The BuyT Desk
Yes, they do. The age of the income-earner doesn’t matter. A child is considered a minor until he is 18 years old and he/she is liable to pay income tax if they earn an income. A minor’s income is added to their parent’s income and they pay tax on it. A minor can earn income from a savings bank account, bank FD or any other form of investment made in his/her name. Parents of young children often make investments for their child’s higher education or their future. Grandparents make investments for minors. And sometimes the children earn money through their talent, like winning a competition or working in a reality show. All these earnings will be taxed.
How will it be taxed?
Earnings on investments made in the name of the children will be counted as the income of the parents. Under Income Tax Section 64(1A) the parent will have to pay tax on it. Parents will have to pay tax on whatever is earned. If both the parents earn then the child’s income will be clubbed with the parent whose income is higher. If the parents are divorced, then it will be added to the income of the one who has custody of the child. If the parents are not alive then the income of the child is not clubbed with anyone. The guardian doesn’t have to pay the minor’s tax. Instead, a separate income tax will have to be filed in the name of the child.
Tax exemption on the investment made for children
If the income from investments made in the name of the child is less than Rs 1,500, then it is not clubbed with the income of the parents. At the same time, when this income is clubbed with the parents, then the parents can claim an exemption of Rs 1,500 on the investment made in the name of each child.
Three Exception When A Child’s Income is not clubbed With Parents
1)If the child earns his/her own money based on his/her talent like winning a competition or appearing on a TV show or in any other way, then the child will have to pay a separate income tax. It is worth noting that you can also get a PAN card made for minors, which is considered necessary for filing returns.
2) In the case of an orphaned child his/her income is not clubbed with anyone. The guardian doesn’t have to pay the minor’s tax. Instead, a separate income tax will have to be filed in the name of the child.
3)Wherein, if the child is handicapped and has visual, hearing, walking or any mental illness as listed under section 80U of Income Tax, then their income will not be added to the income of the parents. A child is considered disabled when the minor has more than 40% disability due to mental illness, locomotor disability, hearing impairment, poor vision, and blindness.
