A ₹1.17 crore interest income earned by a minor led to a ₹12.83 lakh penalty for his father, even though the income declared in the man’s income tax return (ITR) matched the income assessed by the tax department.
The dispute centred on whether the father could claim a reduced tax rate under the India-UAE double taxation avoidance agreement (). The taxpayer from New Rajendra Nagar in the national capital had declared an income of ₹8.43 crore in his return filed on November 4, 2022.
However, on March 22, 2025, the income tax assessing office (AO) from Jhandewalan opened the assessee’s file and modified the tax rates applicable to the ₹1.17 crore interest income earned by his minor child. The earnings were clubbed in the father’s hands, and he was also denied the reduced tax rate available under the India-UAE treaty.
The income tax officer also denied the taxpayer ₹2.62 lakh TDS (tax deducted at source) credit on the ground that the corresponding rental income has not been offered for taxation, according to a report by The Economic Times.
I-T dept imposes penalty, taxpayer reaches ITAT Delhi
Post-assessment, the tax officer, on March 22, 2025, invoked Section 270A of the Income-tax Act and imposed a penalty of ₹12.83 lakh on the assessee for under-reporting his income. This provision allows a penalty of 50% of the tax payable on the under-reported income.
The Commissioner of Appeals (CIT A) also confirmed this penalty order. Aggrieved by the order and subsequent penalty, the taxpayer filed an appeal in the Income Tax Appellate Tribunal (ITAT) Delhi.
According to the complainant, the controversy concerning ₹1.17 crore was merely about the applicable tax rate under the India-UAE treaty and not about non-disclosure or concealment of that income.
The tribunal accepted his argument, observing that Section 270A applies to case of . Since the disputed income had already been disclosed in the return and was also included in the assessed income, the tribunal held that the penalty could not be sustained.
ITAT Delhi also examined the issue of additional TDS credit claimed by the complainant. After considering his explanation, as reproduced in the assessment order, it found no major lacuna in it. Therefore, it was held that this issue, too, did not provide sufficient grounds to characterise his conduct as under-reporting or misreporting of income warranting a penalty.
On July 28, 2026, ITAT Delhi decided the matter in favour of the complainant and directed deletion of the penalty imposed for underreporting income.
How does income tax work for minors?
Any person under the age of 18 is considered a minor, As per section 64(1A) of the income tax act, any income that accrues or is paid to a minor is generally clubbed with the income of the parent who has has higher taxable income.
If a minor’s income is less than ₹1,500 in a financial year, the entire amount is exempt from income tax. In such cases, the parent can claim an exemption of ₹1,500 for each whose income is clubbed under section 10(32) of the income tax act. However, if the minor’s income exceeds the prescribed threshold, only that amount can be claimed as an exemption, and the remaining balance remains taxable in the parent’s hands.
Additionally, any income earned by a minor through their own skills, talent, specialised knowledge, or manual work, such as content creation, acting, cricket, chess, singing, or brand endorsements, is taxable in the minor’s own hands and is not clubbed with the income of their parents as per the Income-tax Act.
In the above mentioned tax dispute case, the minor’s interest income was taxed based on his tax-residency status, with the income subsequently clubbed in the father’s hands.