How to report clubbed income in the ITR

Income Tax ITR Filing
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1

Hey, I have been gifting shares to my minor daughter on her birthday. This year she started receiving dividends in her bank account. Also I transfer some money every month to build a corpus for her future.

I read that you need to add your minor child’s income in your ITR and pay tax on the same. Is this true according to the law? If yes, then how to report the same in the ITR?

2

Yes, gifting shares has become very common and is a good way to build wealth for your children. Since a daughter is a ‘relative’ under tax laws, the gift itself will not be taxable.

However, any income generated from the gift will be taxable. Since your daughter is a minor, the income gets added to your income and becomes taxable in your hands. This is called clubbing of income.

You’ll first have to determine the income that will be clubbed. In your case, your daughter earns:

  1. Interest on the money you transfer to her bank account
  2. Dividends from the shares you gifted to her
  3. Capital gains/losses from shares (if the shares are sold)

How to report this in your ITR?

When filing your ITR, you must disclose the clubbed income in Schedule SPI (Specified Person’s Income). Here you’ll have to enter the following details.

  • Name of the person whose income is being clubbed
  • PAN and Aadhaar are optional
  • Your relationship with the person
  • Income amount
  • Head of income

Clubbing of income | Schedule SPI
Clubbing of income | Schedule SPI1472×789 33.9 KB

Apart from this, the clubbed income must also be reported under the appropriate income head in your ITR, along with your own income.

A few important points to note:

  • Income is clubbed with the parent who has the higher earnings.
  • You can claim an exemption of ₹1,500 per child u/s 10(32), meaning only the amount exceeding this will be taxable.
  • Once your child turns 18, they will be responsible for paying taxes on their income independently.