On tax­ing main­te­nance money

How to curb black money in wel­fare funds for mi­nors

The Hindu - - OPED - Kr­ish­nadas Ra­jagopal

Should main­te­nance money paid by par­ents for the wel­fare of their mi­nor child be ex­empted from in­come tax? The ques­tion has both­ered the gov­ern­ment, which is find­ing ways to stem the prob­lem of black money and tax eva­sion.

The is­sue came up be­fore the Law Com­mis­sion of In­dia af­ter the Pun­jab and Haryana High Court found that it is “de­sir­able” that Sec­tion 64 (1A) of the In­come Tax Act of 1961 be amended to ex­empt the in­ter­est ac­crued on main­te­nance money an es­tranged par­ent pays for his or her mi­nor child.

The plea taken in the case be­fore the High Court in

Payal Me­hta v. San­jay Sarin

(2016) was that the in­ter­est on the amount of main­te­nance money de­posited in the name of a mi­nor child by the par­ent should not be sub­jected to tax, that is, such in­come should not be clubbed with the in­come of ei­ther of the par­ent for the pur­pose of im­pos­ing tax.

Sec­tion 64 (1A), as it stands now, in­cludes that “in com­put­ing the to­tal in­come of any in­di­vid­ual, there shall be in­cluded all such in­come as arises or ac­crues to his mi­nor child…”

The pur­pose of the tax pro­vi­sion in the Act is to plug-in loop­holes to pre­vent the avoid­ance of tax, caus­ing sub­stan­tial loss or leak­age of rev­enue.

How­ever, the High Court in­sisted that such an ex­emp­tion should be cre­ated. It rea­soned that the “cir­cum­stances of a mi­nor re­ceiv­ing main­te­nance are dif­fer­ent from, say, a mi­nor in whose name some busi­ness has been started by ei­ther of the par­ent or who has been ad­vanced some gift…”

The court said the ex­clu­sion of such money paid for the wel­fare of a mi­nor child re­sid­ing with a sin­gle par­ent from the tax scanner is note­wor­thy. The High Court sug­gested that the leg­is­la­ture add a pro­viso record­ing such an ex­emp­tion in the 1961 Act.

The Law Com­mis­sion, in its 265th Re­port ti­tled ‘Prospects of Ex­empt­ing In­come Aris­ing Out Of The Main­te­nance Money of Mi­nor’, shot down the High Court’s sug­ges­tion.

For one, it said the na­ture of giv­ing main­te­nance to a child is dif­fer­ent. The in­tent of such a judicial or­der di­rect­ing for main­te­nance of a mi­nor child is the wel­fare of the child. Such an or­der does not give any right to ei­ther of the child’s par­ents un­der any statute. Sec­ond, the is­sue of cus­tody of a child and de­ter­mi­na­tion of the amount of main­te­nance are of a tem­po­rary na­ture. Third, and most im­por­tantly, such an ex­emp­tion would open the flood gates to eva­sion of tax.

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