Budget 2018: One issue which needs immediate attention of Finance Minister Arun Jaitley is the taxability of the income of minors as the current threshold was fixed way back in 1993.
Budget 2018: With the Union Budget just a few days away, everyone’s eyes are now set on Finance Minister Arun Jaitley. One issue which needs his immediate attention is the taxability of the income of minors as the current threshold was fixed way back in 1993. It may be noted that at present the income of minors included in the hands of parents is exempt to the extent of Rs 1,500 for each minor. However, the average expenditure to meet the cost of a minor’s education/ health/ living expenses has gone up considerably in recent years and the current limit of Rs 1,500 fixed is woefully inadequate.
Keeping this on view, the Institute of Chartered Accountants of India (ICAI) has, in its pre-budget memorandum presented to the government, suggested that this limit should be raised to at least Rs 10,000 for each minor child in the Budget 2018.
Expert Take on the Income of Minors
It should be noted that the Section 64 (1A) of the Income-Tax Act, 1961 provides for clubbing provisions i.e., a minor child’s income shall be included in the total income of his parent’s subject to certain conditions.
“It is common to see parents making bank deposits or investing in funds like PPF or mutual funds in their minor children’s name. The interest/ dividend income from such deposits/ investment given the above provision of the Act is taxed in the hands of the parent. Further, a relaxation is provided under the provisions of Section 10(32) of the I-T Act which provides for an exemption of up to Rs 1,500 per child. Any income above such threshold would be clubbed with the parent’s total income,” says Akhil Chandna, Director, Grant Thornton India LLP.
Various regulatory bodies citing reasons such as ‘inflation in the economy and the increase in level of expenditure’ are anticipating that Finance Minister Arun Jaitley could enhance the present limit from Rs 1,500 to at least Rs 10,000. For instance, the Institute of Chartered Accountants of India, the apex accounting body, in its pre-Budget memorandum has shared a similar suggestion, contending that the average expenditure to meet the cost of a minor’s education/ health/ living expenses has gone up considerably in recent years and the present limit of Rs 1,500 is ‘woefully inadequate’.
“It is pertinent to note that the above threshold was fixed way back in the year 1993 and considering the ubiquitous effects of rise in the cost of living and a steep increase in the overall expenditure along with the prevailing inflation, this proposed increase in limit of exemption should be deduced as more of a mandate than a mere recommendation,” says Chandna.
Hopefully, as expected, FM Arun Jaitley will do something in this regard in the upcoming Union Budget.