If a child earns lakhs from YouTube or Instagram, it is essential for parents to know this income tax rule..

Nowadays, there are numerous earning opportunities for children across sectors ranging from internet media to sports, advertising, and writing; indeed, a large number of minors are currently earning lakhs or even crores of rupees from these sources. In this context, a major question arises: is the income earned by these children subject to income tax? Section 64(1A) of the Income Tax Act outlines the provisions regarding the taxation of children's income. Read this report by Manoj Kumar to understand the types of income, exemptions, and tax implications for children under the age of 18.

**Child's Income Clubbed with Parents' Income**
According to Section 64(1A) of the Income Tax Act, the income of a minor child is clubbed (aggregated) with the income of their parents. However, if a minor child earns money through manual labor or by utilizing their own skills, knowledge, talent, or experience, such income is not clubbed with the parents' income. Conversely, income generated from sources like interest is clubbed with the parents' income. If the parents are separated, the minor's income is clubbed with the income of the parent who maintains custody or cares for the child. If both parents are working, the child's income is clubbed with the income of the parent who earns more.

**Income Exempt from Tax**
Under the Income Tax Act, if a child's annual income is ₹1,500 or less, it is entirely tax-free. If a minor child's income is clubbed with that of their parents, the parent can claim an exemption under Section 10(32) for either ₹1,500 or the actual amount of the minor's clubbed income—whichever is lower. After clubbing the minor's income, the individual is required to pay tax according to their own personal tax slab.

**Rules for Differently-Abled or Orphaned Children**
Under Section 80U of the Income Tax Act, if a minor child is differently-abled (having a physical or mental disability of more than 40 percent), the provisions of Section 64(1A) do not apply. This means their income is not clubbed with the parents' income. Similarly, if both parents of a child are deceased, the child's earnings are not clubbed with the income of their legal guardian. In such a case, the child must file a separate Income Tax Return (ITR).

Understanding the Calculation
The Income Tax Department has provided an example on its website—under the FAQ section—regarding the clubbing of a minor child's income with that of their parents. Consider a person named Raja who has two children: Sunil, a child artist, and Nepal, who suffers from a disability specified under Section 80U. Sunil earns ₹1 lakh annually from stage shows and ₹6,000 from bank interest.

Similarly, Nepal earns ₹1.20 lakh annually from bank interest. Raja's wife has no income. Since a minor child's income is clubbed with the income of the parent who earns more, any income to be clubbed would be added to Raja's income. However, under Section 64(1A), income generated through manual labor or the child's own skills, knowledge, talent, experience, etc., is not clubbed with the parents' income.

Therefore, Sunil's income from stage shows will not be clubbed with Raja's income. However, the ₹6,000 Sunil earns from bank interest will be clubbed with Raja's income. Nepal's income will not be clubbed with Raja's income under Section 80U. In this scenario, Raja can claim an exemption of ₹1,500 on Sunil's interest income of ₹6,000 under Section 10(32), resulting in a net clubbed income of ₹4,500 (6,000 - 1,500). Raja will have to pay tax on this amount according to his applicable tax slab.

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