Minor kids earning money? Here's the tax rules parents should know

When a minor earns, tax liability isn't always obvious. Some income hits the child, some lands with the parent. Here's what you need to know.

Who pays the tax if a minor starts earning money? The kid, or the parents? That’s a question many face these days amid the rise of content creators. 

Ritika Nayyar, partner, Singhania & Co, says, “If a child earns money through their own effort, like performing or creating content, that income is taxed in the child’s name. But income from assets or investments made by the parents, such as fixed deposits, rent, or dividends, must be included in the parents’ taxable income.”

 

“If the income is earned by the child through their own skill, talent, or manual effort, such as acting, freelancing, or winning a competition, it is taxed in the child’s own hands,” says Avnish Arora, executive director, direct tax, Forvis Mazars India.

 

 

Filing returns for minor children

When a minor earns taxable income from their own work, parents need to take certain steps to stay compliant. Nayyar explains:

 

• Apply for a PAN card in the child’s name. 
• File the return in the child’s PAN, with the parent or guardian signing on behalf of the minor. 
• Claim eligible deductions under Sections 80C or 80D, if applicable.

 

Common mistakes, she warns, include filing the income under the parent’s PAN even when it arises from the child’s effort, failing to maintain proof of the child’s independent work, and claiming deductions in both parent and child returns.

 

Practical tips for parents

• To simplify compliance, Nayyar recommends: 
• Maintaining a separate bank account in the child’s name for earnings. 
• Keeping documentation such as contracts, payment records, or invoices that clearly show the income source. 
• Transparently disclosing any income earned from parental assets in the parent’s return and claiming the ~1,500 exemption under Section 10(32).

“The key,” she says, “is to remain transparent and compliant, without overcomplicating structures or routing investments through the child purely to reduce tax.”