In this blog post, Kshitiz Agarwal, a student pursuing a BBA in Logistics Management University of Petroleum and Energy Studies and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the taxation of the income of a minor.
In India, a minor is a child who is less than eighteen years of age. The income of a minor is clubbed, gets added to the parent’s income is taxed along with and in the same way as parent’s income, with the income of his/her parent under the section 64(1A).
The following cases are to be considered before clubbing the income of the minor:
- If the parents of the minor are unmarried or divorced
The income of the minor will get clubbed with the parent, who was taking care of the minor for the previous financial year.
- If both the parents of the minor are earning and married
The income of the minor would get clubbed with the parent whose total income is greater before the addition of the income of the minor.
- If one of the parents of the minor is not alive
The income of the minor will get clubbed with the income of the surviving parent, even if the income of the deceased parent was greater than that of the surviving parent for the previous financial year.
- If both of the parents of the minor are not alive
The income of the minor wouldn’t get clubbed with the guardian, in case both of the parents are not alive and a separate income tax return is filed for the minor.
- Continuance in clubbing of the income of the minor
The income of the minor is clubbed with either of the parent then it would be continued to be clubbed in the succeeding financial year as well.
- Exceptions to clubbing the income of a minor:
The income of a minor is not clubbed with the income of his/her parent if the income is earned by the child by the way of any work or activity that uses his special talent or special knowledge. In this case, the income of the minor would not be clubbed with his/her parents. Such income might include the prize money earned by winning a singing competition, dance show, reality show, comedy show, talent hunt etc. This income of the minor would be taxed separately from his parents, a separate income tax return has to be filed and the rate of tax would be decided by the Indian progressive taxation system, in accordance to the amount of prize money earned by the minor by displaying or using his/her special talent. The income tax slab rates are different for different categories. There are four categories of income tax slabs.
The income of a minor is not clubbed with his/her parent if the minor is suffering from any disability specified under Section 80U, under which a person is considered specially able only if he/she is suffering with not less than, that is, greater than and equal to, forty percent of either blindness, low vision, leprosy cured, loco motor disability, hearing impairment, mental retardation or mental illness.
When the income of a minor earned is taxed separately, two out of the four income tax slab rates for the year 2015-2016 and 2016-2017 will be applicable in accordance to the progressive taxation system of India.
Income tax slab for male individuals below the age of sixty years, as the income of the minor is taxed separated without getting clubbed with the parent due the above stated first exception and by the virtue of being a minor, he is below the age of 60 years of age and would neither fall in the category of the tax slab rate of senior citizens, the people who are above the age of sixty, nor fall in the category of the tax slab rate of super senior citizen, people who are more than 80 years of age.
The tax slab rates for male individuals below the age of 60 for the financial year 2015-2016 and 2016-2017 are as follows:
| Income tax slabs | Income tax rates |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with his parent’s income, does not exceed Rs 2,50,000 | Nil
No income tax is needed to be paid by the minor. |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with his parent’s income, exceeds Rs 2,50,000 but does not exceed Rs 5,00,000 | 10 percent of the amount by which it exceeds Rs 2,50,000 |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with his parent’s income, exceeds Rs 5,00,000 but does not exceed Rs 10,00,000 | 20 percent of the amount by which it exceeds Rs 5,00,000 |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with his parent’s income, exceeds Rs 10,00,000 | 30 percent of the amount by which it exceeds 10,00,000 |
Income tax slab for female individuals below the age of sixty years, as the income of the minor is taxed separated without getting clubbed with the parent due the above stated first exception and by the virtue of being a minor, she is below the age of 60 years of age and would neither fall in the category of the tax slab rate of senior citizens, the people who are above the age of sixty, nor fall in the category of the tax slab rate of super senior citizen, people who are more than 80 years of age.
The tax slab rates for female individuals below the age of 60 for the financial year 2015-2016 and 2016-2017 are as follows:
| Income tax slabs | Income tax rates |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with her parent’s income, does not exceed Rs 2,50,000 | Nil
No income tax is needed to be paid by the minor. |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with her parent’s income, exceeds Rs 2,50,000 but does not exceed Rs 5,00,000 | 10 percent of the amount by which it exceeds Rs 2,50,000 |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with her parent’s income, exceeds Rs 5,00,000 but does not exceed Rs 10,00,000 | 20 percent of the amount by which it exceeds Rs 5,00,000 |
| When the total income of the minor, whose income is to be taxed separately without clubbing it with her parent’s income, exceeds Rs 10,00,000 | 30 percent of the amount by which it exceeds 10,00,000 |
Deductions allowed in clubbing the income of a minor:
- When the income of a minor child is less than Rs 1500 per annum per child than the entire amount is allowed to be deducted.
- When the income of a minor is more than Rs 1500 per annum per child than the parent is allowed to claim an exemption of Rs 1500 for each minor child whose income is clubbed,
How Can a Minor Earn Income:
Minors can earn an income from his bank accounts, fixed deposits and/or other investments made in the parents of the minor in his/her name. The income of a minor is clubbed, gets added to the parent’s income is taxed along with and in the same way as parent’s income, with the income of his/her parent under the section 64(1A). The exemption amount is 1500 rupees per annum for a minor, which might get adjusted over time in proportion to the inflation.
The income of a 16 years old kid, who works post schooling hours and has the income of less than and equal to 1500, within the exemption limit, wouldn’t owe any income tax to the government of India, given that he doesn’t have any other earned or unearned income. Hypothetically in case, if the employer withheld taxes in payment, he can obtain a refund by filing income tax return.
