Clubbing of Income of Minor Child with income of parents

The advent of digital mediums like Youtube, Tiktok etc. has opened vast avenues of talent showcasing for our younger generation. Many young Indians including minor children are earning by presenting their talent on platforms like Youtube. Many talenthunt programs, signing and dance competitions etc. have become source of income generation for children below age of 18 years. Besides this, many parents make investments in the name of their minor children for sake of their future and fulfilment of social responsibility resulting income in the name of minor children. Therefore, a question arises as to whether the income so earned by the minor children is taxable or not and if taxable then who will pay tax on such minor income.
The Indian Income Tax Act contains special provisions for taxation of income earned by the minor child. Section 64(1A) of the Income Tax Act, 1961 provides the manner in which income of minor child shall be clubbed with the income of his parent. All the questions and confusions relating to “clubbing of minor income” are answered in this article below:

Analysis

The analysis of the above provisions of section 64(1A) of the Income Tax Act, 1961 lays down the following guiding principles:

• Clubbing in the hand of parent:
  (a)The income of a minor child shall be clubbed with the total income of that parent (mother/ father) whose total income (excluding minor income) is greater.
  (b) Once the income of the minor child is included in the total income of either parent, any such income arising in future years continue to be clubbed in the income of that parent only unless the Assessing Officer is satisfied.

For example: “Chotu” a minor child earns interest income of Rs. 4,000 in F.Y. 2017-18. This income is clubbed in the hands of his father Mr. Ram in F.Y. 2017-18 as his father is having total income greater than his mother. In F.Y. 2018-19, the interest income is Rs. 4,500. Again, this income shall be clubbed with the total income of his father irrespective of the fact that his mother’s total income is greater or not in the F.Y. 2018-19.

• When minor income will not be clubbed?

In the following three cases, the income of minor child will not be clubbed in the hands of his parent. It means that such income will be taxable in the hands of minor himself:
(a) Income earned by a minor child suffering from any disability as specified in section 80U of the Income Tax Act like cerebral palsy, mental retardation, blindness etc.
(b) Income earned by a minor child on account of manual work done
(c) Income earned by minor child on account of application of any skill, talent or specialised knowledge and experience
In all three cases, the minor child shall file his/her return through the legal guradian.

• Clubbing in case of divorce

In case of divorce of parents, the income of minor child will be clubbed in the income of the parent (father/ mother) who maintains the minor child in that previous year.

• Minor income in case of death of both parents

If both mother and father are not alive, the clubbing provisions under section 64(1A) are not applicable. Same view is affirmed in R.P. Sarathy vs. CIT (2006) 5 SOT 732 (Chennai). In such case, the minor child shall file the return through his/her legal guardian.

• Clubbing provisions if any minor becomes major during the year:

If the minor child becomes major during a particular year, then the incomes which accrue to him till the date of attaining majority shall be clubbed under section 64(1A). Any income after attaining majority will be taxable in his/her hands only.

• Clubbing of minor’s loss:

The term “Income” includes loss also. Therefore, if the minor child incurs any loss, such loss will also be clubbed with the total income of parents.

• Deductions under Chapter VIA for clubbed income

Suppose minor earns Rs. 10,000 as interest and makes investment of the same amount in PPF eligible for deduction u/s 80C. In such case, it can be claimed that net income eligible for clubbing is nil after deduction u/s 80C. It should be noted that gross income of Rs. 10,000 shall be clubbed with the income of parents and not net income. [ITO v. Kuldeep Jain (2002) 81 ITD 379 (Delhi ITAT)]

• Exemption under section 10(32) for minor income

Where the income of a minor child has been clubbed in the total income of his/her parent, such parent will be entitled to an exemption under section 10(32) of the Act for the following amount:
(a) Rs. 1,500
(b) The amount of income clubbed, whichever is less

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