Are you aware that income earned by a minor (below 18 years) is also taxable?
If not, this article is meant for you. Minor’s income is to be clubbed with their parent’s/guardian’s income as per Section 64(1A) of the Income Tax Act.
The rise in technology has not only inspired adults but also children. Previously, minor children had limited opportunities for their growth, but now with the advancement in technology, minors are exposed to varied fields.
Teenagers love to take up odd jobs along with their studies, thus becoming more independent day by day. Many teenagers have commenced their businesses and have attractive earnings.
In a nutshell, any child who is aged below 18 years, is a minor, and any minor who is earning above the tax slab is liable to pay tax.
It will be the liability of the parents/guardians to file the taxes of their child. This proves that the filing of income tax returns is not restricted by an age bar.
➨ Income Earned by Minors:
The income of a minor child is classified into two types, i.e., earned income and unearned income.
Example:
Prize money received by a minor by winning competitions, money earned from the business, or any other part-time job is termed as earned money of the minor.
Money received by a minor in the form of gifts from family members or relatives, etc. is termed as unearned income.
Both these incomes include the interest earned on this money through a savings bank account, income from other investments, or fixed deposits which are done in their name by their parents.
➨ Tax Payable on Minor’s Income:
As per Section 64(1A), any money received by the minor will be clubbed with the parent’s/guardian’s income. The same will be taxed as per the tax slabs.
Exemption Rules:
Tax exemption of Rs. 1500 per child per month is available every year. Parents of the minor can avail exemption facility on the minor’s income and this rule applies to a maximum of two children.
If a minor is earning more than Rs. 1500 per month then he/she is liable to pay taxes. In such cases, the parents will have to pay tax for the minor’s income along with their taxes, since that income will be defined as parent income.
➨ Clubbing of Income:
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- If both the parents are working, then the income of the minor will be clubbed with the parent whose income is higher.
- In the case of an orphan (both parents deceased) minor, his/her income tax returns will be filed separately (not with a guardian) and tax will be paid separately.
- If the parents are divorced, then the minor’s income will be clubbed by the parent who has the child’s custody. The same rule applies to stepchildren and adopted children.
- The parent with whose income the minor’s income is clubbed can also claim credit of Tax Deducted at Source (TDS) from minor’s income.
Exceptions when Minor’s Income is not Clubbed with Parents:
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- There are certain exceptions wherein the minor’s income is not clubbed with a parent/guardian. They are:
- A minor earning an income by working or by showcasing his specialized talent or knowledge will have to file an income tax return on his own.
Example: A Junior Master Chef Winner or a Junior Dance Talent would have to pay taxes of his own and the same will not be clubbed with his parent’s income.
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- Any manual work done by a minor will be considered his own and hence, he will have to pay his taxes, without clubbing them.
- Any minor child suffering from physical disability or mental illness (specified as per Section 80U) will not qualify for clubbing of his/her income with their parent.
Hiring taxation experts from Choksi Tax Services (CTS) will not only help in the consultation of your minor’s income, but also in gaining professional guidance and in the filing of their income tax returns.
➨ Basic Documents of a Minor Required for Filing Tax Returns of Minor:
1: PAN Card:
A minor needs to and can have a PAN card for filing tax returns. For obtaining the PAN card, the minor’s parents or guardian need to apply for the same.
In cases where the minor’s tax returns are filed independently, his bank account details, details of his income, and e-mail account and mobile number for correspondence are essential.
The minor also needs to have an income tax portal login and password for submitting these details.
2: Income Details:
Cash or cheque received by a minor as well as the cash deposits in the bank account of a minor will be needed for filing their tax returns.
3: Details of Savings:
Details of the savings account, interest received on fixed deposit, interest received on savings, funds received, etc. are essential for filing the tax returns.
4: Tax Credit :
Minor can claim credit of Tax Deducted at Source (TDS) deducted from their income
5: Other Information:
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- Email id of the minor and their Active mobile number
- Login details of the E-filing portal
Bank Account Details like Name of the bank, IFSC code, and Bank Account number)
➨ Can a Minor Get a Refund on Income Taxes?
Yes, a minor can get a refund on excess taxes paid, just like adults. As per the Income Tax Act, an adult or a minor is eligible for an income tax refund only if they file their return.
In short, if the minor’s income tax returns are filed in their name and all tax requirements are met, they too can receive their tax refund in due time, just like any other Indian taxpayer.
Wrapping Up:
Before plunging into the process of tax payments, parents/guardians should go through the tax structure since it’s always subject to changes. They should be aware of the claims, and benefits, before filing the tax returns of their minor or clubbing the income with their income.You can also consult the tax experts from Choksi Tax Services, to have your queries resolved. Not only will they enlighten your knowledge on the subject, but they will also guide you in the best possible way for minor’s income.