Taxable income of minor: plan carefully

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: Do you remember the day when your child was born and the joy it brought along! Well, we all care for our children and want the best for them. One of these wants would include giving them a good future with enough funds to be on their own when they become majors and/or for some specific purpose like higher education at the prestigious universities in India or abroad or marriage et al.

For achieving this goal, one needs to plan carefully and for this purpose, also know the tax aspects of income generated in the hands of a minor.

Taxation of income of a minor
Under section 64(1A) of the Income-tax Act, 1961 (the Act), for computing the total (taxable) income of any individual, there shall be included all such income/loss as arises or accrues to his/her minor child. Thus, income of a minor child will be clubbed with the income of the parent, but which one?

As per the Explanation to section 64(1A) of the Act, the income of the minor child shall be included:

• where the marriage of his/her parents subsists, in the income of that parent whose total (taxable) income (excluding the income of the minor) is greater; or

• where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the financial year.

Further, where any such income is once included in the total (taxable) income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.

Thus, unless decided otherwise by the Assessing Officer in consultation with the parent of the minor, once in the first year of generation of taxable income in the name of the minor, such income is clubbed with the income of either parent (say father), then in the following financial years, the income of the minor would be clubbed with income of such parent only (ie in the given case, father).

However, in the following cases, the clubbing provisions will not apply and the income of the minor will be assessed separately: