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Clubbing of income earned by Special Needs Child

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.

http://www.autismfinancialplanning.com

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

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TRUST:FINANCIAL PLANNING FOR SPECIAL NEEDS FAMILIES – BLOG 7

Trust(overview):FINANCIAL PLANNING FOR SPECIAL NEEDS FAMILIES – BLOG 7


Hello Friends.

Continuing with the ‘Financial Planning for Special Needs Families’ Series, in today’s blog I am discussing about Special Needs Private Trust. This blog is an overview about Trusts. I will be discussing various aspects of Trust in upcoming blogs.

Parents of special needs children are all the time haunted by insecurities as to what will happen to their child after they are no more. Accordingly, they want to ensure that their child is able to lead a financially independent and dignified life after they are gone.

Private Trust is an effective financial tool in such cases which takes care that the assets are properly looked after by the Trustees for the benefit of the Beneficiary and a secure future is created for the child.

As per the Indian Trust Act, a Family Private Trust can be set up by Parents, Grandparents or Legal guardians of the child. When a Private Trust is formed, the special needs child is the ‘Beneficiary’ of this trust. The Person who sets up the Trust (usually Parent) is the ‘Settlor’ and identifies ‘Trustees’ who will manage the assets of this Trust for the benefit of child.

While setting up a Trust, it is very important to estimate the lifetime care cost of your special needs child as it will help to understand how much funds or assets should be transferred to the Trust. These funds should be enough to manage the child’s affairs and bear the cost of trust if any.

Sharing some important points to help in understanding the structure of Private Trust.

What is a SPECIAL NEEDS (PRIVATE) TRUST?

Section 8 of the Indian Trusts Act, 1882 defines “Trust” is as an instrument used for safeguarding the interest of the Settlor and safeguarding beneficiaries, majorly minors and those who are unable to protect their interests.

ELEMENTS OF PRIVATE TRUST

ELEMENTS OF TRUST:
• Author/Settlor – person giving the property or creating the trust
• Trustee – holds the property for another’s benefit and manage the trust funds as per the trust deed. Minimum 2 trustees are needed and it is recommended to include legal guardian as trustee.
• Beneficiary – person for whose benefit trust if created/in whose favour the property is bequeathed
• Trust property – Movable and immovable property used for the benefit of Beneficiary
• Trust Deed – A legal document validating the setting up of a private trust. A Trust Deed lays down provisions regarding the rules and powers of the trustees, management of funds, dos and don’ts, income distribution to the beneficiary, the winding up of trust, etc.


Special needs trust
– Beneficiary receives 100% of the share of income
– Trust dissolves only on the demise of the beneficiary or when the purpose for which the trust was created is achieved
– Income earned by the trust is utilised for the benefit of the special needs beneficiary, such benefits being spelt out in the trust deed


Laws governing Private Trust
– Indian Trusts Act 1882
– Income Tax Act 1961

Above is the overview about Special Needs Private Trust. Hope you find it useful.You can read more about Trust on http://www.autismfinancialplanning.com which is a financial information desk for special needs families.
Feel free to connect with me 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

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INCOME TAX DEDUCTION UNDER SECTION 80U OF THE INCOME TAX ACT, 1961 FOR DISABLED PERSON Part 1

FINANCIAL PLANNING FOR SPECIAL NEEDS FAMILIES SERIES – BLOG 5

Hello Friends!

Continuing with my series, “Financial Planning for Special Needs Families”, in today’s blog I have discussed in detail Deduction under Section 80U of the Income Tax Act, 1961 for Disabled Persons.

– What is this benefit under Income Tax Act, 1961?
This benefit is in the form of a deduction from the taxable income.

– Who can avail the benefit under section 80U of the Income Tax Act, 1961?
This benefit is available to

Resident Individual who is at any time during the financial year certified by the prescribed medical authority to be a person with disability

– What is the amount of deduction?
– Amount of deduction-

**This is a standard deduction on the basis of eligible disability + No condition of payment, etc.

– What are the disabilities eligible for deduction under section 80U?

o Autism
o Celebral Palsy
o Blindness
o Low Vision
o Leprosy cured
o Hearing impairment
o Locomotor disability
o Mental retardation
o Mental illness


– What document is needed to claim this deduction?
A valid certificate from a medical authority.

– Which medical authority issues this certificate ?
o A Neurologist with MD in Neurology
o For children, a Paediatric Neurologist having an equivalent degree
o A Civil Surgeon or Chief Medical Officer (CMO) of a govt Hospital


– Is the deduction available to NRIs?
No

– Whether filing of Income Tax Return mandatory to claim this deduction?
Yes

Hope, I have been able to help you understand this deduction clearly. However, for any other information or clarification., feel free to get in touch 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 Morpheus Nag

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TAX BENEFITS FOR DIFFERENTLY ABLED PERSONS IN INDIA – An OVERVIEW

FINANCIAL PLANNING FOR SPECIAL NEEDS FAMILIES- Part 4

Hello Friends!

Hope my blogs are proving helpful in motivating you to start with your financial planning. Continuing with the series, in today’s blog, I will give an overview about the tax benefits available to differently abled persons in India.

As we all know, tax planning is an integral part of any financial plan. In our country, tax is payable at different stages. Effective tax planning at all stages helps you earn maximum gains.

In the introductory blog of this series, I discussed how special needs families get caught in the web of various therapies, never ending expenses, social stigma, demotivating relatives & neighbors. This takes a toll on their physical and mental health. Amidst the everyday unknown challenges, the importance of financial planning takes a back seat to the extent that most of us do not even claim the income tax benefits especially available for differently abled persons.

