The tax department assumed decades ago that money in a child's name is usually a parent's tax plan. The rules that follow from that assumption are precise — and they have one famous gap.
Short answer: income arising to a minor — FD interest, dividends, capital gains on gifted money — is clubbed with the higher-earning parent's income and taxed at that parent's slab, less an exemption of ₹1,500 per child per year. Three big exceptions: income from the child's own skill or work, all income of a child with a specified disability, and — the one planners use — income earned on already-clubbed income, which is taxed in the child's own hands, not yours.
Section 64(1A) of the 1961 Act; Section 99 of the Income Tax Act 2025 from tax year 2026-27 — substance unchanged · Indicative, as of August 2026
Whoever earns more between the parents takes the child's income onto their return (divorced or separated: the parent who maintains the child). It rides on top of your income at your marginal slab — a ₹10,000 FD interest in your child's name costs a 30%-bracket parent ₹2,652 after the ₹1,500 exemption, and appears in your AIS whether you report it or not, because the bank reports against the linked PANs. Report it in Schedule SPI, claim the ₹1,500 under Section 10(32), and map the TDS credit to yourself with a declaration to the bank — otherwise the TDS sits against the child's PAN while the income sits on yours.
| Income | Clubbed? | Why |
|---|---|---|
| Interest on FD/RD/savings in child's name | Yes | Classic unearned income |
| Mutual fund gains in a minor folio | Yes | Investment income, regardless of who funded it |
| PPF / SSY interest | Irrelevant | Exempt income — clubbing has nothing to tax |
| Child actor / athlete / creator earnings | No | Own skill, talent or manual work — taxed in the child's hands |
| Any income of a child with a specified disability | No | Statutory carve-out |
| Income earned by reinvesting clubbed income | No | Accretion is the child's own — see below |
Only the first-generation income from transferred money is clubbed. Gift your child ₹5 lakh; the FD interest of ₹35,000 is clubbed with you. But when that ₹35,000 is itself reinvested, its interest belongs to the child — taxed on the child's own return, where the basic exemption almost certainly makes it zero. Over many years, a growing share of a child's portfolio becomes self-generated and quietly exits your return. Nothing aggressive about it — the official clubbing FAQ itself walks through the mechanics; it just rewards keeping the paper trail that separates principal from accretion.
Clubbing rewrites the child-investment menu. Guaranteed money for a child belongs in exempt wrappers — PPF and SSY — where clubbing bites nothing, not in taxable FDs where it bites at your top slab. Equity in a minor folio lives with clubbing until 18, so time large redemptions thoughtfully — or let them wait for the birthday, after which every rupee of gain is taxed in the child's own, usually empty, slab. And a child who genuinely earns — tuition, sport, content — files in their own name from day one.
The higher-earning parent's — clubbed under Section 64(1A) (Section 99 of the 2025 Act) and taxed at that parent's slab, after a ₹1,500-per-child exemption under Section 10(32).
No. Income from a minor's own skill, talent or manual work is taxed in the child's own hands — a child artist's fees or a teenage athlete's prize money never touches the parents' return.
Only the first round of income on transferred money is clubbed. Income generated by reinvesting that clubbed income is the child's own — taxed in the child's hands, where the basic exemption usually makes it tax-free.
The provisions apply but have nothing to tax — PPF and SSY interest are exempt income. This is why exempt schemes dominate sensible guaranteed investing for children.
Related: Gift tax rules · Grandparents’ guide · MF folios for minors
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Written and checked by the PaisaSamajh editorial desk · Last reviewed: 24 August 2026 · How we check this →