Clubbing of a minor child's income under section 64(1A) (as set, 1961 Act, AY 2017-18)

The rule

In computing the total income of an individual, all income that arises or accrues to his or her minor child is included (section 64(1A)). It does not matter what the source is (interest, dividends, rent, capital gains) or who gave the child the asset; the income is clubbed simply because the child is a minor. A child for this purpose includes a step-child and an adopted child (section 2(15B)).

Income that is not clubbed

The rule does not apply to:

1. income from manual work done by the minor (section 64(1A), proviso, clause (a));
2. income from an activity in which the minor applies his own skill, talent or specialised knowledge and experience, such as a child actor's fee or a young player's prize money (proviso, clause (b));
3. any income of a minor child who suffers from a disability of the kind specified in section 80U (section 64(1A), opening words).

Such income is assessed in the minor's own hands. Income earned by investing the earnings in 1 or 2, however, is not itself income from his skill or manual work, so it is clubbed. A minor with a section 80U disability is outside section 64(1A) altogether, so none of his income, investment income included, is clubbed.

In whose hands the income is clubbed

The Explanation to section 64(1A) decides which parent:

• where the parents' marriage subsists, in the income of the parent whose total income, before including the minor's income, is greater;
• where the marriage does not subsist, in the income of the parent who maintains the minor child in that previous year.

Once the income has been included in one parent's total income, the income of later years stays with that parent. It moves to the other parent only where the Assessing Officer, having first given that parent an opportunity of being heard, finds the move necessary.

Exemption of ₹1,500 per child

The parent in whose income the minor's income is included is exempt on it up to ₹1,500 for each minor child whose income is so included (section 10(32)). Only the excess is clubbed.

Illustration

Mr. A (total income ₹9,00,000) and Mrs. A (total income ₹6,00,000) are married. Their son, aged 15, earns ₹20,000 interest on a fixed deposit made from gifts and ₹30,000 as prize money in a chess tournament. The prize money comes from his own skill, so it is not clubbed. The interest of ₹20,000 is clubbed in Mr. A's income, as his total income is greater: he includes ₹20,000 − ₹1,500 = ₹18,500.