Clubbing of income

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This query is : Resolved

sunil Date (Querist)

13 September 2011 Section 64 (1A) says " In computing total income of an individual there shall be included all such income as arises or accrues to his minor child........

This clause does not restrict the clubbing provision to gifts form parents to avoid taxation.

If a grandparent gifts money to minor grandchild ( no restriction of gift amount as per IT act) and the money is invested in say FD in the name of the grandchild and it acccrues annual intrest; will the intrest be clubbed with that of the parent ?

What if the Grand child gets the money form grandparent by inheritance (will) ?
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I was advised by my CA friend that in both cases the intrest income would be clubbed in the income of the parent.
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Is'nt it unfair to the parent ? Since the money is in the childs name, parent does not get the income earned for it but has to bear the tax for it.

The starting para of the section mentions that it is meant to prevent tax avoidance availed by individuals by gifting money to spouse or child. But in the instance I refered, the parent has no role and has not gifted his money to his child and tried to avoid tax.

Any other advise / opinion ?

CMA Ashutosh Kumar Gupta

CMA Ashutosh Kumar Gupta (Expert)

13 September 2011 Normally, the income of any minor is clubbed in the hands of either of his parents and, therefore, the minor need not file the return and hence PAN is not required and accordingly assessment is in the hands of parents.
There are some exceptions-All the income of a physically or mentally handicapped minor child will be directly assessed in the hands of the child. Similarly, a minor earning income by way of manual work or an activity involving application of his skill, talent or specialized knowledge and experience, is directly assessed in the hands of the child.
Under such situation, the minor requires a PAN. However, if it is only investment income, then the same will suffer clubbing, in your case it is investment income hence clubbing will be applicable.

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