Taxation - DT Ch 08: Clubbing Setoff - Test 2: answer key

Question 1 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. Mr. Aniruddh Malhotra, a resident individual, and his wife Mrs. Bhavna Malhotra have three minor children: twins Aarav and Aanya (both aged 10 years) and son Advik (aged 14 years). Aarav is a chess prodigy and won ₹45,000 in a sponsored chess tournament held in August 2026. Aanya received interest of ₹18,000 during FY 2026-27 on a fixed deposit gifted by her grandfather in April 2026. Advik suffers from a disability specified under section 80U and earned ₹60,000 as interest on debentures purchased in May 2026. Mr. Malhotra's total income before including the income of minors is ₹18,50,000, comprising salary and house property income. Mrs. Malhotra's total income before such inclusion is ₹22,00,000, comprising business income. Both have exercised the option of shifting out of the default tax regime under section 115BAC. They seek your advice on the clubbing provisions and the exemption available under section 10(32). The parents are uncertain whether Aarav's tournament winnings, Aanya's interest, and Advik's interest are to be clubbed, and in whose hands. They also want to know the amount of exemption, if any, available under section 10(32) for each child.

What amount of Aarav's chess tournament winnings is clubbed in the hands of either parent?

1. ₹45,000 in Mr. Malhotra's hands
2. ₹45,000 in Mrs. Malhotra's hands
3. Nil, taxable in Aarav's hands (correct answer)
4. ₹45,000 less ₹1,500 exemption

Answer: C — Nil, taxable in Aarav's hands

Explanation. Income from an activity involving skill, talent, or specialized knowledge of a minor child is not clubbed under section 64(1A). Aarav's chess winnings of ₹45,000 are attributable to his skill. Therefore, the amount is taxable in Aarav's own hands, not in either parent's hands. No exemption under section 10(32) is relevant because the income is not clubbed.

Where it goes wrong. Clubbing talent income with parent's income and applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 2 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

What is the net amount included in Mrs. Malhotra's total income from Aanya's interest after claiming exemption under section 10(32)?

1. ₹18,000
2. ₹16,500 (correct answer)
3. ₹1,500
4. Nil

Answer: B — ₹16,500

Explanation. Aanya's interest income is clubbable under section 64(1A). It is clubbed with the parent whose total income before inclusion is greater: Mrs. Malhotra (₹22,00,000) vs Mr. Malhotra (₹18,50,000). Gross clubbable amount = ₹18,000. Under optional regime, exemption under section 10(32) of ₹1,500 is available. Net inclusion = ₹18,000 - ₹1,500 = ₹16,500.

Where it goes wrong. Forgetting to apply exemption under section 10(32) or clubbing with the parent having lower income.

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 10(32) of the Income-tax Act, 1961

Question 3 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

What is the correct tax treatment of Advik's interest income of ₹60,000?

1. Nil, taxable in Advik's hands (correct answer)
2. ₹60,000 in Mrs. Malhotra's hands
3. ₹60,000 in Mr. Malhotra's hands
4. ₹58,500 after exemption

Answer: A — Nil, taxable in Advik's hands

Explanation. Section 64(1A) proviso excludes income of a minor child suffering from disability specified under section 80U from clubbing. Advik has such disability. Therefore, his interest income of ₹60,000 is not clubbed in either parent's hands. It is taxable in Advik's own hands. No exemption under section 10(32) applies because the income is not clubbed.

Where it goes wrong. Clubbing disabled child's income and applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 80U of the Income-tax Act, 1961

Question 4 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

What is the total exemption available under section 10(32) to the Malhotra parents for FY 2026-27?

1. ₹4,500
2. ₹3,000
3. ₹1,500 (correct answer)
4. Nil

Answer: C — ₹1,500

Explanation. Exemption under section 10(32) is available per minor child whose income is clubbed, up to ₹1,500, only if the assessee opts out of the default regime. Here, only Aanya's income is clubbed. Aarav's talent income and Advik's disability income are not clubbed. Therefore, total exemption = ₹1,500 for Aanya.

Where it goes wrong. Claiming exemption for all three children or for non-clubbed income.

