The impressive ₹7 crore earnings of 15-year-old cricket sensation Vaibhav Sooryavanshi, accumulated through IPL contracts, tournament winnings, and endorsements, have prompted a closer look at how the Income Tax Department in India treats income generated by minors.
Understanding Minor Income Taxation in India
Under Indian tax law, individuals below 18 years of age are considered minors. While minors can earn income, the taxation rules differ significantly from those for adults. Generally, a minor's income is not taxed independently but is added, or 'clubbed,' with a parent's income.
The Clubbing of Income Rule (Section 64(1A))
Section 64(1A) of the Income Tax Act states that any income accruing to or received by a minor child is typically included in the parent's income and taxed as if it were the parent's own. This provision aims to prevent taxpayers from reducing their tax liability by transferring income-generating assets to their children. Common sources of minor income subject to clubbing include:
- Interest from savings bank accounts or fixed deposits in the minor's name.
- Returns from investments made by parents or guardians in the minor's name.
- Income generated from gifts or other financial assets.
Exemptions for Minor Income
A limited relief is available under Section 10(32) of the Income Tax Act. If a minor's income is less than ₹1,500 per year, it is effectively exempt from tax. For income that is clubbed with a parent's earnings, the parent can claim an exemption of ₹1,500 for each minor child. If the minor's income exceeds ₹1,500 annually, only ₹1,500 can be claimed as an exemption, with the remaining income taxed in the parent's hands.
Application of Clubbing Rules in Different Scenarios
- Both Parents Earning: If both parents have taxable income, the minor's income is clubbed with the income of the parent who has a higher taxable income.
- Divorced Parents: In cases of divorce, the minor's income is clubbed with the income of the parent who has legal custody of the child.
- Deceased Parents: If both parents are deceased, the minor's income is not clubbed with a guardian's income. Instead, a separate income tax return is filed on behalf of the minor by a guardian acting as a representative assessee.
Key Exceptions to Minor Income Clubbing
While passive income is generally clubbed, there are crucial exceptions where a minor's income is taxed in their own hands:
Income from Talent, Skill, or Specialized Knowledge
When a child earns income through their personal effort, talent, expertise, specialized knowledge, or manual work, that income is taxable in the minor's own hands and is not clubbed with the parent's income. This includes earnings from:
- Professional sports (like Vaibhav Sooryavanshi's cricketing earnings).
- Acting and modelling assignments.
- Singing and performing arts.
- Content creation and social media influencing.
- Brand endorsements and sponsorships.
- Winnings from television reality shows and competitions.
Tax experts emphasize that such income arises from the minor's individual skills and efforts, rather than from assets transferred by parents, making it eligible for separate taxation.
Income of a Disabled Minor
Another significant exception applies to children covered under Section 80U of the Income Tax Act. The income of a minor suffering from a specified disability (e.g., blindness, low vision, hearing impairment, locomotor disability, mental illness, with more than 40% disability) is not clubbed with the parent's income. Instead, it is taxed separately.
Why Vaibhav Sooryavanshi's Income is Taxed Separately
Vaibhav Sooryavanshi's earnings are derived directly from his cricketing skills, tournament performances, IPL contracts, and endorsement deals. As this income is generated through his personal talent and professional efforts, it falls squarely under the exception to the clubbing provisions. Consequently, despite being only 15 years old, his ₹7 crore income is taxable in his own hands and will not be added to his parents' income. This principle applies to all talented minors who earn through their unique skills in sports, entertainment, or other creative fields.