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Clubbing provisions can be lawfully avoided if income of minor is strategically deferred beyond his minority!

Section 64(1A) of the Income-tax Act 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.”

Two exceptions have been provided in regard to the above provisions in relation to the clubbing of income of a minor child with that of the parent, whose total income is greater. Accordingly, the following income earned by a minor shall be assessed in his own hands and not included with that of his parent:

  •  Income derived from manual work done by him.
  •  Income derived from any activity involving application of his skill, talent or specialized knowledge and experience (e.g. income of child artistes).

Moreover, in the above regard, Section 10(32) provides that where the income of an individual includes the income of his minor child under the provisions of Section 64, the individual shall be entitled to exemption of Rs.1,500 in respect of each minor child or the income of such minor includible under Section 64, whichever is lower.


The impact of the clubbing provisions in respect of minor’s income can be effectively blunted by investing the minor’s funds in such investments, the income of which is totally free from Income-tax. Thus, investment in a Public Provident Fund (PPF) account opened in the name of a minor has been a popular mode of capital building in the hands of the minor, since the 8.70% return on PPF being tax free u/s. 10, it effectively escapes the clubbing net. If the parent of the minor in whose case such income is to be clubbed, is in the Income-tax bracket of 30.9%, ‘the break even rate of interest before tax’ on the annual tax free interest yield of 8.70% effectively works out to as high as 12.59%.

Similarly investing minor’s funds in Mutual Fund Schemes, where both the dividend and long term capital gains are tax free and hence the clubbing provisions are rendered ineffective, is another sound strategy for planning income for minors.


Another effective way of lawfully avoiding the clubbing provisions is planning investment of the minor’s funds in long term cumulative income yielding schemes. It must be borne in mind that the new clubbing provisions are attracted in respect of “all income accruing or arising to a minor.” But, if no income either arises or accrues to the minor during his minority, there would be no question of any clubbing.

This does not mean that the minor’s funds should be kept in idle. But taking shelter under the above legal interpretation, what can be smartly done is to defer the arising or accrual of income in the hands of the minor until he attains majority.

In the case of ‘Bajaj Ashok Chunnilal vs. Dy. CIT’ 92 ITD 353, an interesting issue arose before the Bangalore Bench of the Income-tax Appellate Tribunal (ITAT), where the ITAT had occasion to consider a situation where the father had debited interest payable to his minor son in the P & L A/c of his business. The father clubbed only that small amount of interest which was actually paid and excluded the balance, which stood merely credited to the account of the minor child, on the ground that since the minor was following the cash system of accounting, the latter amount could not be taxed until actually paid. The Assessing Officer added the entire amount on the ground that the taxpayer cannot claim expenditure on mercantile basis and treat the income in respect of the same item on cash basis.

The Tribunal, while allowing the appeal in favour of the father, held that the father and son are two different taxpayers and the minor child can follow his own method of accounting. For computing the income of the minor child as per the charging Section 5, the same has to be computed considering the method of accounting under Section 145 employed in the case of the minor. The nature of income in the hands of the minor retains the same character, even when required to be clubbed in the hands of the parent. The ITAT concluded that if the income does not fall in the gamut of Section 5, the same cannot be made taxable by invoking the provisions of Section 64 (1A). 

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