Authority. Section 10(32) of the Income-tax Act, 1961

Question 5 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. Mr. Rohan Kapoor, a resident individual, and his wife Mrs. Sneha Kapoor have two minor children: daughter Myra (aged 12 years) and son Vihaan (aged 8 years). Myra is a trained classical dancer and earned ₹1,20,000 from a dance reality show aired in September 2026. Vihaan received ₹22,000 as interest during FY 2026-27 on a bank deposit gifted by his grandmother in April 2026. Vihaan also earned ₹35,000 from manual work at his uncle's retail shop during the summer vacation. Mr. Kapoor's total income before including the income of minors is ₹12,00,000, while Mrs. Kapoor's total income before such inclusion is ₹15,00,000. Both pay tax under the default tax regime under section 115BAC. They have not exercised the option of shifting out of the default regime. They seek to determine the clubbing implications for Myra's dance income, Vihaan's interest, and Vihaan's manual work income. They also want to know the exemption available under section 10(32), if any, and the parent in whose total income each amount is to be included.

What amount of Myra's dance income is clubbed in the hands of either parent?

1. ₹1,20,000 in Mr. Kapoor's hands
2. ₹1,20,000 in Mrs. Kapoor's hands
3. Nil, taxable in Myra's hands (correct answer)
4. ₹1,18,500 after exemption

Answer: C — Nil, taxable in Myra's hands

Explanation. Myra's income from a dance reality show is from application of her special talent. Under section 64(1A), such income is not clubbed with the parent's income. It is taxable in Myra's hands. The amount is ₹1,20,000. No exemption under section 10(32) applies because the income is not clubbed.

Where it goes wrong. Clubbing talent income and applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 6 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

What amount of Vihaan's interest income is clubbed and in whose hands?

1. ₹22,000 in Mr. Kapoor's hands
2. ₹22,000 in Mrs. Kapoor's hands (correct answer)
3. ₹20,500 in Mrs. Kapoor's hands
4. Nil

Answer: B — ₹22,000 in Mrs. Kapoor's hands

Explanation. Vihaan's interest income of ₹22,000 is clubbable under section 64(1A). It is clubbed with the parent whose total income before inclusion is greater: Mrs. Kapoor (₹15,00,000) vs Mr. Kapoor (₹12,00,000). Since they pay tax under the default regime, no exemption under section 10(32) is available. Hence, the full ₹22,000 is included in Mrs. Kapoor's total income.

Where it goes wrong. Applying ₹1,500 exemption despite default regime or clubbing with the parent having lower income.

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 7 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

What amount of Vihaan's manual work income is clubbed?

1. ₹35,000 in Mrs. Kapoor's hands
2. ₹35,000 in Mr. Kapoor's hands
3. ₹33,500 after exemption
4. Nil, taxable in Vihaan's hands (correct answer)

Answer: D — Nil, taxable in Vihaan's hands

Explanation. Income from manual work of a minor child is excluded from clubbing under section 64(1A). Vihaan's ₹35,000 from manual work at his uncle's shop is not clubbed. It is taxable in Vihaan's hands. No exemption under section 10(32) applies because the income is not clubbed.

Where it goes wrong. Clubbing manual work income and applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 8 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

What is the total amount included in Mrs. Kapoor's total income on account of the minor children's income?

1. ₹22,000 (correct answer)
2. ₹1,42,000
3. ₹1,20,000
4. ₹57,000

Answer: A — ₹22,000

Explanation. Only Vihaan's interest income of ₹22,000 is clubbable. Myra's talent income and Vihaan's manual work income are not clubbed. Under the default regime, no exemption under section 10(32) is available. Therefore, the total amount included in Mrs. Kapoor's total income (the parent with higher income) is ₹22,000.

Where it goes wrong. Including non-clubbable income or applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 9 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Sharma have a minor son who earned ₹1,200 from interest on a bank deposit. They have opted out of the default tax regime. What is the net amount included in the parent's total income after claiming exemption under section 10(32)?

1. ₹1,200
2. Nil (correct answer)
3. ₹1,500
4. ₹300

Answer: B — Nil

Explanation. Under section 10(32), exemption up to ₹1,500 per minor child is available only if the assessee opts out of the default regime. The minor son's interest income is ₹1,200. Since this is below ₹1,500, the entire income is exempt. Net amount included = Nil.

