Capital gains from securities sold by NRI minors must be reported in the parent's tax return, not the child's. This involves two steps: ensuring proper TDS deduction under the child's PAN and clubbing the income with the higher-earning parent's return.
Understanding TDS deduction - Section 195
Your bank or broker deducts Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act when your NRI minor child sells securities and earns a capital gain. They use your minor child's PAN for this deduction because your child legally owns the securities and receives the income.
Clubbing your minor child's income - Section 64(1A)
You must add your minor child's capital gains to your income if you are the higher-earning parent. Section 64(1A) requires you to include these gains in your Income Tax Return (ITR) as if you earned them.
Reporting income and claiming credit
Follow these steps to report the clubbed income and claim credit for the TDS already paid:
Choose the correct ITR form
You need to file ITR-2 or ITR-3. You cannot use ITR-1 (Sahaj) when reporting capital gains and clubbed income.
- ITR-2: Use this form if you have income from salary, house property, capital gains, and other sources.
- ITR-3: Use this form if you also have income from a business or profession.
Add your minor child's income to your total income
Calculate and report the clubbed income in your ITR:
- Calculate your net clubbed income by taking your minor child's gross capital gain and deducting the ₹1,500 exemption for minor children (if the income exceeds ₹1,500).
- Enter this net amount under the corresponding income head in your ITR (Long-Term Capital Gains or Short-Term Capital Gains).
- Fill Schedule SPI (Specified Person's Income) with these mandatory details:
-
- Your minor child's name and PAN
- Your relationship (Parent/Guardian)
- The section under which you club the income (Section 64(1A)
Claim the TDS credit
Claim credit for the TDS deducted under your minor child's PAN:
- Check your minor child's Form 26AS (or AIS/TIS) to verify the exact TDS amount deducted against their PAN.
- Include this verified TDS amount in the TDS Schedule of your ITR.
You will receive a refund if the TDS exceeds your total tax liability.