Child Actor, Influencer or Investor? Know How Minor’s Income is Taxed

Introduction

As return filling season has been started the most un touched topic regarding the tax filling is the treatment of Minor child income the tax treatment & reporting requirements under the income tax act.

Nowadays in the era of social media there are lots of child actors who became famous & earning through various modes but many of you don’t know the tax treatment

Let’s Decode it

The Core Rule Section 64(1A)

Under Section 64(1A), all income of a minor child (whether from investments, interest, rent, business, etc.) shall be included in the total income of whichever parent has the higher income in that financial year which is the fundamental clubbing rule.

Who is a Minor Under the Income Tax Act?

For the purposes of Section 64(1A), a minor means a person who has not yet attained the age of 18 years.

Which Parent’s Income is it Clubbed With?

The income of a minor is clubbed with the income of the parent whose total income (before including the minor’s income) is greater.

This determination is made every year as the parent with higher income may change year to year, and accordingly the income will shift between parents.

& If, Parents are Separated or divorced income will club to the parent who maintains the minor.

What Incomes are Clubbed?

Section 64(1A) covers all income accruing or arising to the minor from any source whatsoever which includes:

• Interest income on Fixed Deposits, Recurring Deposits, savings accounts opened in the minor’s name
• Dividend income on shares or mutual funds held in the minor’s name
• Capital gains on sale of assets (shares, mutual funds, property) registered in the minor’s name
• Rental income from property gifted to or purchased in the name of the minor
• Income from business carried on by the minor (except certain exceptions)
• Gifts received by the minor child, to the extent taxable under Section 56(2)(x)
• Income from any investment, scheme, or instrument held in the minor’s name

Exceptions When is Minor’s Income NOT Clubbed?

Section 64(1A) itself carves out specific exceptions where clubbing does not apply which are important to identify while filling your ITR

Is there any Exemption available?

Once a minor’s income is clubbed with the parent’s income, Section 10(32) provides a partial relief.

The parent in whose hands the minor’s income is clubbed is entitled to claim an exemption of ₹1,500 per minor child per year from the clubbed income.

How is a Minor’s Income Reported in the ITR?

Minor’s income is not reported as a separate line item under a distinct head. Instead, it is included in the relevant income head in the parent’s ITR and the exemption u/s 10(32) is claimed.

• ITR 1: Can include minor’s interest/dividend income if total remains within ITR-1 eligibility & claim 10(32) in Schedule Exempt Income
• ITR 2: Report minor’s capital gains in Schedule CG & claim 10(32) exemption.
• ITR 3: Include minor’s income in respective head & claim 10(32)
• ITR 4: If minor has capital gains, parent may switch to ITR-2 or ITR-3 instead of ITR-4

Should a Minor Have a PAN?

A minor can be allotted a PAN, though it is not mandatory in all cases. However, obtaining PAN for a minor is practically advisable under below cases

• The minor holds shares, mutual funds, or any demat account (PAN is mandatory for demat)
• TDS has been deducted on the minor’s income
• The minor has earned income from own skill/talent that requires independent ITR filing

Summary Table