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Saturday, July 10, 2021

If you are investing in the name of children, know these rules

If you are investing in the name of children, know these rules related to income tax, otherwise there will be trouble.

Whether it is a recurring deposit of the post office or PPF, there are many investment options like mutual funds where investments can be made in the name of children.  While many people invest in their children’s higher education, many people invest in their future security.  But did you know that children also pay income tax?  If you do not pay this tax, how will the tax on earnings from these investment options feel?




Earnings from the investment will be counted as parental income

 Earnings from investments made in the name of children will be counted as parental income.

It has to be taxed under section 64 (1A) of the Income Tax Act.  A child is considered a minor until the age of 18.  Whether it is a savings account, a fixed deposit or any other investment in the child's name, he has to pay tax on it.

 It should be added to the child's custody income

 If both parents earn, the child's income will be linked to that parent.  Whose income is higher.  If the parents are divorced, it is added to the income of the child who has custody of the child.  Suppose a child has won a competition with his talent, won a TV show or earned his income in some other way, then the child will have to pay a separate tax.  Note that you can also get a PAN card made for minors, which is considered necessary to file a return.



Parents can claim a deduction under section 80C for investment





 Note that parents can claim a deduction under section 80C for this investment.  Such as exemption on Sukanya Samrudhi Yojana, PPF, 5 year term deposit etc.  But, this limit is only one and a half lakh rupees left as both the incomes are clubbed.  The remaining tax rules remain the same as the investment option.

 An injection of Rs.1500 can be claimed on the investment made in the name of the child

 If the income from investments made in the name of the child is less than Rs.1500, it is not linked to the income of the parents.  At the same time, when this income is linked to the parents, each child can claim an injection of Rs. 1500 on the investment made in their name.  If a child has a disability, seeing, hearing, walking or a mental illness, his income is not added to the parents' income under section 80U of the Income-tax Act.




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