Clubbing of income earned by Special Needs Child: Financial Planning for Special Needs Families- Blog 9
Continuing with my series on financial planning, in today’s blog I will be discussing provisions of Income Tax Act, 1961 relating to ‘Clubbing of Income’.
The word ‘Clubbing’ means to join or add. Accordingly, ‘Clubbing of Income’ means adding or including the income of another person (mostly family members) to one’s own income. This is in accordance with provisions of Income Tax Act, 1961.
Many of the special needs children have some special abilities by which they earn income e.g. a child may be creating art masterpieces which are sold on various platforms, some child may be a pro in music & performs with some band and gets paid for the same, etc.
Let’s start by taking an overview of the general clubbing provisions and gradually move to its applicability to the income earned by a special needs child.
Income Tax Act, 1961 contains provisions as to how the income earned by a minor child is to be accounted/reported.
In relation to the income earned by a specified person (in this blog we talk about only minor – special needs/NT/minor married daughter), below is the gist of the said provisions in a simplified manner.
Is Minor child’s income clubbed with the income of parent?
As per Section 64(1A)**, income of minor child is clubbed with the income of his/her parent.
Provisions
– Income will be clubbed in the hands of higher earning parent
– However, in case of a single parent, the income of minor shall be clubbed in the hands of that parent who maintains the minor child
– Sec 10(32) – when the income of minor child is clubbed in the parent, then such parent is allowed an exemption of Rs 1,500/- or income of minor so clubbed, whichever is less
– Income earned by a minor child on account of manual work, by application of his skill, talent or specialized knowledge is not to be clubbed in the hands of parent.
** Provisions of Section 64(1A) are not applicable on the income of a minor child suffering from a disability specified under Section 80U
(Read here about Section 80U)
(https://specialsaathi.com/2023/02/22/income-tax-deduction-under-section-80u-of-the-income-tax-act-1961-for-disabled-person/?noamp=mobile)
Hence, a minor who has any disability specified under Section 80U, his/her income will not be clubbed in the hands of parent.
Hope this blog is helpful to everyone in understanding the clubbing provisions. You can read more about the clubbing provisions on http://www.autismfinancialplanning.com . Also, feel free to share your thoughts/queries on WhatsApp number +91 9910353219 or email shivanilohia.slohia@gmail.com
Author Shivani Lohia
Shivani Lohia is a Chartered Accountant by profession and mother to 8 years old child on the autism spectrum. The cause of autism awareness is very close to her heart and she strongly believes in equal education for all & strongly advocates inclusion. She has been homeschooling her son since he was 5 years old.
Creative representation for this blog is done by our extremely talented CreativeSaathi associate Nikhil Thotam