12 October 2009
My cousin (14 yr. old) earns Rs. 2 lacs per year from bank interest. The bank deducts a huge amount as TDS. Since her parents are dead, can she file Income Tax Return on her own? or her income needs to be clubbed with her guardian.
12 October 2009
minor's income will be clubbed with guardian's income if the parents are dead. As per section 64 the income of minor (except is earned by its skill) will be clubbed with income of the guardian. If the parents are the gardian then the income will be clubbed whose income before adding minor's income is greater. But if the child is not with parents then the income will be added with guardian.
12 October 2009
Any income on investments made in the name of a minor do get clubbed with the adult's income. According to Section 64 of the Income Tax Act (1961), the income of a minor child, from investments, could be included with the income of the father, mother or guardian, as the case may be. If you set up a trust in the minor's name, the investment in his name will not be included in guardian's income. But the income cannot be tapped while the child is still a minor. In a landmark judgement, the Orissa High Court (in the case of the Commissioner of Income Tax vs. Shri Abhayananda Rath Family Benefit Trust) deferred benefits during the period when the child was still a minor from a trust. The trust money can therefore be given to the person on adulthood and that monetary benefit may not be included in the total income of the parent or guardian. This ensures that the immediate or deferred benefit of a trust is for the benefit of the minor.
Since your cousin is 14 years old , you can try and save tax as per mentioned above after due advise from a professional and use that money (& interest on that money) for her education etc
13 October 2009
Thanks Akshat & Rajeev for the replies.
@ Rajeev I agree with the idea of setting up a trust in the name of the minor. But the key issue in my case is the TDS is already deducted by the bank, so I need to file the return to get back the tax.
So, can I set up the trust in the name of the minor and file return for the interest earned (the interest earned is under Fixed Deposit for long term, hence the money will be withdrawn only on maturity of the F.D. which is only after my cousin turns 18).
CAclubindia
