uTrade AlgosA minor may earn only two types of income from securities held or sold using their Demat account—capital gains and dividend income. This income can be clubbed with the income of the higher-earning parent or guardian. However, the parent is not required to pay tax on a minor’s income if it does not exceed ₹1,500 per child in a financial year.
However, once this threshold is surpassed, the parent/guardian needs to pay tax on the minor’s income. The following are the tax rates at which they need to pay tax after clubbing the minor’s income:
- Short-Term Capital Gains (STCG): Typically taxed at 20%.
- Long-Term Capital Gains (LTCG): Taxed at a 12.5% tax rate if gains exceed Rs. 1.25 lakh in a financial year.
- Dividend Income: Taxed at the parent’s applicable slab rate under the head ‘Income from Other Sources.’ Additionally, if the total dividend income received in a financial year exceeds ₹5,000, the company paying the dividend will deduct a 10% TDS (Tax Deducted at Source).