TAX TALK-07.03.2016-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Minor’s income is not subject to clubbing provision in the hands of the Grandfather or Grandmother
Query 1]
With the permission of court, I am selling rural agricultural land in the name of our Grandson. He would be getting around Rs. 1.20 Cr from sale of the land, which we would be investing in the bank FDR till the period he becomes major. Whether the Interest income would be includible with the income of his grandfather or grandmother? We are legal guardian of the minor as his mother and father has expired few years back and we are looking after him in every aspect? Please guide. [ca*****@gmail.com]
Opinion:
Tax treatment of Minor’s Income:
It’s very common to see the parents opening up the account of their minor child or keeping the FD’s in the name of their minor child as a tool of future planning or other social security measure. There is no bar in investing in the name of the minor Child but there is a clubbing provision. Clubbing of income is a concept whereby ultimately tax is imposed not on the person who is earning the income but on the other persons who may not be directly or indirectly receiving such income. Income accruing or arising to a minor child is required to be clubbed with the income of the parents (i.e., Mother or Father).
However, clubbing provision in respect of minor’s Income is not applicable in the following two cases:
a] Minor suffering from Disability:
If the Minor child is suffering from disability specified under section 80U of the Income tax Act, then no clubbing provision would be applicable. Income in such cases would be treated as individual income of the minor only. [Disability specified u/s 80U are suffering from not less than 40% of any of the following diseases- (i) blindness (ii) low vision(iii) leprosy-cured (iv) hearing impairment (v) locomotor disability (vi) mental retardation (vii) mental illness]
b] Minor earning out of talents/ skills:
Nowadays, it is very common to see the kids in the media/shows with mind blowing talents, hired for performing multiple activities like dancing, acting, singing, mimicry etc., and they are paid handsome amount for displaying their skill and talent. Income earned by minor child, on account of manual work, or activity involving application of his skill, talent, specialized knowledge and experience is not subject to the clubbing provision. Such income of minor would be taxable as their own income and would not be clubbed with the income of their parents. Surprising it may sound but subsequent income of such minor child out of the investments of their earned income from manual work, application of skill etc would be subject to the clubbing provision.
Clubbing with the income of which Parents:
Where the marriage of parents of the child subsists, the income of the minor child shall be included in the income of that parent whose total income excluding the income includible under this section is greater. Once clubbing of income is done with one parent, it will be included in the income of that parent only in subsequent years. [Assessing officer may club income with other parent, if after giving the other parent an opportunity to be heard, he is satisfied that it is necessary to do so].
Where the marriage does not subsist, the income of the minor child shall be included in the income of that parent who maintains the minor child in the previous year.
What if none of the parents are alive:
The clubbing provision in this case shall not be applicable at all. In such cases, clubbing provision could not be stretched in the hands of the Grandfather / Grandparents or any other legal guardian. Minor’s return could be filed through the legal guardian in such cases.
In your case, the interest income of your grandson would not be subject to the clubbing provision and you as a legal guardian can file his individual income tax return.
Query 2]
I have three properties 1st house given on rent, 2nd flat self occupied, 3rd flat given on rent. No loan on 1st, on 2nd and 3rd Home Loans are running. I submitted to my office the calculations regarding loss from house property by considering rent received, Grampanchayat and Municipal Taxes paid and interest paid on loans. Loss from House property works out to Rs. 1,45,000/-. But, my office is considering only the self occupied property on which interest paid on Home Loan (loss from House Property) of Rs. 39,000/- and interest income declared Rs. 14,000/-, so total loss considered is Rs. 25,000/-. For rest loss, they are advising to declare it in IT return and get refund. Because of this, excess IT is getting deducted from my salary, on remaining loss of Rs. 1,20,000/- I have to get refund by filing return.
My queries are:-
On 1st property after deducting tax paid to local authorities (Grampanchayat) and deduction of 30% from rent received, balance is Rs. 24,000/-. On 3rd property, after deducting tax paid to local authorities (Municipal tax) and deduction of 30% from rent received minus interest payable on borrowed capital, balance is Rs. -1,30,000/- [i.e., Loss from house property is Rs. -1,06,000/- (-130000+24000)] which still needs to be adjusted from my salary income.
Sir, total rent received in this year for above properties is Rs. 90,000/-, whether I have to pay advance tax on this rent received even though there is loss due interest payable on borrowed capital(on 3rd property)? Since there is loss from HP, instead of paying advance tax on rent received, can I submit and get refund by filing return for above amount? Request to please clarify. [venkat.2804@rediffmail.com]
Opinion:
An employee may or may not declare his other income to the employer. If the employee wants to declare his other income to the employer, then such information be given to the employer on plain papers. The employer may declare details of his other incomes (including loss under the head “Income from House Property” but not any other loss) and tax deducted thereon by others. If the aforesaid information is not submitted to the employer, then employer cannot take into consideration other income of the employee (even if the quantum of other incomes is otherwise known to the employer). After receipt of such information, the employer should deduct tax at source on his total income including salary income and other reported income /loss from house property of the employee.
In your case, even if the loss from other house properties is not considered by the employer, you can still claim the same while filing your income tax return. Further, as there is ultimately loss as a result of interest payment on let out house properties, there is no liability for payment of advance tax.
[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com.]
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