For a layman, it may seem extremely strange to write these two words together 'Income Tax' and 'Minors.' It is a prevalent notion that income tax is to be given by persons over 18 years. But it is constitutional, and a minor can also pay income tax. Yes, there are various circumstances to be considered for a minor to pay income tax.
Minors are liable to pay tax constitutionally. We should not forget the fact that it is the 21st century, and minors of this era are far more advanced and pragmatic. They are ambitious enough to plan their future themselves, and we can see the entrepreneurial mindset in them. They are approaching the course and diplomas that are short and job-oriented. They want to earn fast, they want to earn more. This is the scenario where tax liabilities for minors are an important question.
Income and its types
There are two types of income earned by minors. Namely :
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Earned Income
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Unearned income
Earned income is income earned as a salary or as a winning price of any contest/tournament/competition by him/her.
Unearned incomes are those which a child gets as inheritance or legacy. Here he does not earn the amount but receives it with legalities. For example, money funded by one's grandparents for the future of a child who is minor yet.
There are considerable exceptions to this as a child doing odd jobs does not require filing an income tax. Neither a particular age has been decided to file an income tax return for what matters is income, not age.
To get it more systematically, let's read it in these heads.
- Process of paying tax for minors and restrictions.
- Minimum age for minors to file an income tax.
- How to determine the income of a minor?
- How to club our income with the minor's income?
Let us understand this one by one.
The Process Of Paying Tax For Minors and Restrictions
Well, here parents should teach the duty of a responsible citizen to their kid and teach how to pay tax ideally. But if we talk on the ground, then the legalities, reliability, and seriousness needed to do such work might be tough for the kid. So, parents can pay the tax for their child's income after clubbing his or her income with their income. To club the income of a child into parents' income, the income of the child should be more than 1500 per month.
As far as the restrictions are concerned, there are some considerations to be taken care of.
In a family where there is a minor liable for income tax, both mother and father are earning members of the family. Technically there are three earning members, so the child's income would be clubbed with the income of either mother or father, whoever earns more.
If parents are divorced, then the income of the minor would be clubbed with either father or mother whosoever has the custody of the minor. The tax for the minor's income would be added to the custodian parents only.
In case the child is suffering from any disability as mentioned in section 80U, and the child is considered physically challenged when he or she is suffering from blindness, deafness, locomotor disability, poor vision, which is more than 40%. Such minor's income would not be clubbed with parents' income.
If the child is orphaned as his parents have died, then he or she would have to file a separate income tax return.
Being responsible parents, it is your first duty to make your child pay the income tax as it would give benefits by giving the income tax for your child. Holding a Pan Card is advisable for a child to help him to get one. Plan the income tax of your child earning income.
Minimum Age For Minors To Fill An Income Tax.
There is no minimum age for filing an income tax for a person. It is to be understood like this. We are concerned with income tax, then why would age matter? If there is a legal income, then there is an income tax. For income tax, only income matters. Income tax must be collected from a minor's income, whether he is earning an earned income or unearned income.
Earned income is directly earned by the child as salary from any contest/competition as prize money. Unearned money is not earned directly, but a child gets an inheritance as one's grandparents have funded money for a child. Again the income is income, and tax liability is confirmed.
How To Determine The Income Of A Minor?
The income of a child would not be included in the parents' income if the amount of the income earned by the child is less than 1500. This is a provision made under section 10(32) of the income tax act. So, a minor can enjoy his or her income if it is less than 1500. Particularly this is the case when that amount of money is transferred to the child from his parents, uncle, or grandparents. The income less than 1500 is tax-free.
If any investment is made in the provident fund or mutual fund under the name of the child by his or her parents and income attained by the child through this investment or a child can generate income by manual work or exhibited his talent, knowledge, skill, experience for example nowadays as we know the digitization is prevalent and many child actors are there who work in TV shows and show their creativity and generate income. These all forms of income are liable for income tax, and that must be paid either including it with parents' income or filing a separate income tax.
How To Club Our Income With The Minor's Income?
To the club, the income of a child with the income of parents is possible only when the child's earned income or unearned income is more than 1500. This provision is made under section 64(1A) of the Income-tax act 1961. If both the parents of the child are working, then the child's income would be clubbed in higher-earning parents, either mother or father. This clubbing would take place only till the child does not get the age of maturity, and that is 18. Once the child is not a minor, then his income would be assessed separately.
If the investment is made under the child's name, then one of the parents will have to submit his or her documents as proof. Documents such as pan number, KYC details, bank details, and Identity proof. Clubbing of the income of a child whose parents have died with the guardian's income is not provisioned in the constitution. There will be a separate filing of income tax for such children.
The income tax is subject to income only. Earned or unearned income is liable to tax either if it is earned by a mature person of 18+ age or it is earned by a minor. Due to some legal issues and complexities included in filing income tax to is advised parents to help their earning child to pay tax for him. To pay tax, parents need to club the child's money into theirs, and that would happen only if the child's income is more than 1500.
