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The issue of taxability of minor’s income is gaining importance in the current scenario mainly due to increasing number of child artistes, sportsmen and increasing trend of investing in the names of minors.
Dr. Suresh Surana, Founder - RSM Astute Consulting Group
The issue of taxability of minor’s income is gaining importance in the current scenario mainly due to increasing number of child artistes, sportsmen and increasing trend of investing in the names of minors. Media is generating a huge number of child artistes with a substantial income, with almost every alternate advertisement today is made with a child artist, reality TV shows like Sa Re Ga Ma, Chote Ustad, showcasing talent of minors, is on the rise and so is the number of movies involving child artists.
Another important reason for increase in number of minor earners is increasing trend of investments in the name of minors’, mainly to ensure their better future, pay for their educational expenses etc.
Clubbing of minor’s income
This scenario has brought attention to the clubbing provisions under the Indian Income Tax Act (“the Act”). As per the provisions of the section 64(1A) of the Act, the Income accruing to a minor child would be clubbed with the income of his / her parent having greater income (excluding the income to be clubbed). Once the clubbing of the income of the minor child is done in the hands of either parent, then the same cannot be clubbed in the hands of another parent in the subsequent years. However, the assessing officer may do the clubbing in the hands of another parent only after giving that parent an opportunity of being heard. In case the parents are separated then the income will be clubbed in the hands of the parent who maintains the minor child in the relevant previous year.
It is pertinent to note that the clubbing provisions will apply to negative income also. Further, the net income i.e. income after claiming permissible expenditure / deduction is clubbed. The income once clubbed would become normal income of the assessee and he would be entitled to claim the eligible deduction under Chapter VIA of the Act on such income. The assessee can claim the tax credit for tax deducted at source in respect of minor’s income clubbed with the assessee.
The clubbing provisions are applicable only till the minor attains 18 years of age, subsequent to which he / she will have to file separate tax returns. It means the clubbing of income is applicable only for income accrued till the date he/she turns 18.
Certain exemptions from the clubbing provisions
In case of clubbing of income, an exemption has been granted for income up to Rs. 1,500 per minor child.
It is important to note that not all income of a minor is clubbed with the parents. Income of minor child suffering from specified disabilities (under section 80U of the Act), income from any manual work and any activity involving application of minor’s skill, talent, specialized knowledge and experience are not subject to the clubbing provisions. Such income is taxed in the hands of the minor, who then gets the benefit of basic exemption of Rs. 1.10 lakhs (Rs. 1.45 lakhs in the case of a minor daughter). In such case, he/she can claim all other deductions under Chapter VIA viz 80C, 80D, 80U, 80G etc subject to fulfillment of conditions prescribed therein.
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