Do Children Pay Income Tax in India? Understanding the Fiscal Liabilities of Minors This Children’s Day 2025
Minors’ incomes are usually clubbed with the parent’s income under Section 64(1A) of the Income Tax Act, 1961.
As India celebrates Children’s Day 2025, an intriguing question often overlooked in mainstream discussions deserves to be discussed: do children pay income tax?
Most people instinctively assume the answer is no, believing that minors are too young to bear the weight of fiscal obligations or that minors are automatically shielded from taxation by the arms of the law.
But the Income Tax Act, 1961 paints a much more nuanced picture on this subject. Depending on how much a child earns, how they earn it and where the funds come from, a minor may indeed find themselves standing shoulder-to-shoulder with adults within the tax net - sometimes directly, sometimes through their parents, and sometimes through guardians.
Do Children Pay Income Tax? Clubbing Rules and Key Exceptions
The fundamental rule governing the taxation of minors in India is contained within Section64(1A) of the Income Tax Act. This provision requires that a minor’s income be “clubbed” with that of the parent whose total income is greater than that of the minor.
This rule was introduced by the Parliament to prevent tax avoidance through commonly seen transfer of income generating assets to children in a bid to avoid tax. The rationale is simple: if parents could easily shift deposits, property, shares or other investments to their children, tax slabs could be exploited and revenue would face losses.
However, the income clubbing mechanism does not apply universally. Clubbing does not apply where a child earns income through their own manual work, artistic or athletic talent, technical or professional skill, specialised knowledge or experience.
Likewise, if a minor suffers from a disability as listed in Section 80U, their income shall be assessed independently. These exceptions protect genuine child performers, skilled minors and those whose circumstances require special consideration by the taxman.
In K.M. Vijayan v. Union of India (1995), the Madras High Court upheld the constitutional validity of Section 64(1A), ruling that Parliament can require a minor’s passive income to be clubbed with a parent’s income as a legitimate anti-avoidance measure.
In another instance, the Pune Bench of the Income Tax Appellate Tribunal (ITAT), in Anshul Anil Goel Vs DCIT (2025) held that since income of minor child is clubbed in the hands of assessee, Tax Collected at Source (TCS) on the same needs to be credited in the hands of assessee and that the assessee cannot be deprived from the credit of TCS.
What If a Minor Wins a Game Show? The ‘Slumdog Millionaire’ Scenario
The 2008 drama ‘Slumdog Millionaire’ directed by Danny Boyle was a smash hit, with its deep-rooted story set in India and eclectic music by A.R. Rahman marked one of the first instances when Indian cinema made a lasting mark at a global level, bagging eight Academy Awards out of its ten nominations at the 81st Oscars in 2009.
To understand how these rules play out in real life, imagine the protagonist Jamal Malik, played by Dev Patel, was a minor when he answered the final question and walked away with the jackpot. Quiz show winnings are classified under the Income Tax Act as income arising from the knowledge and skill possessed by the participant.
Now, even if Jamal was under the age of eighteen, his prize money would have been taxed in his own hands because it arises directly from his intellectual ability and therefore falls within the exception to clubbing.
However, such winnings attract a flat 30 percent tax under Section 115BB, with no deductions available. A guardian would file his tax return on his behalf, but the tax liability against this would belong entirely to him and not his parents.
Child Actors and Skilled Minors: When Income Is Taxed Independently
India has an increasing number of minors earning income through talent-based or skill-based engagements, ranging from child actors and classical musicians to gifted athletes, coders, e-sports competitors and digital creators. When a child performs in films or television, plays cricket professionally, wins a competition or earns income from producing content for YouTube, such income arises from the child’s own skill, talent or labour.
As a result, such income is taxed independently in the minor’s name, not clubbed with the parent’s income under Section 64(1A). The guardian files the return, but the tax computation is done as if the minor were a standalone taxpayer and is taxed as per regular tax slabs applicable on all taxpayers.
Production-related expenses, equipment costs, training expenses and other incidental costs may also be deductible in computing their taxable income, depending on its nature.
Taxes on Children: Clubbing, Gifts and Purchases
The tax law does not consider children exempt simply because they are young. Whether a child’s income is independent or clubbed depends on the source of the underlying funds. If a parent gifts money, property or investments to a minor, the income arising from those assets including interest, rent, dividends or capital gains is clubbed with the income of the higher-earning parent. The only relief available is a modest ₹1,500 per child under Section 10(32) of the Income Tax Act.
However, the equation changes if the asset is inherited or gifted by a relative other than a parent. Income from such assets is treated as the minor’s own income because clubbing applies only when the income arises from assets or transfers made by parents, not other relatives.
It is also important to remember that children are not exempt from indirect taxes. Any product or service that a child purchases, whether a laptop, concert ticket, toy, confectionery item, or online subscription carries Goods and Services Tax (GST) just like any other consumer transaction.
Do Minors Pay Tax on Bank Interest, Deposits and Investments?
Indians often earn bank interest, fixed deposit returns, recurring deposit interest and investment income in the name of a minor. Here again, the source of the funds controls the classification of the tax. If the deposit or investment is made out of parental funds, all interest or gains are clubbed with the income of the parents.
If the deposit comes from the child’s own earnings, such as acting fees or prize money, or from gifts or inheritances that do not originate from a parent, the resulting income is treated as the child’s own.
If the minor’s independent income exceeds the basic exemption limit, they are required to file an income tax return. Deductions such as Section 80TTA may also apply depending on whose hands the income is ultimately assessed in.
Can Children Own a Business or Property for Tax Purposes?
A minor in India cannot legally enter binding contracts, making it impossible for them to run a business independently or act as a proprietor. However, a minor can own property, whether inherited, gifted or received through family partition. The income arising from such property may or may not be clubbed depending on whether the property was funded or transferred by a parent.
A minor may also be admitted to the benefits of partnership in a firm, although they cannot be a contracting partner. In such cases, the taxability again hinges on whether the income represents passive gains or is intertwined with the minor’s skill or personal involvement.
Also Read: RBI allowsChildren Aged 10 and Above to Operate Bank Accounts on Their Own
Compliance for Minors: PAN, Filings, Influencers and Orphaned Children
A minor can obtain a Permanent Account Number (PAN) and it is often necessary where investments, bank accounts or professional income exist. When a minor’s independent income exceeds the basic exemption threshold, a guardian must file the return on their behalf.
With the rise of young digital creators, esports athletes and online influencers, such filings are becoming more common. If the income is genuinely generated by the child whether through their own skill, talent or work, it is assessed in the minor’s hands. But if the account is effectively operated by the parent or the parent is the real performer, clubbing can still apply.
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An important exception arises when the concerned minors are orphans. Clubbing under Section 64(1A) applies only where at least one parent exists. When a minor has no living parent, all income - whether passive or active is automatically assessed in the hands of the minor, typically with a court-appointed or legally authorised guardian representing them.
In conclusion, the question “Do children pay income tax?” has no singular answer. The law distinguishes carefully between passive income, assets transferred by kin, genuine earnings from skill, inherited property and modern digital income streams through a balanced framework that protects them, while preventing tax avoidance through legislative safeguards.
As Children’s Day 2025 celebrates the promise and potential of India’s youth, it also offers a moment to understand how deeply the law recognises their evolving economic roles in an evolving economy.
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