Where it goes wrong. Clubbing ₹1,200 under default regime or applying partial exemption.

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 10(32) of the Income-tax Act, 1961

Question 10 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. Verma's minor daughter earned ₹50,000 from a painting competition (talent) and ₹5,000 interest on a fixed deposit made out of that prize money. He pays tax under the default regime. What amount is clubbed in his total income?

1. ₹55,000
2. ₹50,000
3. Nil
4. ₹5,000 (correct answer)

Answer: D — ₹5,000

Explanation. Income from talent is not clubbed. However, interest earned on investment of such talent income is clubbed under section 64(1A). Mr. Verma pays tax under default regime, so no exemption under section 10(32) is available. The interest of ₹5,000 is clubbed in his total income. The talent income of ₹50,000 is taxable in the minor's hands.

Where it goes wrong. Clubbing the talent income or applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 11 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mrs. Iyer's minor son has income of ₹80,000 from manual work and ₹20,000 from interest on a gift. She has opted out of the default tax regime. What amount is clubbed?

1. ₹1,00,000
2. ₹20,000
3. ₹18,500 after exemption (correct answer)
4. ₹80,000

Answer: C — ₹18,500 after exemption

Explanation. Manual work income of ₹80,000 is not clubbed. Interest income of ₹20,000 is clubbed under section 64(1A). Since Mrs. Iyer opted out of default regime, exemption under section 10(32) of ₹1,500 is available against the clubbed income. Net clubbed amount = ₹20,000 - ₹1,500 = ₹18,500.

Where it goes wrong. Clubbing manual work income or forgetting exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 10(32) of the Income-tax Act, 1961

Question 12 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Gupta have a minor child with disability specified under section 80U. The child earned ₹1,50,000 from interest on fixed deposits. Who is taxable and for what amount?

1. Clubbed in father's hands if his income higher
2. Clubbed in mother's hands if her income higher
3. Taxable in child's hands (correct answer)
4. Exempt up to ₹1,500 and balance clubbed

Answer: C — Taxable in child's hands

Explanation. Section 64(1A) excludes income of a minor child suffering from disability specified under section 80U from clubbing. Therefore, the interest income of ₹1,50,000 is not clubbed with either parent. It is taxable in the child's own hands. No exemption under section 10(32) applies because the income is not clubbed.

Where it goes wrong. Clubbing disabled child's income and applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 80U of the Income-tax Act, 1961

Question 13 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Joshi have two minor children: one earning ₹10,000 from talent and the other ₹10,000 from interest. They opted out of the default tax regime. What is the total exemption available under section 10(32)?

1. ₹1,500 (correct answer)
2. ₹3,000
3. ₹2,000
4. Nil

Answer: A — ₹1,500

Explanation. Exemption under section 10(32) is available per child whose income is clubbed. Only the child with interest income of ₹10,000 has clubbable income. The child with talent income of ₹10,000 has non-clubbable income. Therefore, exemption of ₹1,500 is available only for the child with interest income. Total exemption = ₹1,500.

Where it goes wrong. Claiming exemption for both children or for non-clubbed income.

Authority. Section 10(32) of the Income-tax Act, 1961

Question 14 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Patel have a minor married daughter who earned ₹40,000 from interest. Is her income clubbed?

1. No, because she is married
2. No, because married daughter's income is never clubbed
3. Yes, but exempt up to ₹1,500
4. Yes, clubbed with parent whose income is higher (correct answer)

Answer: D — Yes, clubbed with parent whose income is higher

Explanation. Section 64(1A) applies to a minor child, which includes a minor married daughter. Her interest income of ₹40,000 is clubbable. It is included in the total income of the parent whose total income before inclusion is greater. The exemption under section 10(32) may apply if the optional regime is chosen, but the question only asks whether clubbing applies. Clubbing applies.

Where it goes wrong. Assuming married daughter's income is never clubbed.

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 15 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Desai have a minor son who earned ₹2,00,000 from a reality show (talent) and ₹10,000 interest on a bank deposit made out of that income. They pay tax under the default regime. What amount is clubbed?

