Minor Demat Account for IPOs: Eligibility, Process & Tax Implications

Minor Demat Account Guide

A Minor Demat Account allows parents or legal guardians to invest in the name of a child under 18 years of age. While a Demat account can be opened for a minor, a trading account cannot be opened directly in their name. All buying, selling, and transaction-related activities are carried out using the guardian’s trading account, but the shares are stored in the minor’s Demat account.

Once the child turns 18, the minor account gets converted into a regular Demat account, and the individual becomes the full account holder with independent rights to operate it. Minor Demat & Trading Account Explained - IPO

Investments Allowed for Minors

Investments Not Allowed for Minors

• Minors can invest only for long-term ownership.
• Anything risky, speculative, or involving borrowing is strictly prohibited.

IPO Rules for Minors

Minors can invest in IPOs using:

• Guardian’s trading account
• Minor’s Demat account

What is Allowed?

• Retail category applications up to ₹2 lakh
• Shareholder quota, if the minor has eligible shares before the record date
• HNI/Big-HNI applications (funds must legally belong to the minor or guardian on their behalf)

Steps to Apply for an IPO, Rights Issue and Buyback Using a Minor’s Account

Applying for an IPO, RI and BB in a minor’s name is allowed in India, provided the correct structure is followed. While the investment is made in the minor’s Demat account, all actions are carried out by the guardian.

Key points:

• The Demat account must be in the minor’s name
• A guardian (parent or court-appointed) is mandatory
• The minor must have a PAN card
• PAN can be issued to minors using Aadhaar and birth proof
• A trading account cannot be opened in a minor’s name. It remains in the guardian’s name.

Step 1: Link the Minor’s Bank Account & Guardian’s Trading Account

https://www.chittorgarh.com/article/minor-demat-trading-account-explained-ipo/175/

Step 2: Apply for the IPO (Generic Application Methods)

IPO applications for minors can be submitted through the following methods:

ASBA via Net Banking

• Log in to your bank’s net banking (SBI, ICICI, HDFC, Axis, etc.)
• Go to IPO / ASBA section
• Select the IPO
• Enter:
• Minor’s Demat details
• Application amount
• Funds get blocked in the bank account

 UPI-Based IPO (Age & Broker Dependent)

• Available for some minors (generally above 15 years)
• Apply through broker apps
• Enter UPI ID linked to minor/guardian bank account

Offline Application (Physical Form)

• Fill IPO application form
• Guardian signs on behalf of the minor
• Submit at SCSB branch

Key Rules to Remember While Applying for IPO in Minor’s Name

• The minor must be the first holder in the Demat account
• PAN of the minor is mandatory
• Guardian signs all forms and declarations
• No joint holders allowed in minor Demat account

Notes

• All IPO, rights issue, and buyback actions are guardian-driven
• No intraday or speculative trading is allowed
• Proceeds are credited to the linked bank account
• Taxation is handled under the guardian’s PAN (clubbing rules apply)

Selling Shares Allotted in IPO (Minor Account)

Minors can sell shares allotted in an IPO on the listing day.
However:

• The sale order is placed through the guardian’s trading account
• The proceeds are credited to the linked bank account of the minor/guardian

Managing & Transferring Shares in a Minor Account

Transfer Rules:

Since minors cannot trade independently:

• Shares can be transferred via an off-market transfer
• Proper documentation (gift deed or declaration) is required
• No intraday or trading-based transactions allowed

Conversion of Minor Account to Major Account

When a minor turns 18, the Demat account must be converted into a major account. For this, the client is required to complete an online application form along with an account modification form. After submitting the online form, the conversion can be completed through either of the following methods:

Option 1: Aadhaar e-Sign Process - The client can verify the application using Aadhaar-based e-Sign by entering the OTP received on the mobile number or email ID linked with Aadhaar. After e-signing, the account modification form must be couriered to the ProStocks Mumbai office. Once received, the account is generally activated within one working day.

Option 2: Physical Signature Process - Alternatively, the client may print the verified application form, sign it manually, and courier it along with the account modification form to the Mumbai office. The courier should be sent only after confirmation from the ProStocks support team. Upon successful verification, the account is usually activated within one working day.

Tax Implications for Minor Accounts

Under Indian tax law, any income earned by a minor (below 18 years), such as from investments, trading, or interest, is clubbed with the income of the parent whose total income (before including the minor’s income) is higher. This rule is covered under Section 64(1A) of the Income Tax Act, 1961.

Key Points:

• Clubbing of Income:
  All income earned by the minor (except in specific cases) is added to the parent’s income and taxed according to the parent’s applicable tax slab rate.
  Example: If a minor earns ₹2 lakh profit in a year and the parent is in the 20% tax slab, that ₹2 lakh is added to the parent’s income and taxed at 20%.
• Exemption:
  As per Section 10(32), the parent can claim an exemption of ₹1,500 per child per year for up to two children whose income is clubbed.
• Filing Requirement:
  A minor is not required to file a separate income tax return unless the income is earned through manual work or talent (like acting, singing, or sports), in which case it can be assessed separately.
• Guardian for Demat Account:
  A parent can be the guardian for multiple minor children’s demat accounts. Hence, you can open and operate separate minor demat accounts for both your children as their natural guardian.

Example:

If a minor earns ₹2,00,000 in capital gains and the father is in the 20% tax slab,
→ the ₹2,00,000 is added to the father’s taxable income,
→ the father pays 20% tax on it,
→ and can claim a ₹1,500 exemption under Section 10(32).