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Clubbing of Minor Income

Sunali (Learner) (1317 Points)

20 October 2010

How the clubbing provisions will be applicable in case a resident minor is earning interest from a foreign bank when his parents are non-residents.?

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10 Replies

Whizkid (student) (640 Points)
Replied 20 October 2010

Interest income of a minor ll be taxable in his hands oly......

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O.D.SHARMA (DGM-F & A) (1734 Points)
Replied 20 October 2010

Hi,

Add this minor's interest income to Parents non resident(NRO) Income & see the taxablity according to TAX law to file return.

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Max Payne (employed) (2574 Points)
Replied 20 October 2010

Here there is a conflict between the clubbing provisions and charging provisions.

Scope of total income, i.e, Taxability of the foreign interest has to be resolved by applying test of residence.

Charging provision will prevail, since they have overriding effect against the clubbing provisions.

The income has to be offered to tax by the minor himself, since he is resident and his parents are non resident.

Regards

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CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 20 October 2010

Hi everyone,

please go through the october CA student journal, an article given on clubbing of minor income. Coverage in that is very good, will answer all your queries. Attached also for refernce.

Attached File : 46 newsletter.pdf downloaded: 313 times

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venkatraman shrinivas (Tax consultant/Tax Advocate In Practice.) (313 Points)
Replied 20 October 2010

If he parents of the minor are non residents and have no income aseessable in India, there is no question of clubbing. It is also presumed that the minor does not live in India and does stay with his parents abroad.

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Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 20 October 2010

According to me

in that case tax is payable in the hands of minor only as his parents are non residents. So no quetion of clubbing .

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Sunali (Learner) (1317 Points)
Replied 21 October 2010

Thanks friends..But can anyone refer a specific provision which holds the same view that in such cases income will be taxable in the hands of minor and no clubbing will apply however in my opinion

Sec 64 say that income is first to be calculated in the hands of minor as if its his income and then the same is to be clubbed. Since minor here is resident and foreign income is taxable in his case, when the same gets clubbed in the income of his parents which at present is Nil, they will be liable to tax on the part of minor's income.

Pls share your views..

Max Payne (employed) (2574 Points)
Replied 22 October 2010

Dear Sunali,

I cant recall, but this question has appeared in June 2009/November 2009 PCC RTP.

The answer is somewhat like:

In case where the parents are non residents and the minor child is a resident deriving the income which accrues or arises outside India, the clubbing of such income does not arise as the provisions of section 64(1A) cannot override the provisions of section 5. In such a case, the minor child shall be chargeable to tax.

Regards

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venkatraman shrinivas (Tax consultant/Tax Advocate In Practice.) (313 Points)
Replied 22 October 2010

Mr/Ms Sunali,

Basically pl. look into the definition of "assessee". Unless a person becomes assessable under he Acr o deemed o b assessable he cannot be identified as an assessee. In his case, according o you both the parents are non residents and they do no have any income accruing or arising in India. Minor's income though is only to be included in the parents hands (who gets larger income) The minor's income hough flowing out of investment made of funds gifted by parents, yet is no income accruing to them. Hence they are not liable to tax in India (This view is on the basis of your information furnished). In such a situation no clubbing can be done as here is no basic income to be clubbed with. If he income arising to the minor is above the taxable minimum, it will be independently taxed treating notionally either of he parents as guardian, for the limited purpose of identifying accountability. This is because a minor being "dolly-incapex", the asessment will be made in the hands of the guardian " (Minor) by guardian shri..."

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