My son will turn 18 in July this year. I intend to apply for a PAN card and, subsequently, open a bank account, demat and trading accounts, as well as a PPF account, for him. As he is still a student and not earning, these accounts will be funded by gifts from us, his parents. What would be the tax implication of these transactions? Will any clubbing provisions apply in this case?
Amit Maheshwari, Partner, AKM Global: As per Section 56(2)(x) of the Income Tax Act, 1961, any amount that is received by a person from his or her ‘relative’ is considered a gift and is not subject to income tax, irrespective of the amount that has been received from the relative. Since you, as a parent, fall under the ambit of the definition of a ‘relative’, any amount received by your son from you will not be chargeable to tax.
You have mentioned that your son will soon turn 18 and that you will be opening a bank account, demat account and a PPF account for him by using your own funds. The funds that are used to open the above mentioned accounts shall also be considered gifts and, hence, shall not be chargeable to tax in the hands of your son, irrespective of the amount used to open the accounts.
Regarding clubbing provisions, only the income of a minor child (below the age of 18 years) is clubbed and is taxable in the hands of the parent whose income is more. However, this does not hold for an adult child. So, any income of your son on becoming a major will not be clubbed with your income and shall be assessed separately in the hands of your son at the applicable tax slab rates, respectively. He will also have to file a separate income tax return in such a case.
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