Clubbing of a minor child's income with the parent's income

The provision

Section 64(1A) of the Income-tax Act, 1961, now section 99(1)(c) of the Income-tax Act, 2025, provides that all income arising or accruing to a minor child is included in the total income of the parent. A minor is a person below 18 years. The rule stops a parent from lowering his tax by putting investments in the names of his children, who would otherwise each enjoy a separate basic exemption and lower slabs.

Income clubbed

Every income of the minor, from whatever source: interest on deposits or bonds, dividends, rent from property gifted to the child, capital gains, and income from assets the child received as a gift from anyone (not only from the parent). A minor married daughter is included too: the section uses the term minor child, with no exception for marriage.

Income not clubbed (section 99(1)(c), exceptions)

1. income on account of work done by the child (section 99(1)(c)(i); for example, wages for work in a shop);
2. income from activities where the child's skill, talent, specialised knowledge or experience is applied (section 99(1)(c)(ii); for example, fees earned by a child singer, actor or sportsman); and
3. any income of a minor child suffering from a disability of the kind specified in section 154 (formerly section 80U; section 99(1)(c)(iii)).

The proviso to section 64(1A) of the 1961 Act, which the question names, was narrower: it excluded income from manual work done by the child, or from activity involving his skill, talent or specialised knowledge and experience. The 2025 Act excludes income from any work done by the child.

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

In whose hands (section 99(5)(b))

1. If the marriage of the parents subsists: in the hands of the parent whose total income, before clubbing, is greater.
2. If the marriage does not subsist: in the hands of the parent who maintains the child during the year.
3. Once included in one parent's income, it continues to be included there in later years, unless the Assessing Officer, after giving the other parent an opportunity of being heard, is satisfied that it should change.

Exemption of ₹1,500 (Schedule III, Sl. No. 17; formerly section 10(32))

The parent in whose income a minor's income is included may exclude up to ₹1,500 for each minor child (or the income clubbed, if less). Under the default regime this exemption is not available (section 202(2)(a)(i)).

Other points

1. The clubbed income keeps its character (interest is income from other sources, rent is house property income) and is taxed at the parent's rate.
2. Clubbing covers only income arising while the child is a minor. Income arising after the child turns 18 is assessed in its own hands, even if it comes from assets the parent gave it.

Illustration (our own)

Mr. and Mrs. Bhatia have incomes of ₹15,00,000 and ₹9,00,000 before clubbing. Their son, aged 14, earns ₹30,000 interest on fixed deposits gifted by his grandfather and ₹40,000 as prize money from a chess tournament. The prize money comes from his skill and is not clubbed. The interest is added to Mr. Bhatia's income, the higher one: under the old regime ₹30,000 − ₹1,500 = ₹28,500 is included; under the default regime the full ₹30,000.