Income of minor child (Section 64(1)) refers to the income of a minor child that is clubbed in the hands of the parent or guardian, for the purpose of income tax. This provision is in place to prevent taxpayers from avoiding tax by transferring their income to their minor children.

The following types of income of a minor child are clubbed in the hands of the parent or guardian:

• Income from assets transferred to the minor child without adequate consideration.
• Income from assets transferred to the minor child in anticipation of divorce.
• Income from assets transferred to a trust for the benefit of the minor child.
• Income from assets transferred to a partnership firm in which the minor child is a partner.
• Income from business or profession carried on by the minor child.
• Income from any other source, if the minor child is not in a position to earn such income on his/her own.

There are a few exceptions to the clubbing provisions, such as:

• Income from the minor child’s own skill, talent, or specialized knowledge and experience.
• Income from assets received by the minor child as a gift or inheritance.
• Income from a scholarship or grant received by the minor child.

If you are a parent or guardian of a minor child, it is important to be aware of the clubbing provisions and to consult with a tax professional to determine whether your child’s income is taxable in your hands.

Examples

Here are some examples of income of a minor child that may be clubbed in the hands of the parent under Section 64(1) of the Income Tax Act, 1961:

• Interest income from savings bank account
• Dividend income from shares
• Rent income from property
• Royalty income from patents, trademarks, copyrights, etc.
• Remuneration for services rendered
• Profit from business or profession
• Income from assets transferred to the minor child by the parent without adequate consideration

Here are some specific examples:

• A minor child receives interest income from a savings bank account that was opened by the parent in the child’s name. The interest income will be clubbed in the hands of the parent.
• A minor child receives dividend income from shares that were transferred to the child by the parent without adequate consideration. The dividend income will be clubbed in the hands of the parent.
• A minor child receives rent income from a property that was transferred to the child by the parent without adequate consideration. The rent income will be clubbed in the hands of the parent.
• A minor child receives royalty income from a patent that was invented by the parent and transferred to the child without adequate consideration. The royalty income will be clubbed in the hands of the parent.
• A minor child receives remuneration for services rendered in the parent’s business or profession. The remuneration will be clubbed in the hands of the parent.
• A minor child earns a profit from a business or profession that was set up by the parent and transferred to the child without adequate consideration. The profit will be clubbed in the hands of the parent.

It is important to note that there are a number of exceptions to the clubbing provisions. For example, income from a minor child’s own skills or talents is not clubbed in the hands of the parent. Additionally, income from assets that were transferred to the minor child through a bona fide gift or inheritance is not clubbed in the hands of the parent.

Case laws

• CIT v. Smt. Sushila Devi (1979) 119 ITR 105 (SC): In this case, the Supreme Court held that the income of a minor child from a concern in which the taxpayer has a substantial interest is clubbed in the taxpayer’s hands even if the minor child has the necessary technical or professional qualifications and experience to render the services in question.
• CIT v. R.K. Jain (1995) 212 ITR 83 (SC): In this case, the Supreme Court held that the income of a spouse from a concern in which the taxpayer has a substantial interest is clubbed in the taxpayer’s hands even if the spouse is employed full-time in the concern.
• CIT v. M/s. J.K. Papers Ltd. (2010) 334 ITR 1 (SC): In this case, the Supreme Court held that the income of a concern in which the taxpayer has a substantial interest is clubbed in the taxpayer’s hands even if the income is generated by the concern from its own business activities.

In addition to the above case laws, there are a number of other case laws that have dealt with specific aspects of clubbing of income of minor child. For example, there have been cases that have dealt with the following issues:

• Whether the income of a minor child from a trust in which the taxpayer has a substantial interest is clubbed in the taxpayer’s hands.
• Whether the income of a minor child from a partnership in which the taxpayer has a substantial interest is clubbed in the taxpayer’s hands.
• Whether the income of a minor child from a joint venture in which the taxpayer has a substantial interest is clubbed in the taxpayer’s hands.

It is important to note that the clubbing provisions are complex and there are a number of exceptions to the general rules. Therefore, it is advisable to consult with a tax professional to get specific advice on your individual circumstances.

Case laws of income of minor child from assets transferred to the minor child:

• CIT v. Sh. Suresh Kumar Mittal (2010) 330 ITR 358 (P&H HC): In this case, the Punjab and Haryana High Court held that the income from assets transferred to a minor child through a gift deed without adequate consideration is clubbed in the hands of the transferor, even if the transfer is made for the benefit of the minor child’s parents.
• CIT v. Sh. Ashok Kumar Gupta (2009) 314 ITR 489 (Raj HC): In this case, the Rajasthan High Court held that the income from assets transferred to a minor child through a trust without adequate consideration is clubbed in the hands of the transferor, even if the trust is for the benefit of the minor child and minor child’s parents, and the transferor is a trustee of the trust.
• CIT v. Smt. Anita Goyal (2008) 302 ITR 218 (Jharkhand HC): In this case, the Jharkhand High Court held that the income from assets transferred to a minor child through a partnership firm without adequate consideration is clubbed in the hands of the transferor, even if the minor child is a partner in the firm.

FAQ questions

Q: What is Section 64(1) of the Income Tax Act, 1961?

A: Section 64(1) of the Income Tax Act, 1961 deals with the clubbing of income of a minor child in the hands of the parent. It is a provision that is used to prevent taxpayers from avoiding tax by transferring their income to their minor children.

Q: When is the income of a minor child clubbed in the hands of the parent?

A: The income of a minor child is clubbed in the hands of the parent if the following conditions are met:

• The parent has a substantial interest in the concern from which the minor child receives the income.
• The income is received by the minor child in consideration of services rendered by the minor child.
• The services rendered by the minor child are of a nature that would ordinarily have been rendered by the parent.

Q: What is a substantial interest?

A: A substantial interest is a direct or indirect interest of 20% or more in a concern. This interest may be held directly or indirectly through a partnership, trust, or other entity.

Q: What are the implications of having the income of a minor child clubbed in the hands of the parent?

A: The implications of having the income of a minor child clubbed in the hands of the parent are as follows:

• The income of the minor child will be taxed in the hands of the parent at the parent’s tax rate.
• The parent will be liable to pay tax on the income of the minor child, even if the income has not actually been received by the parent.
• The parent will not be able to claim any deduction for the expenses incurred by the minor child in earning the income.

Q: Are there any exceptions to the clubbing provisions?

A: Yes, there are a few exceptions to the clubbing provisions. For example, the income of a minor child from a scholarship or other source of income that is not related to the parent’s business or profession is not clubbed in the hands of the parent.

Q: What should I do if the income of my minor child is clubbed in my hands?

A: If the income of your minor child is clubbed in your hands, you will need to disclose the income in your income tax return and pay the applicable tax on it. You will also need to pay any interest and penalties that may be applicable.