How to file Income Tax Returns for Minors?

Before beginning on the conditions that are required to be met in cases a minor has to file income tax returns, or gets it filed by a guardian, it is important to understand why filing returns are important and who becomes eligible for the same on what accounts. Let’s start with the basics if you’re unaware of the concept of ITR.

What is an Income Tax Return?

An income Tax Return or ‘ITR’ is a form in which a person is required to file information about his/her income and taxes, which is then submitted to the Income Tax Department of the country. This form is a necessary document that carries information regarding transactions of the given financial year.

The Income Tax Act of 1961 and the Income Tax Rule 1962 oblige a person falling under the threshold of compulsory filing, to submit ITR to the Income Tax Department at the end of every financial year. This means if a person files his return for the year 2020, the information contained in the form shall be from April 1st to March 31st of the given financial year. Proper documents must be attached to the return in order for it to be considered valid in the eyes of the Income Tax Department.

ELIGIBILITY/THRESHOLD FOR FILING RETURNS –

The persons falling under any of the mentioned criteria need to file their tax returns with the income tax department on the date specified by the Ministry of Finance or the Department itself –

• People whose gross total income before any deductions exceeds Rs. 2.5 lakhs in a financial year. The threshold for senior citizens under this category is Rs. 3 lakhs while for super senior citizens is at Rs. 5 lakhs.

• Companies or organizations, irrespective of whether they have made a profit or incurred a loss during that period.

• Those persons who want to claim an income tax refund.

• Resident individuals who have a financial interest or asset located outside India. This does not include NRIs.

• Foreign companies taking treaty benefit on a transaction in India

• NRIs, whose income exceeds Rs. 2.5 lakhs in a financial year, which is accrued in India, need to file the return in India

These returns need to be filed before the specified due dates. These dates can only be altered through a national declaration by the finance department of the country. There are various forms catering to the different requirements of fulfilment from the Assessee, who is the person filing the return. These forms are namely – ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6, and ITR 7.

Each person belongs to a different category in the taxable section. Hence, it becomes necessary to identify the right form for filing returns as these forms cater to separate criteria for the source of income and the category of the Assessee.  Filing the wrong form may lead to no consideration for the claims or refunds as the form stands invalid in the Tax Department.

Along with selecting the most appropriate forms, there are other aspects that persons filing returns should keep in mind while submitting ITR. This is to ensure that all documents required are filed without any discrepancy in order to smoothen the process. Some of the other basics are –

• Declaration of Income – While filing the returns, it is imperative to declare all sources of income in the form. Therefore, one should be careful that these income disclosures are made under the right subheads. For example, there are 5 heads of income – Salary, House Property, Business and Profession, Capital gains and Other sources. It is important to allocate the incomes correctly under these heads based on their nature and source.
• Tax Deductions – Another important consideration is claiming tax benefits like tax deductions. Tax liability reduces when these deductions are an element in nature, which gives taxpayers the benefit of planning taxes and expenditures.
• Payment of Tax – In order to make ITR effective, it is a prerequisite to pay the full amount of tax before submitting the form to the Income Tax Department. The department only issues the acknowledgement of such forms which are complete in every sense. Non-payment makes ITR defective and liable for rejection on any claim.
• Full Disclosure of Relevant Documents – Apart from segregating your income under the specified heads, it is imperative that one mentions the details necessary for the full disclosure of their worth. The technicalities should be verified by experts who offer CA services for Tax or Businesses.
• Claiming TDS – The TDS is a tax paid in advance thus it can be utilized for the liability or claim refund. Thus, it is important to ensure correctness in amount and verification. The certificate for TDS must be acquired from the deductor.

Thereby, any person who is liable to file an income tax return but doesn’t do so may face a heavy penalty as well as shall be punished by the law dictating the rules for the Act. The next important question is to identify when a minor becomes eligible to file such returns, in the presence or absence of any guardian. Although the Child Labor Act prevents children below the of 18 to be working, the minors in India find various sources of income before they turn into adults to either support their families or showcase their talent.

