ITR 2025: Does Your Kid Have An FD? You Could Be Paying Tax On It

As the tax season approaches, many parents planning investments in their child’s name often ask — is a minor’s income taxable? The answer is yes, in most cases. Income earned by a minor child is generally clubbed with the parent’s income, and this can impact the parent’s tax liability.

To decode the intricacies, Republic Business spoke exclusively with CA Gaurav Makhijani, Associate Partner and Head of Tax (North India & Gujarat) at Rödl & Partner India, who explained the nuances and exceptions under Indian tax law.

Clubbing Rule: Income Added to Parent’s Return
“Any income accruing or arising to a minor child — such as from investments, capital gains, interest on fixed deposits, dividends, business activities, rental income, or mutual funds — is required to be clubbed with the income of the parent whose total income (excluding the minor’s income) is higher,” said Makhijani.

This clubbing provision is meant to prevent tax evasion through investments in a child’s name. As a result, the parent becomes liable for any additional tax, and their applicable slab rate may also change.

Exceptions: Talent and Disability Income Not Clubbed
However, not all of a minor’s income is clubbed. “There are exceptions,” Makhijani noted. “For example, if the minor earns income by applying their special skills, talent, or knowledge — such as acting or professional work — it will not be clubbed. Also, if a minor suffers from a prescribed severe disability, their income is exempt from clubbing.”

Read More - ITR 2025-26 Filing Date Extended: Big Relief Or Bigger Confusion For Taxpayers?

TDS Credit and PAN Requirement
Makhijani further advised parents to ensure compliance by obtaining a PAN card for their minor child. “While the income is to be reported in the parent’s return, the corresponding TDS credit is also available to the parent. To ensure automatic credit in online processing, having a PAN for the minor is strongly recommended,” he said.
 

Available Exemption Under Old Regime
Parents can also claim a small tax break. “An exemption of up to Rs 1,500 per minor child (maximum for two children) is available under the old tax regime,” Makhijani added.

Don’t Ignore These Rules During ITR Season
With the CBDT extending the ITR filing deadline for AY 2025-26 from July 31 to September 15, taxpayers now have more time. 

“Non-compliance with these rules may lead to penalties and increased tax burden,” warned Makhijani.

But parents should use this window to carefully evaluate clubbing provisions, especially if they've made investments in their child's name.