Will your minor child’s income be clubbed with yours while filing ITR? Know when and how it is taxed

A minor may have income from investment, gifts, interest, their own skills or other such sources. While most parents may assume that such earnings will automatically be added to their own income while filing income tax return (ITR) and taxed in their hands, that is not always the case.

Income-tax rules provide certain exceptions where the child’s income is not clubbed with the parent’s income. This can prevent the parent’s taxable income from increasing, while allowing the minor child to claim applicable tax benefits, such as the standard deduction and rebate, subject to the relevant rules.

When does a minor need to file a separate ITR?

Income earned by a minor through their own skills, talent, specialised knowledge, or manual work, such as participating in sports, brand endorsements, performing, acting or creating content, is taxable in the minor’s own hands and is not clubbed with the income of their parents as per the Income-tax Act.

Any person under the age of 18 is considered a minor. While child labour laws restrict the employment of children in certain circumstances, a minor may still earn income through activities such giving professional services or running a business under the guidance of their parents.

Since the income arises from the child’s personal efforts and abilities, rather than from investments or assets transferred by a parent, it is taxed separately instead of being clubbed with the parent’s income.

For example, if a minor earns ₹2 lakh through acting assignments, that income may qualify for the exception if it arises from the child’s own talent and efforts. Instead of being clubbed with the parent’s income, it will be taxed separately in the child’s hands. This can help the family save tax, depending on the applicable deductions, rebates and other tax provisions.

How is a minor’s income taxed in such cases?

The income earned by a minor is taxed according to the normal tax slab rates, the same way it is applicable to an individual taxpayer. The way of reporting such income, however, depends on the nature of the activity.

A minor’s income is commonly reported under “Profits and Gains from Business or Profession (PGBP),” particularly in cases involving professional services, sponsorships, endorsements, content creation, or tournament earnings, according to Pranav Sai S, tax expert at Cleartax.

If the minor runs a business or has professional income, ITR-3 can be filed, while ITR-4 may be used if the taxpayer opts for presumptive taxation scheme. The process isn’t very different from that of an adult individual taxpayer.

In such cases, the return is filed in the minor’s name through a parent or legal guardian acting as the representative assessee, the expert noted. The deadline to file ITR for minors is the same as other taxpayers.

Clubbing provisions apply in these cases

If a minor earns income from savings in a bank account or fixed deposits, or from investments made in their name by the parents, it will be taxable in the parent’s hands. This is because the income arises from money invested or transferred by the parent, rather than from the minor’s own skills or efforts.

As per section 64(1A) of the income tax act, any income that accrues or is paid to a minor is generally clubbed with the income of the parent who has has higher taxable income. The income is then taxed in the hands of that parent as though it were their own income, according to the income tax portal.

When do minors or parents pay no tax?

If a minor’s income is less than ₹1,500 in a financial year, the entire amount is exempt from income tax. In such cases, the parent can claim an exemption of ₹1,500 for each minor child whose income is clubbed under section 10(32) of the income tax act.

However, if the minor’s income exceeds ₹1,500, only that portion of the amount can be claimed as an exemption while filing ITR, and the remaining balance remains taxable in the parent’s hands.

An important exception to the clubbing provisions applies to minors with disability specified under Section 80U of the income tax act. In such cases, the child’s income is not be clubbed with the income of the parent.

A person is considered differently-abled when they have more than 40% disability, including blindness, poor vision, hearing impairment, loco motor disability, and mental illness.