Income Tax liability for minors

Last Updated at: Apr 06, 2020
Income Tax Liability For Minors

As we all know, the Indian government has banned child labour. But children can still earn income from other sources like winning a dance competition, a quiz contest, karate tournament, savings in the bank, investments made in the children’s name, or any fixed-term deposits. But do you know that a child is accountable to pay his/her income tax for the amount he/she receives? Let us have a detailed article on it. 

Teenagers, in the current generation, would be more willing to earn their own money. And indeed, many prefer to be independent financially. The more the upcoming generation socially inclines towards holding more fame and name, the sooner the children wanted to come out of the term that is being used on the – ‘minor’. 

Leaving behind the fact to not encourage child labour, children themselves prefer to earn for their living (at least for their pocket money). While talking about income, there are two ways that a child can gain income. 

  1. Earned income
  2. Unearned income

Earned income is when the child earns his/her own money through salary or by winning any contest/competition/tournament/, etc. Unearned income is when the child doesn’t earn the amount, but he/she receives it through a proper legal mode. For instance, the money funded by a toddler’s grandparents to their grandchild for the future, etc. Income tax returns are calculated based on the minor children’s savings or their investment. There are certain exceptions for the same. A teenager working at odd jobs need not file income tax returns. There is no specific age limit to file income tax returns for children. All that matters is not age, but their income.

Teenagers (minors), who earn less than Rs.1500 need not pay their taxes to the Government. But if the income earned is more than Rs.1500, then the income tax has to be paid. 

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How do you pay the tax?

Parents/guardians can teach children about paying their taxes. But sometimes, it might be too early for them to understand the seriousness or the reliability needed for it. Therefore, the parent is requested to pay his/her child’s income tax on behalf of them. 

The income of the child has to be clubbed with the parent if the income of the child is more than Rs.1500. Let us see a few circumstances of clubbing the income of the child with the parents’ income. There are a few exemptions and restrictions to be followed while filing taxes in the name of the child who secures earned or unearned income. If both the mother and father are earning members of the family, then the income of the minor will be added to the income of that parent whose income is higher in comparison. 

If the parents are divorced, then the income of the child would be added to the parent who takes custody of the child. When a child is suffering from any specified disabilities which come under Section 80U, then the income of the child will not be clubbed with the income of the parent. (The child is considered as differently-abled only when he/she suffers from blindness, locomotor disability, hearing impairment, poor vision, or mental illness which are more than 40%). 

If the child’s parents are dead, then he/she has to file for separate income tax. However, in this case, a guardian can’t get the salary inclusion benefit from this.

Always help your child learn his/her citizenship duties. It is advisable for the child to hold a PAN card. However, plan in advance to pay income tax to your child, if your child earns an income. You can subsequently avail the benefits by paying the income tax for your child.