Nowadays, in the era of YouTube, Facebook, Instagram, even children are earning lakhs. However, in our country, making children work i.e. child labour is considered illegal. But these methods do not come under child labour.
Children are earning a lot of money through these methods nowadays. Just like tax is collected from an adult according to his earnings. Is there any tax liability on the earnings of children as per the income tax slab? Let us know what is the rule of tax on the earnings of children.
Children have two types of income (Children have two types of income)
First of all, we have to understand that a child can have two types of income, Earned and Unearned Income. The income that the child has earned himself is called Earned Income. For example, the child may have earned money with the help of his YouTube page, Instagram account or any talent hunt show.
The second income is that which the child has not earned himself, but he has ownership rights over that income. This is called unearned income. For example, if any property, shares or any other investment is made in the name of the child, then the income that the child gets from it will be considered unearned income.
What is the income tax rule on children’s earnings
Section 64 (1A) of the Income Tax Act states that if a child earns money, he does not have to pay tax on his own income. The child’s income will be added to the income of the parents as per their tax slab. Then the parent in whose income the child’s income is added has to pay income tax as per the prescribed tax slab.
There will be no tax on earnings up to Rs 1500
According to Section 10(32) of the Income Tax Act, if a child earns up to Rs 1500 per year, then no tax is levied on it. That is, his income is tax free. If the child earns more than this every year, then the income above this is considered taxable by adding it to the income of his parents under Section 64(1A).
If both parents earn, then whose income will the child’s earnings be clubbed with?
If both the parents of the child earn, then tax is calculated by adding the child’s income to the income of the one who has higher income. If a child wins a lottery, then 30% TDS is deducted directly on the winning amount. A 10% surcharge is levied on this TDS and 4% cess is also to be paid.
What will happen if the parents are divorced?
If the child’s parents are divorced, then the child’s income is clubbed with the income of the parent who has custody of the child. On the other hand, if the child is an orphan, then ITR can be filed in the name of the child.
If the child is suffering from any disability mentioned in Section 80U and the disability is more than 40%, then the child’s earnings are not clubbed with the income of his/her parents.
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