Thread by @CAYogesh4u

Thread on Taxation and Tax Planning through Minor’s Income

We will see:
👉🏻PAN & ITR filing of Minor
👉🏻How Clubbing of Income happens?
👉🏻Taxation of Minor Income
👉🏻Tax Planning

@Spaysocial @investyadnya @AdeParimal @gaurav28jain #minor #TaxTwitter #taxplanning

Q. Can minor apply for PAN?

Absolutely yes, Income Tax Act does not bar minors from applying to PAN. Even today’s born baby can also apply for PAN.

There is no age limit for applying for PAN.

Q. Can Minor file his ITR?

Yes again. There is no provision in income tax act which says minor cannot file his ITR.

Income tax return can be filed by his representative also.

#incometax #IncomeTaxReturns

Q. How Clubbing of Income happens for Minor?

Any income which accrues or paid to minor will be added to parent’s income and taxes will be
paid as if it’s their own income.

If both the parents are earning, minors income will be clubbed in the income of parent who
earns more.

If both parents are no more alive, income will not be clubbed. Minor will have to file his own ITR.

If parents are divorced, Income will be clubbed with income of parent who has custody of minor.

Q. Which income will be Clubbed?

All PASSIVE income will be clubbed with Parent.

Passive income means, income accrued or received to minor which is not self-earned. It also termed as UN-EARNED Income.

E.g. Income from investments made by parents, FD’s, Shares & MF’s etc.

Q. Which income will not be clubbed?

Income from ACTIVE source will be not be clubbed.

Active source income means, Income earned by minor using his own Talent or Skill or Knowledge or Experience.

This is also called EARNED Income.

Nowdays, there are many ways by which minor earns his own income.

e.g. Youtube videos , Instagram affiliated marketing, Films, TV Shows, Computer Coding, Games, Quiz, Competitions, etc.

Income earned by above ways will not be clubbed in the hands of parents.

Q. When clubbing provisions will not attract?

✅Active Income (Discussed earlier)

✅Any disability to minor above 40% as mentioned in section 80U of the Income Tax Act

✅Minor turns Major

✅Both parents not alive

Q. Taxation of Minor Income?

Income of Minor will be clubbed in the hands of Parent who earns more.

Income will be clubbed in respective heads of income and tax rates and slabs as applicable to the parent.

Exemption of Rs.1500/- per year per child is allowed.😉

Q. Important Points on ITR filing for parents:

Parents have to fill up schedule SPI (Income of Specified Persons) in their ITR giving all the required details like PAN, Relation,Amount and Heads of Income.

If clubbing attracted in FY 21-22 parent cannot file ITR 1 & 4

Now comes the most important part of this thread ☺

Tax Planning through #Minor

Gifts received by Minor is exempt from tax without any limit. Clubbing will apply if there is any income from this gifted money.

So, need ways where there will be no tax implication even if clubbing attracts.

👉🏻Invest where income is exempt from tax.

Like,
Investment in PPF. Interest from #PPF is exempt from tax even if clubbing applies.

PPF is one option for corpus creation and gives decent returns

👉🏻 Another one is Investment in Rural Agricultural Land

Capital gains from sale of Rural Agricultural Land is exempt from income tax.

#clubbing #savetaxes

👉🏻 Another way is make Long term investments when minor

Invest for long term in Shares, MF, Property or any other asset class WHEN HE/SHE IS MINOR

and

withdraw after MINOR TURNS MAJOR.

After attaining majority, income will not be clubbed in the hands of parents.

Additionally, If any tax payable on such long term investments then that can be migited by making tax savings investments and can also take benefits like basic slab exemption etc.

Otherwise, it would get taxed in the hands of parents at higher rates. (If clubbed)

By using these techniques one can do tax planning through minor.

This will create good corpus of
investments in the name of minor and can save good amount taxes as well.

Win Win from both Wealth Creation and Taxes point of view 🙌🏻 #wealthcreation

I hope this thread gave you rough understanding about how one can do tax planning through minor. #taxsavings #TaxTwitter

Please drop your questions in comments will try to answer those as well.

Do retweet for more reach 🙏🏻

Thanks.

Link of video for detailed understanding: