In this article, we shall examine the legal and procedural framework where income is earned in the name of a minor, and Tax Deducted at Source (TDS) is effected on such income. The focus will be on how such income is assessed, when it is taxable in the hands of the parents, and what corrective steps are required if the TDS is wrongly deducted in the minor's Permanent Account Number (PAN). We shall also discuss the process of claiming refunds, handling demands raised by the Centralized Processing Centre (CPC), and ensuring compliance under the Income-tax Act, 1961.
1. Taxability of Minor's Income under the Income-tax Act
(a) Default Rule (Clubbing in Parents' Hands)
- As per Section 64(1A) of the Income-tax Act, 1961, all income accruing or arising to a minor child is required to be clubbed in the hands of that parent whose total income (before clubbing) is greater.
- The parent in whose hands the income is clubbed is eligible for an exemption of ₹1,500 per minor child under Section 10(32).
- No separate Income-tax Return (ITR) is required to be filed in the name of the minor in such cases.
(b) Exceptions (Minor's Income Assessed Separately)
A minor's income will not be clubbed and instead will be assessable in the minor's own hands in the following circumstances:
1. Disability under Section 80U: If the minor suffers from a disability specified in Section 80U, the clubbing provisions do not apply. The minor's ITR must be filed, with the guardian acting as representative assessee under Section 160(1)(ii).
2. Income from Personal Effort/Skill: If the minor earns income from manual work or by application of his/her skill, talent, knowledge, or specialized experience, such income is taxed in the minor's own hands. (Note: This exception does not cover capital gains from property transfer, which will ordinarily be clubbed.)
(c) Special Family Situations
If the parents are separated and the marriage does not subsist, the minor's income is to be clubbed in the hands of the parent who maintains the child.
2. Practical Situation: Minor as Owner of Property
For ease of explanation, let us consider a situation where a minor owns immovable property and, upon its transfer, the buyer deducts TDS under Section 194-IA in the name of the minor. The same principles, however, equally apply to other categories of income such as interest, dividend, or any similar source. Since such income is ultimately clubbed in the hands of the parent/guardian under Section 64(1A), the pertinent question arises: how is the credit for TDS to be claimed and any refund adjusted?
3. Steps Before Filing the TDS Statement (Form 26QB Not Yet Filed)
If the buyer has not yet filed Form 26QB (TDS return), the following action is advisable:
Track A (Best Option): Shifting TDS to Parent's PAN
- The buyer (deductor) should file Form 26QB Online Correction through TRACES to change the seller's PAN from the minor's PAN to the parent's PAN.
- A Rule 37BA(2) declaration must be obtained and submitted. As per the proviso, the declaration should contain:
- Name, address, and PAN of the person to whom credit is to be given (the parent).
- Particulars of the payment/credit in relation to which credit is to be given.
- Reasons for giving such credit (i.e., income is assessable in the parent's hands u/s 64(1A)).
- Once processed, the TDS credit will flow into the parent's Form 26AS / AIS, ensuring complete alignment of income and credit.
Documentation to Maintain: A signed declaration under Rule 37BA(2) by the guardian confirming that the income is assessable in the parent's hands under Section 64(1A) and requesting credit in the parent's PAN.
4. Situation Where TDS is Already Deducted in Minor's PAN
If TDS has already been deducted and reported under the minor's PAN, two tracks are available:
Track A (Best Option - Correction by Deductor)
- Request the buyer to file Form 26QB Online Correction to substitute the parent's PAN in place of the minor's PAN.
- Upon correction, the TDS credit will automatically flow into the parent's AIS/26AS.
- Again, a Rule 37BA(2) declaration should be prepared and maintained.
Result: Once corrected, the return can be filed normally in the parent's name with full credit, and any existing demand can be rectified by filing a revised/rectification return.
Track B (Litigation Route - If Buyer Does Not Cooperate)
If the deductor does not agree to revise the TDS statement:
1. In the Parents' ITR:
- Report the capital gains in Schedule CG.
