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Tax liability for minor

Seprac (13 Points)

29 July 2016

This is for a minor aged 6 months. 3 Months back, the father of the minor expired in an unfortunate incident. For that, his wife and son received 50 Lakhs each as insurance (1 crore split as 50% each). Now, if I invest the 50 lakhs on the name of minor in FD, will the interest earned be clubbed with his mother's tax slab or will he have to file his own tax return

Thanks a lot

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5 Replies

CA. Sunil Gokhale (Teacher) (1484 Points)
Replied 29 July 2016

It will be clubbed with income of mother. Exemption of 1500 only for the year will be available to the mother.

Udgam Koomar (Tax Technologist) (1949 Points)
Replied 29 July 2016

Mother with have to bear the tax burden.

Seprac (13 Points)
Replied 29 July 2016

Thanks for the replies. I would like to clarify the question slighlt further

I read it here https://blog.cleartax.in/minors-pay-income-tax/

that

Exceptions – In the following cases the income of a minor child is not clubbed.

When a child earns an income by way of any work or from an activity which uses his talent or special knowledge and experience – the minor shall pay tax on it and such income is not clubbed. For example, when a minor wins from a dance show or a talent hunt, the prize money is not clubbed with the income of a parent.

What I understand is if the minor has earned the money, then he has to pay his own taxes. In this case, the 50 lakhs insurance amount was clearly issued on the name of minor. That way the money fully belongs to him. Shouldn't it be the case that he can file his own returns out of profits from investments from this 50 Lakhs

CA. Sunil Gokhale (Teacher) (1484 Points)
Replied 29 July 2016

The minor has to earn by manual work or talent. The only other case when clubbing does not apply is if child is physically handicapped as per sec. 80U. So clubbing applies.