Question 6 (a)

Income of a minor child from her own talent, and clubbing under section 64(1A) (as set, 1961 Act, AY 2020-21)

6.875 marks

Time to write
About 14 minutes

From an older CBCS paper

Question

Question 6 (a) · 6.875 marks

Q6. a) In Previous Year 2019-20, Nirja, a minor daughter of Mr. Suket and Mrs. Reena, has an income of Rs. 1,65,000 from singing at concerts. The Total Income of the father and the mother (the minor child’s income not yet included) is Rs. 6,50,000 and Rs. 7,00,000 respectively. For AY 2020-21, who is assessable in respect of Nirja’s income? In the light of this situation, explain the provisions on the clubbing of the income of a minor child under section 64(1A) of the Income tax act, 1961.

Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2020-21 (previous year 2019-20), with the dates as printed. The marks of Q6 are not split between its two parts in print (13.75 for Q6, inferred; see the printed copy). The income of Nirja is described as income from singing in concerts.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

14 minfor 6.9 marks

Read from the question

  • Total IncomeHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.

Write it in this order

  1. Read the data; note exactly what is asked 1 min
  2. 1 Who is assessable on Nirja's income, with reasons 2½ marks 4 min
  3. 2 The rule of section 64(1A) and its purpose 1½ marks 3 min
  4. 3 The parent in whose hands the income is clubbed 1.2 marks 2 min
  5. 4 Exceptions and the exemption under section 10(32) 1.6 marks 3 min
  6. Check: arithmetic, units (₹, %), final answer underlined 1 min

Try it first. About 14 minutes for 6.875 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Who is assessable on Nirja's income

Nirja earns ₹1,65,000 by singing at concerts. That is income from an activity in which she applies her own skill and talent, which the proviso to section 64(1A) takes outside clubbing. So it is not included in the income of either parent: Nirja herself is assessable on it, for assessment year 2020-21, as a separate person.

PersonTotal income (₹)
Nirja (minor), income from singing at concerts1,65,000
Mr. Suket (father)6,50,000
Mrs. Reena (mother)7,00,000

Nirja's income is below the basic exemption limit of ₹2,50,000 (Finance Act, 2020, First Schedule, Part I, Paragraph A, item (I)), so no tax is payable on it. The parents' incomes stay as given.

Clubbing of a minor child's income: section 64(1A)

The aim of the rule is to stop parents from cutting their tax by putting income-earning assets or sources in a minor child's name. Section 64(1A) therefore requires all income that arises or accrues to a minor child to be included in the total income of a parent. It covers taxable income of every kind: interest, rent, capital gains, and income from assets given by anyone, not only by the parent; income the Act exempts, such as dividends referred to in section 115-O (section 10(34), subject to section 115BBDA), adds nothing.

In which parent's hands

The Explanation to section 64(1A) fixes the parent:

  1. Where the parents' marriage subsists: the parent whose own total income, before adding the child's income, is greater. On these figures that would be Mrs. Reena (₹7,00,000 against ₹6,50,000).
  2. Where the marriage does not subsist: the parent who maintains the minor child in the previous year.
  3. Later years: once a child's income has been included with one parent, it stays with that parent in later years. It moves to the other parent only if the Assessing Officer first gives that parent an opportunity of being heard and then finds the move necessary.

Exceptions

The child's income is not clubbed where:

  1. the child suffers from a disability of the kind specified in section 80U (section 64(1A) itself); or
  2. it arises from manual work done by the child (proviso, clause (a)); or
  3. it arises from an activity involving the child's skill, talent or specialised knowledge and experience (proviso, clause (b)). Nirja's singing falls here.

Income from investing the earnings in 2 or 3 is not within the exception and would be clubbed (a child within 1 has none of his income clubbed): for example, interest on a deposit of Nirja's concert fees.

Exemption of ₹1,500

Where a child's income is clubbed, the parent is exempt on up to ₹1,500 of it for each minor child whose income is included (section 10(32)).

If the income were not from her own skill

Had the ₹1,65,000 been, say, interest on a deposit in Nirja's name, it would be clubbed with Mrs. Reena, whose income is the greater. Her total income would be ₹7,00,000 + ₹1,65,000 − ₹1,500 = ₹8,63,500, and Nirja would have nothing to return.

Where the 6.875 marks sit

#ComponentMarks
1Who is assessable on Nirja's income, with reasons2.5
2The rule of section 64(1A) and its purpose1.5
3The parent in whose hands the income is clubbed1.25
4Exceptions and the exemption under section 10(32)1.625
Total6.875
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