Taxability of Minor Income under IT ACT 1961:
Clubbing Income of Minor
In simple terms, clubbing of income means including the income of any other person in Assessee’s total income. Under Income Tax law, specified situations are provided, wherein, income of one person is statutorily required to be included in the income of
another person. Such inclusion of income of one person in to income of another person is called ‘clubbing of income’. Provisions of clubbing of income are contained under section 60 to section 64 under the Income Tax Act, 1961. In this article, we look at clubbing income of minor child as contained under Section 64(1A) of the Income Tax Act, 1961.
Minor Child Income
As per provisions of Section 64 of the Income Tax Act, income of a minor child is taxable / clubbed in the hands of the parents whose total income (before including income of minor) is higher. If the natural parent of a minor child parents does not exists, then in such cases, the income of minor would be taxable in the hand of the parent who maintains the minor child in the previous year. Also, child would include both step child and adopted child.
In case of death of both mother and father, the income earned by the minor cannot be clubbed and hence the minor child is required to file income tax return through his legal guardian.
It must be noted that income once included in the total income of either of the parents would continue to be included in the hands of same parent in the subsequent years, unless assessing officer is satisfied that it is necessary to do so, after giving that parent opportunity of being heard.
Finally, if a child attains majority during the previous year, then, part of the income earned by the child during his minor period would be clubbed in the hands of the parents.
When Income Cannot be Clubbed
In the following situations, minor child income will cannot be clubbed in the hand of the parent:
Manual work done by the minor.
Activity involving application of his skill, talent or specialized knowledge and experience.
Child suffering from any disability specified under section 80U.
Investment in Minors Name
Income of the minor, which is not clubbed in the hands of parents, if invested somewhere and income is earned from such investment, than, in such case, the income so earned from investment would be clubbed in the hands of the parent.
For example if a child being an artist has earned an income of INR 50,00,000/-. Since the income is earned by the child on the basis of his own skill, such income will not be clubbed in the hands of his parents. Further, INR 50,00,000/- earned by the child is invested in fixed deposit and interest of INR 50,000/- is earned out of such investment, than, interest income would be clubbed in the hands of the parents whose income is higher.
Ca Anil Agrawal Jabalpur
