Income Tax: Is Child’s Income Taxable? Here is All You Need to Know

Technology advancement at such a rapid pace has made children learn at the same rate. Minor children were not previously exposed to as many opportunities as they are now. Teenagers nowadays do a variety of odd jobs to supplement their income. Many teenagers have even launched their own businesses. However, the question is whether such child income is taxed. Who is responsible for paying the tax if it is based on the child's income as well? What is the position of the Income Tax Act on this? Here is all you need to know about your child income and tax applicable on it.

What types of income are available to minors?

A minor child's money can be divided into two categories: earned and unearned. It is considered earned income if a child earns it as prize money for participating in competitions, shows, and sports, or through his own business, enterprise, or part-time job. If, on the other hand, he has accumulated funds as a result of gifts from family members, relatives, or friends, the money will be considered unearned. This includes the interest he earns on savings bank accounts, fixed deposits, and other investments made in his name by his parents.

Is income tax due on a minor's earnings?

Section 64 (1A) states that any money received by a child under the age of 18 will be combined with the parents' income and taxed at the applicable rates. If both parents work, the minor's earnings will be combined with the earnings of the parent with the higher income. However, parents with minor children can claim a tax exemption of $1,500 per child per year for a maximum of two children. Along with their own taxes, the parents will pay tax on the minor's earnings. Assume that the child's parents are divorced; in this case, the child's income is added to the income of the parent who has custody of the child. Aside from that, if the child is an orphan, he will have to fill out his own ITR. However, if the child has any of the disabilities listed in Section 80U and the disability is greater than 40%, his income will not be added to the income of the parents.

Are there any exceptions to income clubbing?

If the minor child is an orphan, that is, if both of his parents have died, his income is not combined with that of the guardian; instead, a separate tax is paid, and income tax returns are filed separately. Similarly, any income earned by a minor who has one of the disabilities listed in Section 80U will not be combined with that of the parent. Disabilities must exceed 40% due to diseases such as hearing loss, blindness, mental illness, locomotor disability, and so on. If the parents divorce, the minor's income will be combined with that of the parent who has custody of the child. Income pooling also applies to stepchildren and grandchildren.

Who is responsible for filing income tax returns for minors?

A minor must file tax returns on his income because there is no age limit, but his parents may do so on his behalf. If the returns are filed by a guardian or someone in charge of his affairs, he must upload relevant documents proving his credentials to the income tax website. As a representative assessee,' he can then file the minor's tax returns.