Know who pays income tax on child’s income in India. Understand the income tax rules and exceptions for minors. Get clarity on filing income tax returns for your kid’s income.
As a parent, you work hard to provide for your child’s future. But did you know that your child’s income may be subject to income tax? Yes, you read that right! In India, income tax laws apply to individuals, including minors.
We’re living in the age of social media. Many have transformed into content creators, reel stars, and influencers.
Children can also earn income from various sources like investments, scholarships, part-time jobs, prizes or other sources.
Even young children are earning through showcasing their talents. If their income is taxable, who should pay the tax? What does the law stipulate? Let’s find out.
Children can earn income in two ways. The first is income earned by them directly, and the second is income from property.
If parents invest in property, land, or gift property to their child, the income generated from these assets will be considered the child’s income.
Who Has to Pay Income Tax on Child’s Income?
According to the Act, a child’s income is taxed in the hands of the parent or guardian. This means that parents or guardians are responsible for paying income tax on their child’s income.
What Does the Income Tax Act Say?
As per Section 64 (1A) of the Income Tax Act, 1961
- Minor children do not have to pay tax on their earnings.
- Income earned by a minor child is clubbed with the income of the parent or guardian.
- The parent or guardian is responsible for paying income tax on the child’s income.
- The child’s income is taxed at the parent’s or guardian’s tax slab rate.
Exceptions:
There are some exceptions to this rule:
- If the kid’s income is from a disability, it is exempt from tax.
- If the kid’s income is from a scholarship, it is also exempt from tax.
Understanding the Rule
In India, if your child is below 18 years old, any money they earn is usually added to your income. This means you might have to pay tax on it.
Up to ₹1,500: As per Section 10 (32), if your child earns less than ₹1,500 in a year, you don’t have to pay tax on it. It’s tax-free.
More than ₹1,500: As per Rule 64(1A), if your child earns more than ₹1,500, this amount gets added to your income. Then, you calculate the tax based on your total income.
If both parents are earning, their kid’s income will be taxed according to the higher-earning parent’s tax slab.
A 30% Tax Deducted at Source (TDS) is applied to lottery winnings by a child. Additionally, a 10% surcharge and a 4% cess are levied on these winnings.
However, if the son is an orphan, he must pay income tax on his own earnings. According to Section 80U, a disabled child’s income is not included in the parents’ income if the child’s disability exceeds 40%.
Parents or guardians are responsible for paying income tax on their child’s income. It is essential to understand the rules of the Income Tax Act to avoid any tax liability issues. By knowing the rules, you can plan your child’s finances effectively and comply with the tax laws.