ITR filing rules for children 2023: When is it mandatory to pay taxes and file returns?

Income Tax Return filing rules for children 2023: Check ITR and taxation rules for children for AY 2023-24

Age is not an excuse when it comes to Income Tax Return (ITR) filing. Not many taxpayers are aware that children/minors are also required to pay taxes and file returns if they are making some income. But there are some conditions and exceptions. More than 4800 minors aged below 18 years filed their ITR in FY 2022-23 till 31st January 2023. This article looks at the ITR filing and taxation rules for children/minors aged below 18 years.

Tax experts say that young individuals with a source of income, including kid influencers, in India are expected to pay taxes on their earnings, just like any working individual.

“Minors who are below the age of 18 years and have an income in the form of earned income or unearned income or do certain transactions (subject to certain conditions) have to pay taxes,” says Abhishek Soni, Co-founder and CEO of Tax2win, a Fisdom company.

“Income tax rules state that individuals below the age of 18 years are considered minors and are taxed differently. Minors are not required to file their own tax returns, and their income is clubbed with the income of their parents or legal guardians,” says Sujit Bangar, Founder of Taxbuddy.

Tax liability of children/minors may arise in the following conditions:

• Earned money: When the children earn money through their specialized skills, like winning any contest/competition/tournament, etc. This money also includes the salary amount.
• Unearned money: When the money is not directly earned by the minor but instead received as a form of a gift from relatives, grandparents, interest income, income from investments made in their name by the parents, etc.

When is minors’ income clubbed and taxed with parents?

According to Section 64(1A) of the Income Tax Act, any amount a minor receives is included in the parent’s income. This is known as “clubbing of Income.” Thus, the taxes on that income will be paid the same way as the tax on the parent’s income.

“If the income is less than Rs 1500 in a year, it will be added to the parent’s income, and the exemption will be available u/s 10(32) up to Rs. 1,500/- so there will be no tax in such case. This income can include interest income, dividend income, etc. If the income is more than Rs 1500 in a year, then this income will be treated as parent income, and the parents will have to pay the tax here. However, a tax exemption of Rs.1,500 per child per year is available to parents on minors’ income,” says Soni.

When is minors’ income taxed in his/her hands only?

According to tax experts, if a minor’s income is above the basic exemption limit then tax will have to be paid on the excess amount.

“If a minor earns income through influencer marketing or other means, it is considered the responsibility of the parent or guardian to pay taxes on the minor’s behalf. However, if the minor’s income exceeds the basic exemption limit for a financial year, which is currently Rs. 2.5 lakh, then the minor would be required to pay taxes on the excess amount,” says Bangar.

According to Soni, there are several situations under which the income of a minor will be taxed in his/her hands only. Such as:

• If the minor has earned the income on his skills, i.e., through his knowledge or talent, he must file an income tax return. For example, the winner of TV shows like Little Champ, Master Chef Junior, and others.

• If a child is considered disabled as per the rules under Section 80U of the Income Tax Act 1961, then the child’s income will not be clubbed with the parent’s income. In such cases, the minor must have more than 40% disability due to diseases like locomotor disability, hearing impairment, poor vision, mental illness, blindness, etc. Here the income will be reported separately in the child’s return only, which will be filed by parents on behalf of the minor child.

• If the income earned by the minor is through manual work done by him, this kind of income will also be reported in the minor’s return only and will be taxable in his own hands.

Is ITR filing mandatory for children?

Yes, it is mandatory if the income is above the basic exemption limit.

“Minors with income are liable to pay taxes. A minor can have two types of income-earned and unearned; in both conditions, ITR needs to be filed following certain rules applicable to earning minors. There is no minimum age restriction on filing ITR. If it is unearned income (interest income, gift, etc.), then income will be clubbed in the parent’s income, and parents will file the ITR. However, if it is earned income, parents or legal guardians will file the ITR on behalf of minor children as a representative assessee,” says Soni.