Income Tax News: New Rules! Tax Liabilities on Children's Income Explained, Check

Income Tax News: Regarding the taxation of income received by children in India, the Income Tax Department has set down precise guidelines. Any income received by a minor kid under the age of eighteen is added to the parent's income for taxation purposes, as per Section 64(1A) of the Income Tax Act. This clause aims to stop tax avoidance by not allowing money to be transferred to children.

Rules and Guidelines

Clubbing of Income: Income from investments, gifts, or profits received by a minor kid is combined with the higher-earning parent's income. This guarantees that the parent will pay taxes based on their whole income, which includes the child's wages.

Tax Exemption Limit: The kid is liable for taxes if their annual income above Rs. 1,500. On the other hand, parents are eligible for a tax exemption of up to Rs. 1,500 annually, provided they meet certain requirements.

Taxation of Investments: The clubbing requirements also apply to income from investments placed in the child's name, such as mutual funds or term deposits. This guarantees that income of such kind isn't utilized to evade paying taxes.

Importance of Keeping Records

When submitting their personal income tax returns, parents are required to include the child's income. To comply with tax requirements, they must keep records of the child's income, investments, and any relevant exemptions.

The tax is computed by adding the child's income to the higher-earning parent's income if both the mother and father are employed. In the event that a minor wins the lottery, 30 percent TDS will be immediately withheld. Afterwards, this TDS will be subject to a 10% surcharge in addition to a 4% cess.

In the event that the kid's parents divorce, the child's income is added to the income of the parent who is granted custody of the child. In addition, the kid will need to submit his own ITR if he is an orphan.