Clubbing of a minor child's income with the parent's income (as set, 1961 Act, AY 2018-19)

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)). The source does not matter: taxable interest on a deposit, rent, capital gains or other taxable income is clubbed, whoever gave the child the asset. Income the Act exempts adds nothing to the parent's total income: dividends referred to in section 115-O are exempt under section 10(34), except dividends taxed under section 115BBDA (for AY 2018-19, a resident specified assessee's dividends from domestic companies above ₹10 lakh in aggregate, taxed at 10% on the excess) (section 10(34) and its proviso; section 115BBDA(1)). A share of profit from a firm is also different: a partner's share in the total income of a firm assessed as such is exempt (section 10(2A)), the share being the part of the firm's total income in the profit-sharing proportion of the partnership deed (Explanation to section 10(2A)), so where the minor holds such a share it is not clubbed. Child includes a step-child and an adopted child (section 2(15B)).

Income not clubbed

1. Income the minor earns from manual work (section 64(1A), proviso (a)).
2. Income from an activity using his own skill, talent or specialised knowledge and experience (proviso (b)), such as prize money won by a young chess player, fees of a child actor or a singer's earnings.
3. Any income of a minor child who suffers from a disability of the kind described in section 80U (section 64(1A), main words). Such a child's income is assessed in the child's own name. For section 80U, disability has the meaning in section 2(i) of the Persons with Disabilities Act, 1995 and includes autism, cerebral palsy and multiple disabilities as defined in the National Trust Act, 1999 (Explanation (a) to section 80U).

Income from investments made out of the earnings in 1 or 2, however, is clubbed, because it is not itself earned by manual work or skill. 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.

Which parent bears it

• While the marriage of the parents subsists, the income is clubbed with the parent whose own total income, before adding the child's income, is greater (Explanation (a) to section 64(1A)).
• Where the marriage does not subsist, it is clubbed with the parent who maintains the child in the previous year (Explanation (b)).
• Once it has been included in one parent's income, a later year's income of the child is not moved to the other parent unless the Assessing Officer, having first given that parent an opportunity to be heard, is satisfied that the move is necessary (Explanation, last part).

Exemption of ₹1,500

The parent in whose income the child's income is included is exempt on up to ₹1,500 a year for each minor child whose income is clubbed (section 10(32)). If the child's income is less than ₹1,500, only that income is exempt.

Other points

• Only income that arises while the child is a minor is clubbed; what the child earns after attaining majority is his own.
• The clubbed income keeps its own head (interest stays under Income from other sources, capital gain under Capital gains).

Illustration

For 2017-18 Mr. Rakesh has total income of ₹9,00,000 and his wife ₹6,00,000. Their minor son earns ₹12,000 interest on a fixed deposit made out of a gift from his grandfather, and ₹30,000 as prize money in a quiz contest won by his own knowledge. Only the interest is clubbed, with Mr. Rakesh, whose income is higher: he adds ₹12,000 − ₹1,500 = ₹10,500 to his income. The prize money is the son's own income and is not clubbed.