1. Any type of investment made by a parent on the minor's name is taxable, with liability on the parent, even for stepchild or adopted child, as establishing the income source of the investment is important.
2. Clubbing of Income rules are applicable under Section 64(1A), and income would be included with the parent whose total income (excluding minor’s income) is greater, accounting it in the same income head from which it is earned.
3. In case parents are separated, the income of minor will be included in the income of that parent who maintained the minor child in the relevant previous year.
4. If marriage of parents subsists, but they don’t maintain the minor, then the minor's income shall not be clubbed with either parent.
5. If parents are not alive, then the guardian of the minor should file a return of income on its behalf, without the income being clubbed in the hands of the guardian.
6. Income of minor earned on manual work or any activity involving application of his / her skill, knowledge, talent, experience, etc. will not be clubbed with the income of his / her parent.
7. Income of minor (from all sources) suffering from any disability specified under section 80U will not be clubbed.
8. However, if such incomes are invested or utilized, then any income earned from such investment / utilisation will be clubbed with the income of parent of such minor.
9. Under Sec 10(32), a parent is entitled to exemption of 1,500 p.a. for each minor, if income exceeds this amount, or restricted to actual income if lesser.
10. In your specific case, therefore, while you can do investment in the minor's name, it will be considered as yours, and you should include any income out of this investment in your own income under the same head while filling your own tax returns, and not the minor's, even if he is a PAN card holder, and avail the tax rebate.
11. A few tips to prevent clubbing of income rules from kicking in:-
a) If a parent makes investments on minor's name which matures after attaining the age of 18, then any income arising from it is not clubbed in parent's income, as cubbing rules apply only for a minor and is not applicable for children above 18 years of age.
b) A parent can open a minor's bank account for receiving cash gifts, investing it in the minor's own name, preferably in a long-term balanced equity fund, with its redemption only after turning 18.
c) A parent can also save tax under Sec 80C by investing in PPF, ELSS or other tax saving instrument in the minor's name in a similar manner.
d) Either parent can open a PPF account on behalf of minor, but both cannot open the account for same minor.
e) But whether the parent can invest beyond the permissible limit in each of the accounts, or invest only up to the total permissible limit in accounts of both self and minor taken together, is not totally clear, hence it is safest to follow the latter while investing.
11. Maternal grandparents are also lineal ascendents of the minor from the mother's side, and gifts from them are, therefore, tax-exempt in the minor's hands.
12. However, the income generated through investment of the gift will be clubbed with that parent of the minor whose income is higher for assessment of tax payment.
13. Thereafter, all clubbing of income rules, and tips to avoid it, apply as aforesaid.
2. Clubbing of Income rules are applicable under Section 64(1A), and income would be included with the parent whose total income (excluding minor’s income) is greater, accounting it in the same income head from which it is earned.
3. In case parents are separated, the income of minor will be included in the income of that parent who maintained the minor child in the relevant previous year.
4. If marriage of parents subsists, but they don’t maintain the minor, then the minor's income shall not be clubbed with either parent.
5. If parents are not alive, then the guardian of the minor should file a return of income on its behalf, without the income being clubbed in the hands of the guardian.
6. Income of minor earned on manual work or any activity involving application of his / her skill, knowledge, talent, experience, etc. will not be clubbed with the income of his / her parent.
7. Income of minor (from all sources) suffering from any disability specified under section 80U will not be clubbed.
8. However, if such incomes are invested or utilized, then any income earned from such investment / utilisation will be clubbed with the income of parent of such minor.
9. Under Sec 10(32), a parent is entitled to exemption of 1,500 p.a. for each minor, if income exceeds this amount, or restricted to actual income if lesser.
10. In your specific case, therefore, while you can do investment in the minor's name, it will be considered as yours, and you should include any income out of this investment in your own income under the same head while filling your own tax returns, and not the minor's, even if he is a PAN card holder, and avail the tax rebate.
11. A few tips to prevent clubbing of income rules from kicking in:-
a) If a parent makes investments on minor's name which matures after attaining the age of 18, then any income arising from it is not clubbed in parent's income, as cubbing rules apply only for a minor and is not applicable for children above 18 years of age.
b) A parent can open a minor's bank account for receiving cash gifts, investing it in the minor's own name, preferably in a long-term balanced equity fund, with its redemption only after turning 18.
c) A parent can also save tax under Sec 80C by investing in PPF, ELSS or other tax saving instrument in the minor's name in a similar manner.
d) Either parent can open a PPF account on behalf of minor, but both cannot open the account for same minor.
e) But whether the parent can invest beyond the permissible limit in each of the accounts, or invest only up to the total permissible limit in accounts of both self and minor taken together, is not totally clear, hence it is safest to follow the latter while investing.
11. Maternal grandparents are also lineal ascendents of the minor from the mother's side, and gifts from them are, therefore, tax-exempt in the minor's hands.
12. However, the income generated through investment of the gift will be clubbed with that parent of the minor whose income is higher for assessment of tax payment.
13. Thereafter, all clubbing of income rules, and tips to avoid it, apply as aforesaid.