How to Feed Clubbing (Minor/Spouse) Income

Income Tax || How to Feed Clubbing (Minor/Spouse) Income

What is Clubbing (Minor) Income:
Clubbing of minor's income refers to the inclusion of a minor child's income with the income of the parent, as per the provisions of the Indian Income Tax Act. This is done to ensure that the income of the minor is taxed at the appropriate rate and to prevent tax evasion by splitting income among family members.
Relevant Provisions
  • Section 64(1A) of the Income Tax Act, 1961 specifies the clubbing of a minor’s income with that of the parent’s income.
Key Points of Clubbing Minor’s Income
Who is a Minor?
  1. A minor is defined as an individual who has not completed 18 years of age.
Whose Income Gets Clubbed?
  1. The income of a minor child is clubbed with the income of the parent whose total income (excluding the minor’s income) is higher.
  2. If the parents are divorced, the minor's income is included in the income of the parent who maintains the child.
Types of Income to be Clubbed:
  1. Any income arising or accruing to a minor child, such as interest from savings accounts, fixed deposits, investments, etc., is clubbed with the income of the parent.
Exemptions:
  1. If a minor child’s income is clubbed in the hands of parent, then an exemption of Rs. 1,500 is allowed to the parent (This is applicable only if the parent opts for the old tax regime).
Exceptions to clubbing:
  1. Income of a disabled child (disability of the nature specified in section 80U) 
  2. Income earned by manual work done by the child or by activity involving the application of his skill and talent or specialised knowledge and experience
  3. Income earned by a major child. This would also include income earned from investments made out of money gifted to the adult child. Also, money gifted to an adult child is exempt from gift tax under gifts to ‘relative’.
Tax Implications:
  1. The clubbed income is taxed at the rate applicable to the parent’s income.
  2. The parent responsible for the minor’s income must include the income while filing their income tax return.
Example
If a minor child earns interest income of ₹10,000 from a savings account and the parent with the higher income is the father, this ₹10,000 will be added to the father's total income for tax purposes. The father can claim an exemption of ₹1,500 on this income, meaning only ₹8,500 will be taxable under the father's income.
Why is Clubbing of Income Important?
  1. Prevent Tax Avoidance: Clubbing provisions are designed to prevent tax avoidance by splitting income among family members to take advantage of lower tax rates.
  2. Fair Taxation: Ensures that income generated by minors, which is effectively controlled by parents, is taxed at the appropriate rate.
  3. Separate Returns: Even if the minor's income is clubbed with the parent's income, the minor may still need to file a separate return if they have a PAN and income from specific sources like winnings from lotteries or horse races.
  4. Documentation: Keep documentation of the minor’s income sources for verification and compliance purposes.
How to Feed the Clubbing (Minor) income in Software:
Step 1:
Go to Transaction >> Clubbing:


Step 2:
Here You have to Enter the details Of the Minor:
1. Enter the Minor Name.
2. Select the Description "Minor/Spouse".
3. Select the Relationship "Son/Daughter".
4. Enter the Date Of Birth Of the Minor.
5. Enter the Heads of Income by clicking on "Details" Button (For More Information Read Step 3).
6. Click on Save Button to Save the Details.


Step 3:
For Entering the Income to the related heads of Income Click on "Details" Button:
1. Select the Income Which is related to the Minor/Spouse.
Note: This income will appear when you have entered the income in Transaction >> Other Sources (Heads of Income).
2. Click on 'Heads of Income' to enter the income in the main head of income. Afterward, it will show up in the minor head. Then, select the income for the minor head.


Step 4:
Now, the income of the minor (which is selected in the inner head of details) is shown here. Click the Save button, and then generate the computation.


Step 5:
1. Select the Old Tax Regime to avail the exemption under Section 10(32) of ₹1,500 per child.
2. Make sure that the ITR form selected is either ITR 2 or ITR 3, as per the Income Tax Department's schema/act/return form. The 'Schedule SPI' is available only in ITR 2 and ITR 3.
3. Here, your exemption is displayed.
4. Here, your income related to the minor/spouse is displayed.
5. The summary of income and exemptions is displayed.


Hope This Helps.