Filing Income Tax Returns for Minors

The income tax slabs have been provided by the income tax department for individuals on the basis of different age criteria or entities. Underage children, toddlers or students with a source of income are as a mandate to report to the income tax department and pay relevant taxes.

There is no age prescribed for the individuals to file their income tax return, each and every person can proceed with the filing of their return on the income tax portal.

As mandated the minor with income can report to the authority by filing the Income Tax Return in prescribed form through the following modes:

  • In the minor’s ITR; or
  • In the income of either of parents who has a higher income.

Each individual who wants to file their income tax return have to have some basic documents with them which are as under:

Clubbing of Income

Generally, diversion of income is a crime as per the Indian statute. Moreover, as per the Income Tax Act, 1961 (“The Act”), clubbing of income means addition or inclusion of other person’s income to assessee total income thus, implies that such assessee is liable to pay tax on such income.

  • Clubbing of income can be done under such circumstances where only income has been transferred for the purpose of reporting such income whereas the actual possession is in the hands of the person in whose name it has been generating.
  • As per Section 64(1A) of Income Tax Act, 1961 which reiterates the provision with regard to minors’ income, which states that Any income arising or accruing to the minor child.

Explanation: The term “minor child” includes

  • Stepchild, bio child, adopted child, minor married daughter; and
  • Such a child has not attained the age of 18 years.

The income of such minors will be clubbed in the income of the higher-earning parents.

  • However, if the marriage of a child’s parents does not subsist, income shall be clubbed in the income of that parent who maintains the custody of the minor child.

Exceptions to clubbing

  • Disability of Minor child –

The income of a disabled minor child which falls under the category of Section 80U of the Act, such shall only be reported in the income of such minor’s child.

  • Manual Work –

In case, the income earned by minor is manual nature work, such income shall only be reported in his/her return.

  • Special Expertise or Skills –

The income earned by the child from activity involving the application of his/her skill, talent specialized knowledge and experience, such income shall only be reported in his/her income.

  • Child Above 18 years –
    • Any income earned by a major child.
    • Income earned from investments made out of money gifted to the adult child. The gift in terms of money to an adult child is exempt from tax as falling under the category of gifts to ‘relative’.

Exemption:

The benefit of clubbing is for the assessee in whose income the amount of minor child income which gets clubbed into the income of the assessee.

But in case of income of minor child from Fixed deposits should be clubbed in the hands of parents whose income is higher without clubbing income of a child.

Such a parent gets a deduction of Rs. 1500/- (Refer Section 10(23)) without taking cognizance that the income earned through manual work, or through personal skill or under disability covered under section 80U.

Thus, there are varied circumstances under which the income of a child is clubbed in the income of parent which higher income is subject to exceptions and liability to pay tax is thus, transferred.

Having income tax-related queries?

Reach us at info@taxreturnwala.com

Also Read: Cheque Bouncing & Related Consequences