Income Tax Rule: Who Pays the Income Tax if a Child Earns? Find Out What the Income Tax Department Says

Section 64(1A) of the Income Tax Act deals with the rules regarding a minor's income.

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Child labor is prohibited in India, but children can still earn money legally through content creation, talent shows, and other avenues. Many children are indeed making money this way. The question arises: if a child’s income falls under a taxable slab, who is responsible for paying the income tax? Here’s what the Income Tax Department says about this.

Sources of a Child’s Income

   

A minor can have two types of income. The first is earned income, which the child has earned through their efforts, and the second is unearned income, which the child owns but has not earned, such as gifts or inherited property. If a child earns money through competitions, reality shows, social media, or other means, it is considered earned income. If a child receives property, land, or other assets as a gift, it is considered unearned income. Additionally, any interest from investments made in the child’s name by the parents is also considered unearned income.

Legal Provisions

Section 64(1A) of the Income Tax Act deals with the rules regarding a minor’s income. According to the rules, a minor is not required to pay tax on their earnings. Instead, their income is added to the income of their parent, and the parents must pay income tax on the total income as per the applicable tax slabs.

Income up to ₹1500 is Tax-Free

Under Section 10(32), a child’s annual income up to ₹1500 is exempt from tax. Any income above this amount is added to the parent’s income under Section 64(1A).

Also read: Budget 2024: Major Income Tax Relief for Taxpayers? Industry’s Big Recommendations to Finance Minister

If Both Parents Earn

If both parents earn, the child’s income is added to the income of the parent who has the higher earnings, and the tax is calculated accordingly. If a minor wins a lottery, a 30% TDS is directly deducted, followed by a 10% surcharge on the TDS, and a 4% cess.

In Case of Divorce

If the child’s parents are divorced, the child’s income is added to the income of the parent who has custody. If the child is an orphan, they must file their own ITR. Additionally, if the child suffers from a disability mentioned in Section 80U and the disability is more than 40%, the child’s income is not added to the parent’s income.

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