Income tax on income earned by minor

Interest on deposit in a minor child’s account is generally clubbed with the income of the parent having the higher total income u/s 64(1A). Minor having a PAN does not change this position. Since this is bank interest and not income from the minor’s own skill/manual work, tax is payable by the parent in whose hands clubbing applies. Relief u/s 10(32) of ₹1,500 per child or actual clubbed income, whichever is lower, can be claimed.

Natural guardian will pay tax.

Clubbing provisions apply.

This is a textbook Sec 64(1A) clubbing question — minor's PAN is irrelevant. All income arising to a minor (except income from manual work, or from skill/talent/specialized knowledge) is clubbed in the hands of the parent with the higher total income, per Sec 64(1A). Interest on a bank deposit is passive income, so it clubs. You then get a small exemption under Sec 10(32) — ₹1,500 per minor child or the actual clubbed amount, whichever is lower. One caveat: if the interest arises from income originally earned by the minor's own skill (not the case here), clubbing doesn't apply. Also note Sec 64(1A) clubbing applies before computing the parent's slab, so it can push the parent into a higher bracket.

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Clubbing applies, and TDS credit follows the income:

• Interest on the Rs 5 lakh deposit in the minor's account is clubbed with the income of the parent whose income (before clubbing) is higher (Sec 64(1A)). If the parents are separated, it goes to the parent who maintains the minor. A PAN in the minor's name doesn't change this.

• Rs 1,500 per minor child is exempt (Sec 10(32)). The excess is clubbed.

• Exceptions: income from the minor's own skill or manual work, or a minor with a specified disability (Sec 80U), is not clubbed.

• TDS: if the bank deducted TDS in the minor's PAN, credit can be given to the parent in whose hands the income is clubbed. Under Rule 37BA(2), the deductee gives the bank a declaration to issue TDS credit in the parent's name. If that wasn't done, claim it in the parent's ITR with a note. CPC may not allow it automatically, so a Sec 154 rectification may be needed.

• No ITR is required for the minor unless the minor has income in their own right above the exemption limit.

• Also: the gift to the minor by the parent is exempt, but the clubbing above applies regardless.

Interest on the deposit is generally clubbed with the income of the parent whose total income, before clubbing, is higher. The fact that the account is operated by the natural guardian does not change this, and the minor having a PAN does not by itself make the interest taxable separately in her hands. The usual exemption for a minor child’s income under section 10(32) may be available to that parent, subject to the applicable limit and conditions. Clubbing may not apply where the minor’s income arises from their own manual work or skill, or from a qualifying disability.

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