Minor son’s FD funded by grandfather’s will: Who will pay tax on the interest?

The latest market report highlights that A parent has invested funds bequeathed to his minor son by his grandfather under a will in a set deposit, but is unsure whether the interest earned on the FD will be clubbed with the parents’ income. Today’s Ask Wallet Wise explains the tax treatment of interest earned on investments held in a minor child’s name, including whether the source of funds, whether from inheritance or a will, affects the clubbing rules.

The Ask Wallet Wise initiative offers expert advice on personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address them.

I have made a set deposit in my minor son's name using funds bequeathed to him by his grandfather under his will. Will the interest earned be clubbed with the parents’ income? If yes, then in whose hands?

Expert's Advice: As per the provisions of Section 99 of the Income Tax Act, 2025, which is applicable from April 1, 2026, the passive income of a minor must be included in the hands of the parent with the elevated income. Passive income includes income generated by assets held in the minor's name. The income of a minor will keep be clubbed in the hands of the same parent year after year even if his income is not elevated than that of the parents unless and until the assessing officer directs otherwise. In case of divorce of the parents, the income will be taxed in the hands of the parent who maintains the minor.

The clubbing provisions will apply irrespective of the source of funds for making such investments. The clubbing provisions will not apply in case of active income which the minor earns through his labour or special skills. For example, the income earned by child artists from acting in a film or live performance is outside the scope of such clubbing provisions. Likewise, the clubbing provisions are not applicable in respect of income of a minor child who is suffering from physical disability.