Nowadays, with internships popping around for students during their schooling years, they have a stable income at an early age. Therefore, this income is also considered taxable. Firstly, let’s clear out the meaning of a minor in India. Any child who is below the age of 18 years is considered a minor. As per section 3(1) of the Indian Majority Act 1875, any person domiciled in India shall attain a majority after completing 18 years of age. This law is unbreakable and requires serious adherence as there are other aspects related to our social and cultural values, which are bound by the Majority Act.

MINOR PAYING TAXES

Under section 64(1A), any amount which is received by a minor as income will be included in the income of their parents and the taxes on such income will be the same as the taxes imposed on the income of the parents. Any person providing CA services for business can be consulted to assist in the filing of such tax returns if you are unaware of it.

If the income of the minor is less than 1500 rupees, then the amount earned by them doesn’t accrue to the taxable or non-taxable income of the parents. However, if the income earned by the minor is greater than the specified amount of exemption, then such an income will be added to the account of the parent and will be considered parent income. The parents can claim an exemption of 1500 rupees for each child (maximum 2) in case of their clubbed income.

It is also important to note that for the minor’s income to get added to the parent’s income, they don’t have to be related by blood. This means any adopted child, step-child or even a minor married daughter will be considered as a minor whose income will become taxable in the name of the parent’s income if it exceeds 1500 rupees.

Now, we shall introduce you to some rules that govern the inclusion of the minor’s income in their parent’s income. The set of rules are as follows –

• If both the parents are earning their separate share of income, then the minor’s income will be accrued to the parents’ income, especially to the parent whose income is higher amongst both.
• In case the parents of the minor are divorced, the income is added to the income of the parent who has custody of the child.
• If the minor is an orphan, then a separate income tax return needs to be filed. A guardian cannot avail of the salary inclusion benefit from the income of the minor.
• In case the minor is a disabled child, then under section 80U of the Income Tax Act, the income of the child will not be added to the income of the parents. A child is considered disabled when the minor has more than 40% disability due to mental illness, locomotor disability, hearing impairment, poor vision or blindness.
• If the income of the minor is earned by them because of their talent, expertise, skill or knowledge or even manual work, then such income will be taxed to the minor itself and not be taxed as parental income by adding it in the parents’ account.

There is no specific age concern when it comes to the filing of an income tax return, as the only criteria to be considered is income. If the person willing to file an ITR is eligible to do so by the laws of the Act, without an exemption, then they can do so without hassle. Income tax in the case of a minor will be calculated on the basis of their savings, their investment income or income earned from jobs or acting jobs, winning contests and shows etc.

If the income of the minor is not clubbed with that of their parents then they will have to do it individually. As mandated the minor with income can file a report to the authorities by filing Income Tax Return prescribed through the following modes –

• In the minor’s income tax return
• In the income of the parent who has the higher income

Some of the major requisites for minors who want to file their own ITR are –

• PAN card
• Income details which should include cash received, cheque received, cash deposits in a bank etc.
• Details of savings like fixed deposit interest, savings interest, contribution in funds and so on
• Active mobile number and email ID
• E-filing portal login details
• Updates bank account details (Name, IFCS and Account number)

SIGNING THE RETURNS ON BEHALF OF THE MINOR –

Sections 140, 159, 160 etc. of the Income Tax act 1961 envisages many solutions where a person would not be able to receive their Income Tax related affairs on their own. In these cases, any guardian or any other competent person can act on their behalf with specific authorization. For a minor, the guardian or the manager who is managing the affairs of such a person may be responsible for registering as their ‘representative’.

If the guardian or the manager of the minor meets the requirements they will have to register as a Representative Assessee by logging into the income tax website and uploading the required documents to prove their credentials. Once the request is approved and the person is registered, then they can file returns of the minor they are representing. The tax slabs on the income of the minor are also treated in the same manner as that of the entire country. The tax slabs also increase with an increase in income. The last slab is 30% on income of 15 lakhs and above, according to the new tax regime.

CONCLUSION

The government issues penalties in order to ensure discipline in the country’s fiscal system and transparency in resource transactions if the taxes are not filed by personnel who are eligible to do the same. Everyone should know some tricks and tips to save money on personal IT returns for a better future and financial growth.  Income Tax laws are rigid for every citizen and must be abided by in order to avail the luxury of being a tax-paying citizen.

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