Minor’s income not clubbed with parent’s in certain cases

Clubbing provisions are not applicable if the income arises or accrues to the minor child on account of activity involving application of skill, talent or specialised knowledge and experience


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My daughter won a quiz contest last week and received a prize of Rs.1 lakh. We will use this money for her coaching classes. How will this be taxed?

—Namit Gupta

As per section 64(1A) of the Income-tax Act, 1961, clubbing provision applies if the minor (i.e., below the age of 18 years) earns income. But these clubbing provisions are not applicable if the income arises or accrues to the minor child on account of activity involving application of skill, talent or specialised knowledge and experience.

Even if your daughter is a minor, since she has won the quiz by applying her skill or talent or specialised knowledge, the income earned shall, therefore, be taxable in her hands only.

As per section 115BB of the Act, she will be required to pay tax on gross basis on this income at a rate of 30%. Also, education cess at 3% of the basic tax liability will apply. The entity that paid the aforesaid income would have deducted tax from prize money on gross basis at flat 30% (plus education cess of 3%). Also, no tax deduction or exemption will be allowed against this income.

Earlier this month, I withdrew my provident fund (PF) amount of Rs. 2 lakh from my previous organisation where I worked for seven years. Will I have to declare it in my total income?

—Kunal Rungta

The cumulative PF balance withdrawn from a recognised PF triggers tax implications if an employee doesn’t render continuous service for five years or more. Service period with previous employer(s) should also be included if the cumulative PF balance maintained with the old employer is transferred to the account of the new or current employer. As you’ve rendered continuous service of more than five years, PF withdrawal won’t be taxed in your hands. But it has to be reported in the income tax return form under exempt income. It’s a disclosure requirement; no tax will be payable.

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