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

Meaning of clubbing

As a rule, a person pays tax only on his own income. To stop a family from splitting one income into several smaller incomes, each taxed at a lower slab, the Act includes (clubs) certain income of other persons in the assessee's total income: income of the spouse, of the son's wife, of a minor child, and from assets transferred without adequate consideration (Income-tax Act, 2025, sections 96 to 99). The provision the question names, section 64(1A) of the Income-tax Act, 1961, deals with a minor child's income; it is now section 99(1)(c).

Income of a minor child (section 99(1)(c), formerly section 64(1A))

All income arising or accruing, directly or indirectly, to a minor child is included in the total income of the parent. It does not matter whether the income comes from assets gifted by the parent, by a relative or by anyone else, or from the child's own savings. Income includes a loss (section 99(5)(d)), so a loss of the minor is also clubbed.

Exceptions

The following income of a minor child is not clubbed (section 99(1)(c)):

1. income on account of work done by the child (section 99(1)(c)(i); the 1961 proviso to section 64(1A) spoke of manual work done by the child), such as wages for manual work;
2. income from an activity in which the child applies his skill, talent, specialised knowledge or experience, such as prize money from a chess tournament or fees for acting in a film; and
3. any income of a minor child suffering from a disability of the nature specified in section 154 (formerly section 80U).

Income earned by investing such exempt earnings (interest on a deposit made out of a child artist's fees, for example) is income from an asset, not from the child's skill, so it is clubbed. A child with the disability in point 3 stands apart: none of that child's income is clubbed, investment income included.

In whose hands it is included (section 99(5)(b))

• If the marriage of the parents subsists, the income is included in the income of the parent whose total income, before this inclusion, is greater.
• If the marriage does not subsist, it is included in the income of the parent who maintains the child in the tax year.
• Once included in one parent's income, it is not shifted to the other parent in a later year unless the Assessing Officer is satisfied, after giving the other parent an opportunity of being heard, that it should be.

Exclusion of ₹1,500 a child (Schedule III, Sl. No. 17, formerly section 10(32))

The parent in whose income a minor's income is clubbed may exclude up to ₹1,500 for each such minor child. If the child's income is less than ₹1,500, only that income is excluded. This exclusion is available under the optional (old) regime only; under the default regime of section 202(1) it is not allowed (section 202(2)(a)(i)).

Illustration (our own)

Ms. Nair (total income ₹11,00,000) and her husband (₹16,00,000) have two minor sons. The elder, aged 15, earns ₹30,000 of interest on savings bonds bought with money gifted by an uncle; the younger, aged 10, earns ₹60,000 by acting in a television advertisement and ₹4,000 of interest on a deposit made from those fees. The acting fee comes from his talent and is not clubbed. The ₹30,000 and the ₹4,000 are clubbed in the husband's income, his being the greater. Under the old regime he excludes ₹1,500 for each son: ₹28,500 + ₹2,500 = ₹31,000 is added to his total income; under the default regime the whole ₹34,000 is added.

Conclusion

Under section 64(1A), now section 99(1)(c), a minor child's income is taxed in a parent's hands, except what the child earns by his own work, skill or talent, or any income of a child with the specified disability. This stops the splitting of family income, and the ₹1,500 exclusion gives a small relief under the old regime.