No Need to Amend Sec 64(1A) of Income Tax Act to grant Tax Relief to Single Parents: Law Commission to Govt. [Read Report]

The Law Commission of India has submitted it’s 265th report against recommending income tax exemption on the money deposited in a single parent’s account as maintenance for a minor child in a divorce settlement case.

Earlier, the Punjab and Haryana High Court, while hearing the case, Payal Meehta v. Sanjay Sarin, referred the matter to the Law Commission of India for consideration as to whether the provisions of Section 64(1A) of the Income Tax Act, 1961 require an amendment to provide for exemption from clubbing of minor’s income accruing by way of interest on the amount deposited by one of the parents of the minor child as maintenance, at the hands of parent/guardian under an order of the court. The plea taken in the said case was that the interest on the amount of maintenance deposited in the name of minor child should not be subjected to tax.

The Commission, chaired by Justice B.S Chauhan submitted its report to the Government on Monday, disinclined to recommend relief for such parents.

At present, as per the Income Tax laws, the interest on money deposited as maintenance amount for a minor is clubbed with the income of the guardian.

The report titled ‘Prospects of Exempting Income arising out of Maintenance Money of ‘Minor’ submitted to the Government on Monday,says that if relief has been granted to such parents, it could open floodgates with similar requests from other quarters. It could also lead to the loss of revenue for the government.

Para 11 of the report said that “income earned by way of interest on the amount of maintenance deposited in favour of the child does not require to be exempted from being clubbed with the income of the parent/ guardian; as such exemption, if granted, would open flood gates of tax evasion and would defeat the very object of inserting the provisions of section 64(1A), which had been brought to plug-in the loopholes to prevent the avoidance of tax, causing substantial loss or leakage of revenue.”

The division bench of the High Court comprising Justice Rajive Bhalla and Justice Lisa Gill, in the above case had held that as per its opinion, the circumstances of the minor having received maintenance money are different from say a minor in whose name some business has been started by either of the parents or who has been advanced some gift during the subsistence of marriage of parents.

However, the Commission’s recommendations are not binding on the government or the courts.

Read the full text of the report below.

taxscan-loader