Taxation of a Minor's Income and TDS Compliance

Taxation of a Minor's Income: A Guide to TDS Compliance

Understanding the rules for income earned by a minor, how TDS works, and how to stay compliant.

1. The Rule: How a Minor's Income is Taxed

According to Section 64(1A) of the Income-tax Act, any income earned by a minor child is generally **"clubbed"** with the income of their parent. The income is added to the parent whose total income (before clubbing) is higher.

(a) Exceptions to the Rule

A minor's income is NOT clubbed and is taxed separately in two specific cases:

  • Income from Skill or Talent: Money earned by the minor through their own manual work, skills, or talent (e.g., acting, singing, winning a competition).
  • Minor with a Disability: If the minor suffers from a disability specified in Section 80U of the Act.

Key Takeaway:

For most passive income like interest, rent, or capital gains, the income is taxed in the parent's hands. The parent can claim an exemption of **₹1,500** per child under Section 10(32).

2. The Common Problem: TDS Mismatch

A frequent issue arises when a minor earns income and Tax is Deducted at Source (TDS) using the **minor's PAN**. For example, when a property in the minor's name is sold, the buyer deducts TDS. Since the income must be reported by the parent, a mismatch occurs—the income is on the parent's return, but the TDS credit is on the minor's PAN.

3. The Solutions: How to Claim TDS Credit

✅ Solution A: Correction by the Deductor (Best Option)

The cleanest and most effective solution is to ask the person or entity who deducted the tax (the "deductor") to file a **TDS Correction Statement**. In this correction, they can substitute the parent's PAN for the minor's PAN. Once processed, the TDS credit will automatically flow to the parent's Form 26AS/AIS, and the parent can file their return normally.

⚠️ Solution B: Manual Claim (If Deductor Doesn't Cooperate)

If the deductor cannot or will not make the correction, the parent must take these steps:

  1. In the Parent's ITR: Report the minor's income in the correct schedules (e.g., Schedule SPI) and manually claim the TDS credit in the TDS schedule. Add an explanatory note in Schedule OI.
  2. In the Minor's Account: Log in to the minor's e-filing account, go to the AIS (Annual Information Statement), and submit feedback that the "Information relates to other PAN/year," specifying the parent's PAN.
  3. Handle Denials: If the credit is denied by the system (CPC), file a Rectification Application under Section 154 with supporting documents like the Sale Deed and Form 26QB.

4. Practical Checklist for Compliance

For Parents:

  • File your ITR, including the minor's income in the correct schedules.
  • Claim the ₹1,500 exemption per child.
  • Always claim the TDS credit in your return.
  • If credit is denied, file a rectification promptly.

For the Minor's PAN:

  • Submit feedback on the AIS portal.
  • Respond to any compliance queries from the tax department.
  • **Do not** file a separate ITR for the minor just to claim TDS (unless an exception applies).

5. Conclusion

The law mandates that TDS credit should follow the income. Where a minor's income is clubbed with a parent's, the parent is entitled to the TDS credit. The best approach is to have the deductor revise the TDS return. However, if that fails, the parent can still claim the credit with proper documentation and follow-up, though it may require more effort.