1. ₹2,10,000
2. ₹10,000 (correct answer)
3. ₹2,00,000
4. Nil

Answer: B — ₹10,000

Explanation. Talent income of ₹2,00,000 is not clubbed. Interest of ₹10,000 on investment of talent income is clubbed under section 64(1A). Under default regime, no exemption under section 10(32) is available. Hence, ₹10,000 is clubbed in the parent's total income.

Where it goes wrong. Clubbing talent income or applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 16 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Khan have a minor daughter who earned ₹1,800 from interest. They opted out of the default tax regime. What amount is clubbed?

1. ₹300 (correct answer)
2. ₹1,800
3. Nil
4. ₹1,500

Answer: A — ₹300

Explanation. Under optional regime, exemption under section 10(32) is ₹1,500 per child. Minor daughter's interest income is ₹1,800. Net clubbed amount = ₹1,800 - ₹1,500 = ₹300.

Where it goes wrong. Clubbing full ₹1,800 or claiming nil.

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 10(32) of the Income-tax Act, 1961

Question 17 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Rao have a minor son with disability under section 80U who earned ₹1,20,000 from interest. They also have another minor daughter who earned ₹30,000 from interest. They pay tax under the default regime. What amount is clubbed in the hands of the parent with higher income?

1. ₹1,50,000
2. ₹1,20,000
3. Nil
4. ₹30,000 (correct answer)

Answer: D — ₹30,000

Explanation. Income of a minor child with disability under section 80U is not clubbed. The son's interest of ₹1,20,000 is taxable in his own hands. The daughter's interest of ₹30,000 is clubbed under section 64(1A). Under default regime, no exemption under section 10(32) is available. Therefore, ₹30,000 is clubbed in the hands of the parent with higher income.

Where it goes wrong. Clubbing disabled child's income or applying exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 80U of the Income-tax Act, 1961

Question 18 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Mehta have a minor child who earned ₹50,000 from manual work and ₹50,000 from interest. They opted out of the default tax regime. The parent with higher income is Mrs. Mehta. What amount is included in her total income?

1. ₹1,00,000
2. ₹48,500 (correct answer)
3. ₹50,000
4. ₹98,500

Answer: B — ₹48,500

Explanation. Manual work income of ₹50,000 is not clubbed. Interest income of ₹50,000 is clubbed under section 64(1A). Since they opted out of default regime, exemption under section 10(32) of ₹1,500 is available. Net amount included in Mrs. Mehta's total income = ₹50,000 - ₹1,500 = ₹48,500.

Where it goes wrong. Clubbing manual work income or forgetting exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 10(32) of the Income-tax Act, 1961

Question 19 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Singh have a minor child who earned ₹1,400 from interest. They pay tax under the default regime. What amount is clubbed?

1. ₹1,400 (correct answer)
2. Nil
3. ₹1,500
4. ₹100

Answer: A — ₹1,400

Explanation. Under default regime, exemption under section 10(32) is not available. Therefore, the entire interest income of ₹1,400 is clubbed in the parent's total income.

Where it goes wrong. Applying ₹1,500 exemption despite default regime.

Authority. Section 64(1A) of the Income-tax Act, 1961

Question 20 · 2 marks · Taxation - DT Ch 08: Clubbing Setoff · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Mr. and Mrs. Nair have a minor child who earned ₹60,000 from a sports competition (talent) and ₹6,000 interest on a fixed deposit made out of that income. They opted out of the default tax regime. The parent with higher income is Mr. Nair. What amount is included in his total income?

1. ₹66,000
2. ₹6,000
3. ₹60,000
4. ₹4,500 (correct answer)

Answer: D — ₹4,500

Explanation. Talent income of ₹60,000 is not clubbed. Interest of ₹6,000 on investment of talent income is clubbed under section 64(1A). Since they opted out of default regime, exemption under section 10(32) of ₹1,500 is available. Net amount included in Mr. Nair's total income = ₹6,000 - ₹1,500 = ₹4,500.

Where it goes wrong. Clubbing talent income or forgetting exemption under section 10(32).

Authority. Section 64(1A) of the Income-tax Act, 1961; Section 10(32) of the Income-tax Act, 1961