Income Tax planning for Children is not a child’s play.
Arjuna (fictional character): Dear Krishna, the festival of Christmas is being celebrated all over the world very joyfully. In this festival Santa Clause make exchange of gifts to all. Children enjoy the festival very joyfully.
Krishna (fictional character): Yes Arjuna, all religion teaches same spiritual thoughts. All people should live and let others live happily and peacefully. To teach good thoughts is the only best gift to children in their life. When is was kid I liked Butter very much, but todays child’s likes chocolates, cakes, ice-creams, etc.
Arjuna: Krishna, How to plan for child’s Income tax? Who is treated as minor and what precautions should be taken by guardian?
Krishna: Arjuna, As per Income Tax Act, the person below age of 18 years is treated as minor and the responsibility of paying tax on minors income is of their parents.
Arjuna: Krishna, for financial transaction PAN is required, so can a minor apply and get PAN?
Krishna: Yes, Minor can get PAN. On PAN card, sign and photo of the minor will not come. On PAN card there will be sign of parent/guardian and on the card MINOR will be printed. After completing age of 18 years, the PAN holder will have to apply for correction and he will get new PAN card having same number allotted with his photograph and signature.
Arjuna: Minors, especially on birthdays get gifts, cash, presents and valuables like gold ornaments from parents, relatives and friends, what about income tax on the same?
Krishna: Right question asked. All celebrate birthdays of their children. On this occasion there is tradition of giving gifts and presents. All this is for giving blessings and expressing joy. One should keep list and record of all valuables and cash, gifts and presents in writing with name and address of the person who has given the same. Income Tax Department can verify reasonableness of the same. If possible bank account of the minor should be opened to keep record of cash, gifts received and deposited in it. So that Capital of minor can be build up. This will be helpful in future of minor.
Arjuna: When minor will have to pay income tax individually?
Krishna: If income earned by minor himself from manual labour or through talent or specified knowledge e.g. Child TV artist, music, sports etc. then minor will have to pay income tax and file return individually of his own as per rates applicable to individuals.
Arjuna: When income of minor will be clubbed with the income of parents?
Krishna: Any income earned by minor other than above for e.g. a minor is earning interest from bank on FD invested from gifts, etc. will be clubbed in the income of the parent whose income is higher and will have to pay tax on it. Parent can avail exemption of Rs. 1500/- per child per year or actual income of the minor whichever is lower. Further parents can also take the deduction of tuition fees paid under section 80C on the education of minors.
Arjuna: Can immovable property be purchased in the name of minor?
Krishna: Immovable property can be purchased in the name of minor but transaction will be carried out by parents for minor. Further permission of the court will have to be obtained while selling the immovable property. If the properties of minor come within the ambit of wealth tax then it will be included in the wealth of the parent and wealth tax will have to be paid.
Arjuna: Can minor be admitted in a partnership or buy shares of companies?
Krishna: Minor can become partner in the partnership firm but cannot become a working partner. But his income from the partnership will be included in the income of the parent having higher income. Further minor can buy the shares of companies through parents.
Arjuna: When does parent get deduction in income tax for investment made in the name of minor?
Krishna: If parents make investment in LIC, Provident fund, etc. in the name of minor, deduction under section 80C can be availed. Insurance companies, Mutual funds, have very effective schemes for children’s future; every parent should invest some amount in it. So that money will available for child’s future activities like education, marriage, health, etc.
Arjuna: Krishna, in today’s world what parents should do for the bright future of their children?
Krishna: Arjuna, Parents should do financial planning for education and wellbeing of their children, but along with it character building and inculcating good moral values of children is more important. They should teach children the importance of money from childhood itself. Nowadays, as people have one or two children only, they fulfill all the demands raised by children without seeing its importance or need. This makes them habitual to incur heavy expenses every time. In this era of technology, the childhood gets lost somewhere in video games, IPAD, Mobiles, etc. Parents should take care that while at home they spend some quality time with family rather than discussing Business matters. As soon as parents take admission of their children in school, assuming their duties are over, they forget their responsibilities. Children learn from their parents, so efforts taken for proper and good upbringing of children is the real investment of any parent and nevertheless the best gift that they can give on the occasion of Christmas. Hence wealth and tax planning for Childers is very important for their better future, it’s not a child’s play so plan now and secure your future.
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Tags :Income Tax