Income Tax Liability for Minors- How does it work?

Last Updated On: Aug. 25, 2021, 8:35 p.m.
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Income Tax Liability for Minors- How does it work?

Government has banned child labor under the Child Labor (Prohibition and Regulation) Act, 1986 which is applicable to all children until the age of 18years, minors can also earn income from other sources.Other than salary from employment, Minors can receive an income from savings in a bank account, fixed deposits or other investments made in their name by the parents.

A minor needs to file their taxes if they have an income that amounts to more than ₹1500 per month. The income can be earned or unearned, it makes no difference. In this article, we will divulge under what circumstances a parent can claim his child’s income tax return.

Types of Income Receivable By a Minor

There are two types of income that can be received by a minor. They are, namely, earned money and unearned money.

Earned Money

If a minor participates in any TV show, competitions, or sports tournaments and wins the allowed prize sum, or if they earn money through part-time jobs or their own business, the income is classified as earned money.

Unearned Money

If a minor does not earn money through their own efforts and labour but instead receives money as a gift for any celebratory occasion, festival or birthday, from well-wishers such as his/her relatives, family friends, and grandparents, the income received is classified as unearned money.

 

What is the meaning of 'Clubbing Money'?

Clubbing of a parent’s income with their child’s income is only possible if the latter has not yet attained majority. The term ‘clubbing the money’ refers to the act of pooling the income of the parents and their children. According to the Income Tax Act, if a kid earns money from his/her own business or a part-time job, the money earned can be combined with the income of their parents. If both the parents of the minor work, the minor’s earnings must be clubbed with the earnings of the parent who earns the higher income.

 

Every parent will have a question, whether my child have to file Income Tax Returns if they claim for him/her?

In case the child is below the age of 18

An earning child who is below the age of 18 has to file their own income taxes. But since the child is the liability of the parent, the parents can also file on their behalf. Simply put, if your child has not attained majority yet and earns more than ₹1500 a month, you may pay their taxes on their behalf.

However, there are a few exceptions where, even if the child is a minor, the parent cannot claim the child’s income tax returns (ITR).

In case the child is above the age of 18

An earning child over the age of 18 is required to file their own income taxes. They are no longer their parent’s liability and, as a result, they have to file their own income taxes. If your child has attained majority, you can no longer claim this ITR.

 

Things to Know Before a Minor Files Their Own Income Tax Return

  • Terms such as gross earnings, taxable income, pension fund, medical insurance, and so on and so forth, should be explained to minors before they file their own tax returns
  • Minor’s must sign their own tax return forms
  • Children must save a copy of their expenses and earnings during every financial year for reference and safety purposes
  • The taxpayer name and the tax identification number must be accurately inputted in the returns form
  • Children must be made aware that tax records are highly confidential
  • Engaging the services of a tax specialist is the most viable and more reliable method of filing ITR for minors.
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