Income Tax Act,1961 a Minor is an individual who is below 18 years of age as on the last day of the Financial Year.
Eligibility Criteria for Minor Fixed Deposits
To open an FD account for a minor, the following eligibility criteria must be met:
- The child should be below 18 years of age.
- The parent or legal guardian can open the account on behalf of the minor.
- Some banks may require the minor to be at least 1 year old.
Income from Fixed Deposit: Clubbing Rule and Exemption.
If the FD is in the name of the minor and generates interest income, it is not taxed in the child’s hands. Instead, it is clubbed with the income of the parent who has the higher taxable income.
The Income Tax Act provides a deduction of ₹1,500 per child per year under Section 10(32) on the interest income earned by a minor. This is available for a maximum of two children.
Example:
Suppose you invest ₹2,00,000 in an FD under your minor child's name, and it earns ₹14,000 interest in a year. That ₹14,000 will be added to your taxable income (assuming you earn more than your spouse).
₹14,000 earned as FD interest, you can claim ₹1,500 exemption. So, only ₹12,500 is added to your income for taxation.
When Clubbing Doesn’t Apply?
The clubbing rule does not apply if the minor earns income:
- Through their own manual work or talent (acting, singing, etc.)
- Due to a disability covered under Section 80U
In such cases, the income is taxable in the minor’s hands directly.
Declaration in ITR
Declare the FD income in your ITR under "Income from Other Sources"
Claim the ₹1,500 exemption per minor child under Section 10(32)
FAQS
Is FD in minor account taxable?
Yes. FD interest of a minor is taxable.
Can I claim any exemption on my child’s FD interest income?
Yes, you can claim an exemption of ₹1,500 per child per year under Section 10(32). This is available for a maximum of two children.
Which parent’s income is the interest added to?
The FD interest income is clubbed with the income of the parent whose total income is higher in that financial year.
Is TDS deducted on FD interest in a minor’s name?
Yes, banks may deduct TDS (Tax Deducted at Source) if the interest exceeds the threshold (usually ₹40,000 per year). You should file your return accordingly and claim credit.
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