Section 10(24) of the Income Tax Act provides for an exemption of income earned by minor children from certain sources. This section is especially relevant for parents who have investments in their child’s name or have appointed their child as a nominee in any financial instrument. Let’s delve deeper into what this section entails and what it means for taxpayers.
Who qualifies as a minor under Section 10(24)?
A minor is a person who has not attained the age of 18 years. Section 10(24) applies to income earned by a minor child, which means that any income earned by a child below 18 years of age is eligible for exemption under this section.
What types of income are exempted under Section 10(24)?
Under Section 10(24), the following types of income earned by a minor child are exempted from tax:
- Income earned from any source: Income earned by a minor child from any source, including interest on deposits, dividends, and capital gains, is exempted from tax up to a limit of Rs. 1,500 per annum. If the income exceeds Rs. 1,500, the excess amount will be clubbed with the parent’s income and taxed as per the parent’s tax bracket.
- Income from the clubbing provisions of the Income Tax Act: If a parent gifts or transfers an asset to their minor child, any income earned from that asset will be clubbed with the parent’s income and taxed accordingly. However, Section 10(24) exempts such income up to a limit of Rs. 1,500 per annum.
- Income from a trust created for the benefit of the minor child: If a trust is created for the benefit of a minor child, any income earned from that trust is exempted from tax under Section 10(24).
What are the conditions for availing of this exemption?
To avail of the exemption under Section 10(24), the following conditions must be met:
- The income must be earned by a minor child.
- The income must not exceed Rs. 1,500 per annum.
- The income must not be from any activity involving the minor child’s skill, talent, or specialized knowledge.
- The income must not be from the clubbing provisions of the Income Tax Act.
- The income must not be from any source other than those specified under Section 10(24).
Conclusion
Section 10(24) of the Income Tax Act is a useful provision that provides tax relief to parents who have investments or assets in their child’s name. It is essential to understand the conditions under which this exemption can be availed to ensure that taxpayers are not caught off guard. By understanding this section, taxpayers can minimize their tax liability and maximize their savings.
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Frequently Asked Questions (FAQs)
Q:1 What is Section 10(24) of the Income Tax Act?
A: Section 10(24) of the Income Tax Act provides an exemption of income earned by minor children from certain sources.
Q:2 Who qualifies as a minor under Section 10(24)?
A: A minor is a person who has not attained the age of 18 years.
Q:3 What types of income are exempted under Section 10(24)?
A: Income earned by a minor child from any source, income from clubbing provisions, and income from a trust created for the benefit of the minor child are exempted from tax under Section 10(24).
Q:4 What is the maximum limit of exemption under Section 10(24)?
A: The maximum limit of exemption under Section 10(24) is Rs. 1,500 per annum.
Q:5 Can parents claim deductions for expenses related to their minor child’s income?
A: No, parents cannot claim any deductions for expenses related to their minor child’s income.
Q:6 What are the conditions for availing of this exemption?
A: The income must be earned by a minor child, must not exceed Rs. 1,500 per annum, must not be from any activity involving the minor child’s skill, talent, or specialized knowledge, must not be from the clubbing provisions of the Income Tax Act, and must not be from any source other than those specified under Section 10(24).
Q:7 Can a minor child’s income be clubbed with their parent’s income?
A: Yes, if the income earned by a minor child exceeds Rs. 1,500 per annum, the excess amount will be clubbed with the parent’s income and taxed as per the parent’s tax bracket.
Q:8 What is the benefit of Section 10(24) for taxpayers?
A: By understanding this section, taxpayers can minimize their tax liability and maximize their savings, especially for parents who have investments or assets in their child’s name.
