Minor Child Income & Tax Rules: Know How to Claim Exemption Legally

Parents often wonder how the income of their minor child is taxed in India. Children may earn income from interest, gifts, or investments in their name. While this may seem small, the Income Tax Act has specific provisions to handle such income. The good news is, under Section 10(32) of the Income Tax Act, there is a specific relief that allows the parent to claim a tax exemption of ₹1,500 for each minor child.

This benefit ensures that parents are not burdened unfairly with higher taxes just because of income arising in the name of their children. In this blog, we’ll explain the minor child income tax exemption section, its scope, rules, and practical implications.

Clubbing of Minor Child’s Income

Before we discuss the exemption, it is important to understand the concept of clubbing of income. According to Section 64(1A) of the Income Tax Act, the income of a minor child is usually clubbed with the income of the parent whose income is higher.

This means that if your child earns interest from a fixed deposit, that income does not stay separate. Instead, it gets added to the income of the parent with higher earnings & is taxed at the applicable slab rate.

However, the law recognizes that taxing every rupee of minor income may not be fair. That’s where the minor child income tax exemption section comes into play."

Section 10(32) of the Income Tax Act – The Key Relief

The most important provision for parents is Section 10(32) of the Income Tax Act. It provides a fixed exemption to reduce the burden caused by clubbing. Specifically:

• The parent can claim an exemption of Rs.1,500/- for each minor child.
• This applies irrespective of the actual income earned by the child.
• If the income of the child is less than ₹1,500, then only that amount is exempt.

For example:

• If your minor child earns ₹2,000 from bank interest, then ₹1,500 will be exempt, & only ₹500 will be added to your income.
• If the minor child earns ₹1,200, then the entire ₹1,200 is exempt, as the exemption cannot exceed actual income.

Thus, the parent can claim a tax exemption of ₹1,500 for each minor child every year.

Why This Exemption Matters

While ₹1,500 per child may not sound very large, it provides consistent relief every year. If you have two children, you get a total exemption of ₹3,000. Over a period of 10 years, this amounts to ₹30,000 of tax-free income.

Moreover, the exemption recognizes the fact that children often receive small amounts of interest, gifts, or allowances, and taxing parents heavily for that would be inequitable.

Also Read: Section 64 of the Income Tax Act – Clubbing of Income

Practical Example of Section 10(32)

Let’s say Mr. Sharma has a son who earns ₹6,000 annually as bank deposit interest. This income, as per clubbing provisions, will be added to Mr. Sharma’s taxable income. But thanks to Section 10(32) of the Income Tax Act, Mr. Sharma can claim an exemption of ₹1,500, reducing the taxable income to ₹4,500.

If he has two children, and both earn ₹6,000 each, then he can claim ₹1,500 per child, making the total exemption ₹3,000.

Key Rules You Should Know

1. Applicable Only to Minor Children – The exemption under Section 10(32) applies only until the child turns 18. After that, their income is taxed independently.
2. Who Can Claim – Only the parent in whose income the child’s income is clubbed can claim the exemption.
3. Maximum Limit – Fixed at ₹1,500 per child, per year.
4. Multiple Children – If you have more than one child, you can claim separately for each one.
5. Minor Child with Disability – If the minor child has a disability covered under Section 80U, the income is not clubbed with parents’ income. Instead, it is taxed separately in the child’s hands.

Minor Child Income Exemption Limit

When parents search for “minor child income tax exemption section” or “minor income exemption limit,” they often confuse it with overall tax deductions. The reality is, the limit is clearly defined under Section 10(32) – Rs. 1,500 per minor child.

There is no higher exemption currently available. However, parents can invest smartly in tax-saving instruments (like 80C investments in their own name) to reduce overall liability.

Also Read: Exemption on Income from Minor Children

How Parents Can Plan Better

Although the exemption is small, parents can plan their finances to maximize benefits:

• Open fixed deposits in the parent’s name instead of the minor’s name if higher income is expected.
• Use the child’s PAN only where necessary, like for investments under their own rights.
• Remember that Section 10(32) of the Income Tax Act provides an exemption of Rs. 1,500 per child, which you should always claim while filing ITR."
• If income is significant, explore clubbing exceptions like disabled child provisions.

Common Misconceptions about Minor Child Exemption

1. Misconception 1: Parents believe all income of minors is exempt.
   Reality: Only up to ₹1,500 per child is exempt. The rest is clubbed with the parent’s income.
2. Misconception 2: Both parents can claim exemption.
   Reality: No, only one parent can claim, & that too the one with higher income.
3. Misconception 3: Exemption increases with inflation.
   Reality: The limit has been ₹1,500 for years and has not been revised.

Importance of Filing Returns Correctly

If your child has income, even though it gets clubbed, it must be disclosed properly in the ITR. Many taxpayers ignore this, thinking small income is irrelevant. But incorrect reporting may lead to scrutiny.

Therefore, while filing ITR, always include your child’s income under “Income from Other Sources” & claim the exemption under Section 10(32).

Also Read: Incomes Not Included in Total Income

Conclusion

The minor child income tax exemption section is a small but significant relief for parents. Under Section 10(32) of the Income Tax Act, the parent can claim a tax exemption of ₹1,500 for each minor child every financial year. This ensures that small earnings of children from deposits, gifts, or other sources do not increase the tax burden unfairly.

If you are a parent with minor children, always remember to claim this exemption. While it may seem small, over the years it adds up to meaningful tax savings.

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