That NRO account or inheritance in your minor child's name? Its income is taxed on your return, not theirs.

Parents love the idea of a nest egg in a child's name: an NRO account, a fixed deposit, a few bonds, maybe a flat the child inherited. The instinct is that the child is a separate person with barely any income, so the tax must be tiny. For a minor, that instinct is wrong.

Section 64(1A) of the Income-tax Act says a minor child's income is not taxed in the child's own hands. It is clubbed with a parent's income, specifically the parent whose income, leaving aside the child's, is higher. So your minor's Indian interest, dividends and rent land on your return, taxed at your rate, alongside your own income. The child's own low-income tax slab never comes into play while they are a minor.

This catches NRI families often, because parking Indian money in a child's name feels tidy and tax-smart. For a minor, it is neither. The income follows the money back to you.

What gets clubbed is the child's passive income: interest on a minor's NRO account, deposit or bonds, dividends on shares held for the child, and rent from a property the child owns or inherited. All of it is added to the higher-earning parent's total income.

The only relief built in is small, and it has a catch. Section 10(32) lets the parent exempt 1,500 rupees per minor child per year, or the child's clubbed income if it is less, but only on the old tax regime. Under the new regime, the default since 2023, that exemption is gone, so the whole clubbed amount is taxed. On the old regime, a child's 40,000 rupees of NRO interest adds 40,000 to your income, less 1,500; on the new default regime the full 40,000 is taxed at your slab. On the old regime, two minor children with income get the 1,500 each. Either way it is a token, not a shield.

The sting for an NRI is the same one that hits your own capital gains: the child does not get their own basic exemption limit to soak up the income. There is no separate tax-free slab for the minor. On the old regime every rupee past the 1,500, and on the new regime every rupee of it, is taxed at whatever rate you, the parent, already sit at.

Two kinds of a minor's income are not clubbed, and they are worth knowing.

First, income the child earns from their own effort. If a minor earns from manual work, or from their own skill, talent, knowledge or experience, think a child actor, a young sportsperson, a musician, that income is the child's own and is taxed in the child's hands, with the child's own slab. What is clubbed is passive income on assets; what the child actively earns is theirs.

Second, the income of a minor with a disability. If the child has a disability specified under Section 80U, the 40 percent-and-above conditions, their income is not clubbed at all. It is assessed in the child's own hands, so the child's basic exemption and slab apply.

Outside these two, a minor's income is clubbed. The line is about the source: passive income on assets is clubbed, income the child actively earns is not.

Here is where NRI parents get tripped up. Gifting money or an asset to your own minor child is exempt from gift tax, because a child is a relative under the gift rules. So the gift goes in tax-free. But the income that asset then earns does not stay tax-free. Section 64(1A) clubs that income straight back onto your return. The gift escapes tax; the income it throws off does not.

If both parents are non-residents, the rule does not disappear. The child's Indian income is still clubbed, with whichever parent has the higher income, and taxed in that parent's hands according to that parent's residential status. If the parents are separated, the income is clubbed with the parent who actually maintains the child.

And one practical point: the minor's Indian-source income is taxable in India whatever the family's residence. An NRO account in a minor's name earns Indian interest that India can tax, and the clubbing rule simply decides whose return it lands on. Moving the money into the child's name does not move it out of India's reach.

All of this ends on one date: the child's eighteenth birthday. From the day the child is no longer a minor, Section 64(1A) stops applying. The now-adult child is a separate taxpayer, files their own return, and gets their own basic exemption and slab. Income that was landing on your return the day before now sits on theirs, often at a far lower rate or none at all.

For a family with assets in a child's name, that flip is worth planning around. Income that is expensive on a high-earning parent's return while the child is 17 can become cheap or tax-free on the child's own return at 18. It is not a reason to rush anything, but it is a reason to know the date, and to make sure the child has a PAN and is ready to file once they cross it.