Clubbing of a minor child's income under section 64(1A) (as set, 1961 Act, AY 2018-19)

The rule

All income that arises or accrues to a minor child is included in the total income of the parent (section 64(1A)). The source does not matter: taxable interest, rent, capital gains or business income are all clubbed, and so is income from an asset the child received from anyone, not only from the parent. Income the Act exempts adds nothing: dividends referred to in section 115-O are exempt under section 10(34), except dividends taxed under section 115BBDA (a resident specified assessee's dividends from domestic companies above ₹10 lakh in aggregate) (section 10(34) and its proviso; section 115BBDA(1)). The minor is not separately assessed on such income; it is taxed as the parent's income at the parent's rates.

Who is a minor child

A minor is a child who has not reached 18 years of age, and a child includes a step-child and an adopted child (section 2(15B)). Once the child is a major, the income is assessed as the child's own.

Income that is not clubbed

1. Income from manual work done by the child (proviso to section 64(1A), clause (a)).
2. Income from an activity in which the child applies his or her own skill, talent or specialised knowledge and experience, such as a young singer's fees or a chess player's prize (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) itself excludes such a child).

Such income is assessed in the minor's own hands. But income earned by investing the earnings in 1 or 2 (say interest on prize money put in a deposit) is not skill income, so it is clubbed. A minor with a section 80U disability is outside section 64(1A) altogether, so none of that child's income, investment income included, is clubbed.

In whose income it is included

The Explanation to section 64(1A) decides:

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

Once included with one parent, the minor's income of later years continues to be included with that parent, unless the Assessing Officer, after giving the other parent an opportunity of being heard, finds it necessary to change it.

Exemption of ₹1,500 a child

The parent in whose income a minor child's income is included may exclude up to ₹1,500 of it for each such child (section 10(32)). Only the excess over ₹1,500 is added.

Illustration (our own figures)

Mr. and Mrs. Rao have total incomes of ₹8,00,000 and ₹5,00,000 for 2017-18. Their daughter, 14, earns ₹30,000 interest on deposits made out of gifts from her grandparents and ₹50,000 from acting in a film. The acting fee comes from her own talent and is not clubbed. The interest is included in Mr. Rao's income, his being the greater: ₹30,000 − ₹1,500 = ₹28,500. Their son, 16, who has a disability of the kind specified in section 80U, earns ₹20,000 interest; it is not clubbed and is assessed in his own hands.