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Taxation rules for the minor child: Is it mandatory to pay?

Updated on: 23 Feb, 2023 04:35 PM

Technology advancement has paced up children’s learning skills too. Also, the easy approach to the audience via social media has opened many opportunities for them. If we look around, we can see many children doing several unique jobs and earning well for themselves. But with income comes tax liability too. There is no age restriction to file income tax returns. Minors below the age of 18 years who have an income in the form of earned income or unearned income or do certain transactions (subject to certain conditions) have to pay taxes.

What are Earned income and Unearned income in respect to minors?

The income receivable by minors is of two types:-

  • Earned money- When the children earn money through their specialized skills, like winning any contest/competition/tournament, etc. This money also includes the salaried amount or income earned through his business or venture.
  • Unearned money- When the money is not directly earned by the minor but instead received as a form of a gift from relatives, grandparents, interest income, income from investments made in their name by the parents, etc. This also includes any interest earned via a saving account, any assets that parents have fixed at some time or fixed deposits.

Is it mandatory for a minor child to file an income tax return?

It is mandatory for everyone to file income tax if they fall under the category where the income is above the basic exemption limit. Minors are also liable to pay taxes. The minor with income can file ITR through the following modes:-

  • On his own ITR i.e.,In the minor’s ITR itself.
  • Clubbed with the income of parents

As per section 64(1A), any amount a minor receives is included in the parent's income. This is known as “clubbing of Income.” Thus the taxes on that income will be paid the same way as the tax on the parent's income.

There are two situations here:-

  1. If the minor’s income is less than Rs 1500/year-
    In this situation, the amount won’t be added to the parent’s income. In order to be tax-free, as per Section 10 (32) of the Income Tax Act, the income should be up to Rs. 1500/- per child, up to a maximum of two minor children. This income can include the amount transferred by a parent, grandparent, or any other person, etc.
  2. If the minor’s income is more than Rs 1500/year-
    If the income is more than Rs 1500/year, then this income will be clubbed with the parents income, and the parents will have to pay the tax here. However, a tax exemption of Rs.1,500 per child per year for a maximum of two children is available to parents on minors’ income. As per section 64(1A), any amount more than Rs 1500/ year that the minor receives is included in the parent's income. This is known as the “clubbing of money.” Clubbing of money is pooling the income of parents and their child (this is implied only for the cases where the child is below 18 years).

Rule for clubbing the income:-

  • If both the mother and father are earning, in this case, the child's income will be clubbed with the income of the parent whose income is greater.
  • If the parents are divorced, in this case, the minor's income is added to the parent's income who hascustody of the child.
  • A separate income tax return is filed for the cases where both the parents of the minor are not alive. A guardian of the minor child can file the income tax return in such cases on behalf of the minor. However, this filing is done separately and is not included in the guardian's income. The guardian must upload the necessary documentation by verifying themselves to the income tax website as a "representative assessee of the minor.
  • Clubbing of money is also counted when the minor daughter is married.
  • The clubbing provision applies to a stepchild and an adopted child also.
  • If minors have passed 18 years, they come under the majority. Clubbing of income with parents is not applicable in this case.

There are a few exceptions where the income of Minor will be taxed in his hands only:-

  1. Expertise or skills - If the minor has earned the income on his skills, i.e., through his knowledge or talent, separate income tax return shall be filed by the minor's parent or guardian as representative assessee of such minor. For example, the winner of TV shows like Little Champ, Master Chef Junior, and others.
  2. Disability - If a child is considered disabled as per the rules under Section 80U of the Income Tax Act 1961, then the child's income will not be clubbed with the parent's income. In such cases, the minor must have more than 40% disability due to diseases like locomotor disability, hearing impairment, poor vision, mental illness, blindness, etc. Here the income will be reported separately in the child’s return only.
  3. Manual Work - If the income earned by the minor is through manual work, this kind of income will also be reported in the minor’s return only and will be taxable in his own hands.

What documents are required for a minor to file their own return?

  • PAN Card
  • Income details ( cheque received, cash received, cash deposits in a bank etc)
  • Details of savings like for fixed deposits interest, savings interest, contribution in funds, etc.
  • Active Mobile & Email ID.
  • E-filing portal login details
  • Updated Bank Details (Name, IFSC Code & Account No.).

Which tax slab/rate will apply to child taxpayers for FY 22-23?

The income tax slabs/rate provided below are the same for all individuals (minors and adults):-

Income Tax Slab Tax Rate (Old Regime) Tax Rate (New Regime)
Up to Rs 2.5 lakh Nil Nil
Rs 2.5 lakh to Rs 5 lakh 5% (Tax rebate of Rs 12,500 available under section 87A) 5% (Tax rebate of Rs 12,500 available under section 87A)
Rs 5 lakh to Rs 7.5 lakh 20% 10%
Rs 7.5 lakh to Rs 10 lakh 20% 15%
Rs 10 lakh to Rs 12.5 lakh 30% 20%
Rs 12.5 lakh to Rs 15 lakh 30% 25%
Rs 15 lakh and above 30% 30%

Also, as per the recent Budget 2023-24, the number of income tax slabs have been reduced from 6 to 5 under the new tax regime. The new structure is as follows:-

Rs 0 to Rs 3 lakh Nil
Rs 3 to 6 lakh 5% tax
Rs 6 to 9 lakh 10% tax
Rs 9 lakh to Rs 12 lakh 15% tax
Rs 12 lakh to Rs 15 lakh 20% tax
Above Rs 15 lakh 30% tax

(Note:-These amendments will take effect from 1st April 2024 and will apply to the assessment year 2024-25 and subsequent assessment years.)

Frequently Asked Questions

Q- Who are termed minors?

Children below the age of 18 are considered minors.

Q- Is minor income taxable in India?

Yes, it is mandatory if the income exceeds the basic exemption limit.

Q- What is the age bar to file income tax returns in India?

There is no age restriction. Even a newborn baby can pay his/her income taxes based on a few exceptions.

Q- Under which section, the income of minor is considered taxable?

Under Section 64(1A), any amount that is received by a minor will be included as a part of the parents income and the taxes on that income will be the same as the tax on parent's income.

Q- Where can the parents report minor’s income?

Minor’s income can be reported under IRS Form 8814 by the parents.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.