Nowadays, it is observed that a lot of young talented kids are being hired in different fields like acting, singing, choreographing, etc., and they are paid handsome amount for their skill and talent. The question arises is whether the income earned by these children are taxable and if yes, in whose hands, will it be taxable.
The Indian tax law has special provisions related to clubbing of income earned by the minor child under Section 64(1A) of the Income Tax Act (‘the Act’). A child also includes a step child and an adopted child who has not attained the age of majority. i.e. 18 years of age. Till the minor has not reached the age of 18 years, his income will be assessed/ clubbed with the income of the father or mother of such child, whoever has a higher income. The first point that should be remembered by a taxpayer is that the provision regarding clubbing would be operative only so long as the child is a minor. If the child attains majority at any time during the financial year, clubbing provisions would not be applicable and he would be assessed independently from that particular year.
Section 10(32) of the Act entitles the parent under which the minor’s income is being clubbed to avail exemption of Rs.1500 per child.
There are certain exceptions under which income of minor will not be clubbed with his/ her parent such as-
1. Income earned by the minor child suffering from a disability specified in Section 80U of Income Tax Act, or
2. Income earned by minor from manual work or from any activity which includes his own skill, or specialized knowledge or experience.
However, if such income is invested or utilized otherwise, then any income earned from such investment/ utilisation will be clubbed with the income of parent of such minor.
Further, clubbing of income also depends upon whether marriage of their parent subsists or not. i.e. If the marriage of the parents subsists means if the parents live together, normal provision of clubbing will prevail. However, if the marriage of their parent does not subsists that means they have agreed to live apart in such case, income will be clubbed in the hands of the parent who maintains the child.And where any such income is once included in the total income of either parent, any such income arising in any succeeding year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary to do so .Further, where none of the parent is alive, no clubbing provisions shall apply and the minor shall file the return through his/her legal guardian.
(Republished With Amendments)
(Author is founder of Founder, RSM Astute Consulting Group)
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