- Fill in Schedule SPI with the minor's details for clubbing purposes.
- Claim exemption of ₹1,500 under Section 10(32).
- Claim the TDS in the TDS schedule, even if it appears in the minor's Form 26AS.
- Add an explanatory note in Schedule OI citing:
- Section 199 r/w Rule 37BA(2) (TDS credit belongs to the person taxed on income).
- Section 64(1A) (clubbing).
2. If CPC Denies Credit at Processing (u/s 143(1)):
File a Rectification Application u/s 154.
Attach:
- Rule 37BA(2) declaration,
- Copy of the sale deed,
- Form 26QB acknowledgement / Form 16B,
- Minor's birth certificate/proof,
- Clubbing computation workings.
Cite:
- Section 199, Rule 37BA(2),
- Section 205 (bar against recovery where tax is already deducted),
- Anil Ratanlal Bohora v. ITO (ITAT Pune) - holding that credit must be given to the person taxed on income.
3. Escalation: If rectification is not accepted, the matter can be taken before the Assessing Officer or in appeal. Relief is generally available when correct documentation is filed.
5. Treatment of Minor's PAN in Such Situations
To avoid system-generated notices or duplication, the following steps are recommended:
1. AIS Feedback (Minor's Login): For the relevant 26QB entry, submit feedback as "Information relates to other PAN/year" and specify the parent's PAN with a remark: "Income clubbed u/s 64(1A); credit to parent u/s 199 r/w Rule 37BA(2)."
2. Compliance/e-Campaign: If the minor receives notices for "High Value Transactions/Non-Filer," respond through the Compliance Portal clarifying the clubbing basis and providing parent's ITR acknowledgement number.
3. No ITR for the Minor (Unless Exception Applies): Filing a return for the minor only to claim TDS is legally incorrect and may result in double taxation. Since the income is taxable in the parent's hands, no separate ITR is required under Section 139(1).
6. Practical Checklist
(A) For Parents
- File ITR-2/3 with:
- Schedule CG for capital gains,
- Schedule SPI for clubbing disclosure,
- Note under Schedule OI citing Section 199, Rule 37BA(2), and Section 64(1A).
- Claim ₹1,500 deduction u/s 10(32).
- If 26QB correction is not done, still claim the TDS in parent's return, keeping a Rule 37BA(2) declaration ready.
- If disallowed, file a rectification u/s 154 citing Anil Ratanlal Bohora (ITAT Pune) and Section 205.
(B) For Minor
- Submit AIS feedback marking the transaction as belonging to the parent.
- Respond to any Compliance Portal queries with reference to clubbing.
- Avoid filing a refund ITR for the minor unless an exception (disability or skill income) applies.
(C) Optional Improvement
- Proactively request the buyer/deductor to file correction of Form 26QB to substitute parent's PAN - this remains the cleanest and most effective solution.
7. Conclusion
The legal framework under Sections 64(1A), 199, and 205, read with Rule 37BA(2), clearly mandates that TDS credit should follow the taxability of income. Where a minor's income is mandatorily clubbed in the hands of the parent, the parent is entitled to the TDS credit, notwithstanding that Form 26AS reflects the minor's PAN. The cleanest approach remains to request the deductor to revise Form 26QB (TDS Return); however, even in the absence of such cooperation, the law supports the parent's claim through appropriate disclosure, documentation, and rectification.
It may be noted that this article has been illustrated with the case of sale of immovable property-a relatively complex situation for explanatory purposes. Nevertheless, the procedural steps and legal principles discussed herein apply equally to all categories of income (such as interest, dividend, or any other income subject to TDS) where the income arises in the name of a minor but is assessable in the hands of the parent.
8. Professional Assistance
As stated above, each case may vary in its factual background and may require a detailed review of documents, reconciliation of records, and in certain instances, technical filing corrections.
In the event you have received any demand, or are facing issues in filing of returns, or are uncertain about how to appropriately deal with such matters, you may reach out for professional assistance at varunmukeshgupta96@gmail.com
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