TAX PLANNING FOR MINORS

	With effect from Assessment Year 1993-94, the income arising or accruing to minor child is clubbed with the income of his parent having higher income with the following exceptions -
	(i)	Income accruing or arising to the minor child on account of any manual work done by him, or Income accruing or arising from activity involving application of his skill, talent or specialised knowledge and experience. The child dancers, singers, dramatist, artistes performing for TV, Radio & Films, Computer operating children may be included in such categories. The wage earning or self employed children will also come in the purview of these categories.
	(ii)	With effect from Assessment Year 1995-96, income of a minor child who is suffering from a disability mentioned in Section 80U of the Income Tax Act, is also not required to be clubbed with the income of parents.
	EXEMPTION UNDER SECTION 10 (32) :
	In case of clubbing, income of each minor is exempt to the extent of Rs.1,500 under section 10 (32).
	IDEAS FOR TAX PLANNING :
	Though the income (except as discussed above) arising to a minor child shall be clubbed with the income of the parent having higher income, yet as a measure of tax-planning the following ideas may be useful-
	1.	Receipts as gift etc - The receipt of money or other assets in the hands of minor by way of a gift or otherwise may be beneficial provided the same is invested in such a way that the income from such investment can be deferred till the child becomes major, or investment can be made in such securities, income from which are exempt. In this context it may be noted that w.e.f. 1.10.98, Gift Tax has also been abolished, so the deterrent of gift tax is no more. However, gifts must be genuine and preferably from relatives.
	2.	Investment in Public Provident Fund - If both the parents make gift to their minor child and the same is invested in the PPF a/c of the minor child, there will be no tax incidence as income from PPF is exempt. Since an individual can invest upto a limit of Rs.60,000 per year as per PPF rules, this will provide scope to the parents for investing Rs.60,000 more in PPF a/c. Further, minor will have his capital when he attains majority.
	3.	Investment in Shares, Units of UTI or specified Mutual Fund etc - The money received as gift by minor child, can be invested in shares of different companies or in units of UTI. It will not attract tax liability as dividend declared by Indian Companies as referred to in section115-O is exempt under section 10(33) w.e.f. assessment year 1998-99. Earlier such dividend was entitled to deduction under section 80L upto assessment year 1997-98. The company may also issue bonus shares from time to time, on receipt of which no tax is attracted until the same are sold. The income from UTI and specified Mutual Funds is also exempt under section 10(33) w.e.f. assessment year 2000-01.
	4.	Deferment of income - The fund of minor child may also be invested in securities, income of which accrues after the minor child becomes major. For example: Deep Discount Bonds of 5 years, 10 years, 15 years or even 20 years depending on the age of the child. Such Deep Discount Bonds issued by IDBI can be encashed after 5, 10, 15 or 20 years as per the desire of the investors. If the income is deferred and not received during minority period of the child, then such income is not required to be clubbed. For example, the gifts made under Raj Lakshmi Unit Scheme of the Unit Trust of India, matures when the child completes 21 years of age. Income so deferred is taxable in the hands of the child, as per the decision of Supreme Court in C.I.T. v. Manilal Dhanji [1962] 44 ITR 876 (SC), on the attainment of majority by the minor, the accumulated fund cannot be included in the income of the parent, since on the date of receipt, the recipient is no longer a minor.
		Similarly, investment in Children Gift Growth Fund of UTI is also advisable as the income is deferred beyond the minority of the child.
	5.	Investment in house property - The funds of the minor child may be invested in house property used for family residence so that no income accrues therefrom.
	6.	Introducing minor as a partner - The fund of a minor may be invested in a Partnership Firm by introducing him as a partner for the benefits. The minor may be given higher profit sharing ratio instead of interest as share of profit from the firm is fully exempt from tax under section 10(2A).
	7.	Lower tax in case of long term capital gain - The fund of a minor should be invested in immovable properties, shares, or other similar assets wherefrom no regular income is derived, but appreciation takes place. Such asset can be sold after a period of one year in case of shares and specified securities and after 3 years in case of other assets resulting in Long Term Capital Gain. Thus, one can have the advantage of cost inflation index as well as the concessional rate of tax on Long Term Capital Gain. It may be noted that in case of sale of listed shares and securities, the tax on Long Term Capital gain shall be restricted to 10 per cent but without indexation w.e.f. assessment year 2000-01.
	8.	Investment in jewellery etc. - If the funds of minor are invested in jewellery, ornaments and silver utensils, it will not generate any income unless the same are sold or transferred. Even if the same are sold after 3 years, it will attract tax @ 20% only, the same being Long Term Capital Gain. Considering the tradition of giving away jewellery at the time of marriage, it will be appropriate to buy jewellery, ornaments and silver utensils in the name of minor. Such a planning will also help the in-laws of the bride, as the jewellery would be duly disclosed to I.T. Department.
	9.	The provisions of section 64(1A) is not attracted, where a trust is created for the benefit of minor and income earned during minority of the child is being accumulated and added to corpus of the trust and income earned from increased corpus is given to the child after attaining majority-Yogindraprasad N. Mafatlal v. CIT 109 ITR 602 (Bom.)
		Similar views were expressed in the case of Addl. CIT v. M.K. Doshi 122 ITR 499 (Guj.).
	CONCLUSION :
	On careful analysis it reveals that the creation of minor’s file is still useful despite the discouraging provisions enacted from time to time.