Here, I confess that I being a finance professional was aware of these benefits. However, for a very long time, I could not accept my son’s diagnosis and deliberately didn’t claim any of these benefits, despite being eligible, because somewhere inside me, something was stopping me to claim it. It was something like as if not claiming these benefits seemed like a false hope that my son’s diagnosis was incorrect and everything is all right.
I strongly feel that most of the parents have similar feelings in their heart. However, over a period of years, I could finally accept and realized what a big mistake it was. Taxes play a very significant role in overall wealth accumulation and are helpful in managing the financial affairs smoothly.

In today’s blog, I will briefly discuss these Income tax benefits. The idea behind today’s blog is to give a broad overview about the income tax benefits available to special needs persons and their families. In the following blogs, I will be discussing each of these in details.

As already discussed, in the Income Tax Act, 1961 there are tax benefits available for differently abled persons in India. First let us see who all can avail these benefits.

The Income Tax Act 1961 provides various benefits to the following-

– Individuals who are differently abled
– Parents who have differently abled children
– Individuals taking care of spouse or parent or sibling, who is differently abled person
– Families (HUF) taking care of a disabled family member

DEDUCTION UNDER SECTION 80U OF INCOME TAX ACT, 1961

– Deduction available to disabled person
– Such person is resident of India
– Such person is certified by the prescribed medical authority to be a person with disability
– Benefit is in the form of deduction from taxable income

DEDUCTION UNDER SECTION 80DD OF INCOME TAX ACT, 1961

– Deduction available to an Individual/HUF who has a dependent with disability
– Deduction available to a person resident in India
– Deduction is in respect of maintenance including medical treatment of a dependent who is a person with disability
– Such disabled dependent should be certified by the prescribed medical authority to be a person with disability
– The resident individual/HUF claiming the deduction has
o Incurred any expenditure for medical treatment of a dependent person with disability
o Has paid or deposited any amount towards an approved scheme for the maintenance of a disabled dependent
– Benefit is in the form of deduction from taxable income

In my next two blogs, I will be discussing Sec 80U and Sec 80DD of Income Tax Act, 1961 in detail.

However, if you have any specific query relating to these sections, feel free to send them on shivanilohia.slohia@gmail.com.
Till then, if you want, you can read more about these deductions on the govt website
http://www.incometaxindia.gov.in
Hope today’s blog proves useful in understanding the available tax benefits .
Thanks & Regards!

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.



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GUARDIANSHIP

FINANCIAL PLANNING FOR SPECIAL NEEDS FAMILIES – PART 3


Hello Friends!

In today’s blog, I have discussed about ‘Guardianship’ . as we know, life is very fragile. Specially, after the world was attacked by Coronavirus, we all realised how uncertain life can be. And when it comes to families with special needs children, there were innumerable instances where children had become orphans and there was nobody willing to take their responsibility owing to their disabilities. What can be more heart breaking than this!

However, we can safeguard our children from such traumatic situations by smart planning. Appointment of a ‘Legal Guardian’ is one such step. Even if parents are no more, the duly appointed Legal Guardian takes care of the child, whether it’s the property, investments, important decisions regarding surgeries, medicines, therapies, etc.

Now, Let’s briefly understand about Guardianship.

o Who is a Guardian?
A person appointed to look after another person or his property. He or she assumes the care and protection of the person for whom he/she is appointed the guardian.

o What is the role of a Guardian?
The guardian takes all legal decisions on behalf of the person and the property of the ward. Other than legal, he also takes important decisions/actions such as medical related decisions like surgery, etc., opening & operating bank account on behalf of the person of whom he is the guardian, making investments, etc.

GUARDIAN


o Who is a Minor (including special needs child) & Why does he need a guardian?
A Minor is a person who has not completed 18 years of age, hence is considered unfit to take decisions for himself, which can be binding on him as regards others. A minor person is treated in law as incompetent to enter into contract with a person who is an adult. Hence, a minor has been considered unfit to represent himself except through his guardian. Therefore, in all matters, a guardian takes decision on behalf of the minor for protecting the interests of minor and his property.

A parent can appoint a guardian for his minor child (who may also be a person with disability) under a ‘Will’ or other testamentary instrument.

Also, separate guardians can be appointed separately for the care of the person and for the care of the property of the person with disability.


o Other than a minor, who else needs a guardian?
A person who because of his physical and mental deficiencies is unable to take care of himself or his property may also need a guardian.

o What happens in case of a Special Needs Person who is not a minor?
Persons with autism, cerebral palsy, mental retardation and multiple disabilities are in a special situation. Even after they have acquired 18 years of age, they may not always be capable of managing their own lives or taking legal decisions for their own betterment. Hence they may require someone to represent their interests in the legal areas throughout their lives.
However, in cases of cerebral palsy and multiple disabilities, there may be a need for only limited guardianship.

o Who is the governing authority for the appointment of a legal guardian for persons with Autism, Celebral Palsy, Mental Retardation & Multiple Disabilities?
Section 14 of the National Trust Act – the Local Level Committee (LLC) headed by the District Collector is empowered to receive application and appoint guardians for persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities.

o Who cannot be appointed as a guardian of a person with disabilities?
o A friend of a person with disability cannot apply for guardianship unless recommended by a parent or a sibling or a relative
o Minor
o A person living abroad
o A person who is not a citizen of India Also, both the guardian and the ward must be living within the jurisdiction of the LLC.

o What happens in case, due to any reason, a guardian is unable to discharge his duties?
In case the guardian is unable to discharge his duties, the LLC can remove him and appoint another guardian and can also vary his powers accordingly.

Hope, this blog was able to build a basic understanding about Guardianship. However, in case, you have some query, you can email on shivanilohia.slohia@gmail.com or WhatsApp on +91 9910353219.

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.

Artwork by Morpheus Nag

Creative representation for this blog is done by our extremely talented CreativeSaathi associate Morpheus Nag.