Section 64(1A) of the Income tax Act, 1961 provides that in computing the total income of any individual, there shall be included all such income as arises or accrues to his minor child [ not being a minor child suffering from any disability of the nature specified in section 80U]:
Provided that nothing contained in this sub section shall apply in respect of such income as arises or accrues to the minor child on account of any-
- Manual work done by him; or
- Activity involving application of his skill, talent or specialized knowledge and experience.
Explanation: For the purpose of this sub-section, the income of the minor child shall be included,-
- In the income of parents whose total income is greater, or
- Where the marriage of his parents does not subsist, in the income of that parent who maintains the minor child in the previous year,
And where any such income is once included in the total income of either parent, it will not change in any succeeding year to other parent.
Clause 99 (1)(c) of the Income Tax Bill 2025Total income of any individual, for a tax year, shall include the income arising directly or indirectly to the minor child of the individual but shall not include in the total income of the individual where the income arising or accruing to the minor child is from manual work done by such child, or from activities where his skill, talent, specialized knowledge or experience is applied, or where such minor child is suffering from disability of the nature specified in clause 154.
From the above, one thing is clear that minor earns income from manual work i.e. labor, activities carried out with his personal skill and talent i.e. acting in TV serial, picture playing sports, games etc. are not clubbed in the income of his parents.
Another clarification is also made that after the birth of a child, if there is a divorce of parents, with whom he is living income will be clubbed with that parent.
As per section 10(32) of the Income tax Act, 1961 the parent in whose income, minor income is added will get exemption of Rs. 1,500 per child. If the income of two children added to the income of their father is of Rs. 50,000, father will exemption of Rs. 3,000 and Rs. 47,000 will be added.
Tax planning by clubbing of income:
Income of minor is to be invested in the various scheme, whose income is exempt, i.e. Public Provident Fund, Tax Free Bonds etc. So that in future there will be no taxable income and no clubbing.
Tax planning by investment in Capital Appreciation Assets:
If the income of minor is invested in such assets that, getting regular income every year, it will increase the value of assets, so the question of section 64 will not arise. The assets like, land, building, gold and silver, shares or growth scheme of mutual funds.
If you plan for long term capital gain from such assets, the rate of long term capital is less than the rate of income tax. The rate of income tax is about 30% while long term capital gain is 12.5%.
Planning of tax savings by Discretionary Trust:
As per Section 164 of the Income tax Act, 1961, tax at the maximum marginal rate i.e. 30% is applicable. But as per two important exceptions under section 164(1), discretionary trust crafted under WILL and discretionary trust under which beneficiaries have no taxable income, tax is to be levied at normal rate, as Association of Person. If minor is one of the beneficiary of such trust, his income will increase and section of clubbing of income will not applicable.
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