By Arnav Pandya

There is often some income that arises in the name of the minor children of an individual and this is forgotten and kept aside at the time of tax calculations. However there is a possibility that a tax element that arises in such a case and everyone will have to deal with the situation so that the liability is reflected properly. There are several small details that need to be considered for the right effect to be present and here is a look at this angle from the point of view of the individual.

Position
There is a situation that many individuals would face when they have made some investments in the name of their minor child or even if they have a bank account in the name of the minor. The reason why there is some sort of action required is due to the fact that there will be income that is generated by this action of savings and investments and hence this will need to be given effect to. The first thing that will arise when there is a savings bank account is that there will be interest that is earned on this and this is income earned. If there are other investments like a fixed deposit or a mutual fund then here too there will be income in the form of interest or dividends that are earned.

Taxability
When it comes to the question of taxability of the income the first thing is to determine whether the income is taxable or not. So for example if there is a savings bank interest then this figure is taxable(though individuals have a deduction of Rs 10,000 this year) while the interest from fixed deposit is also taxable. At the same time the dividend that is earned on the mutual fund is not taxable. When this is the case the taxable income has to be brought together to see the kind of earning that is generated by the investments in the name of the minor child.

Adding the income
The income of the minor child especially when this is out of the income that is contributed by the parents and then the amount is used for investments would need to be tackled in a separate manner on the tax front. What is required is that the income of the child would be added to the income of the parent whose total income is higher. Thus if the mother as well as the father are earning and the income of the father is higher then the amount would be added to the income of the father and no more adjustments would be possible on this front. However if the income for the child has arisen on account of manual work or the application of his skill, talent and specialised knowledge  then this kind of clubbing of income would not occur and the income would be taxed in the name of the child.

Exemption
All parents who have some small amount of income arising in the name of their child should not worry due to the fact that there is a benefit in the form of an exemption that is available whenever there is such an income. The exemption for the individual with whom the income is clubbed is to the extent of Rs 1500 per year. In absolute terms this figure is nothing so this is not going to be some great income saving measure that will be available for the individual. However what this will do is that if there are some very small figures in the form of small amounts that arise as savings bank interest and so on then this would not be taxable in the hands of the parent and hence there will not be some major tax impact that will arise.

If the situation is such that the parents have put a larger amount as deposit in the name of the minor child then there would be the necessary tax impact that has to be given to the transaction.

The author can be reached at arnavpandya@hotmail.com