In Pakistan, the income of a minor child is not always exempt from taxation. Under Section 91 of the Income Tax Ordinance, 2001, there are clear rules regarding when a minor child’s income becomes part of a parent’s taxable income.
This blog explains the provision, its implications, and practical examples to help you stay compliant.
What the Law Says — Section 91 of the Income Tax Ordinance, 2001
Section 91. Income of a minor child.—
(1) Any income of a minor child for a tax year chargeable under the head “Income from Business” shall be chargeable to tax as the income of the parent of the child with the highest taxable income for that year.
(2) Sub-section (1) shall not apply to the income of a minor child from a business acquired by the child through an inheritance.
This section focuses only on business income earned by a minor and how it is attributed.
Who Is Considered a Minor?
A minor is a person under the age of 18 years. If such a child earns business income, that income may be taxed in the hands of their parent with the higher taxable income.
When Will the Parent Be Taxed?
A parent is taxed on the minor’s business income when:
The child is under 18 years of age,
The income is from a business activity, and
The business was not inherited.
The parent with the highest taxable income will bear this tax liability.
When Is Minor’s Business Income NOT Clubbed with Parents?
According to sub-section (2), if a minor earns business income from a business received through inheritance, that income will not be clubbed with the parent’s.
Example: If a child inherits a shop or business after the death of a grandparent, the income from that business remains separate from the parent’s taxable income.
Practical Example
Scenario: Ali, age 16, helps his uncle in managing a rented warehouse and receives a monthly income of PKR 50,000.
If Ali is not a business heir but is actively earning from this setup,
Then this income will be added to the taxable income of Ali’s father or mother (whichever has a higher taxable income).
But if Ali inherited a shop from his grandfather, then this income remains Ali’s own, and his parents are not taxed on it.
Tax Planning Tips for Parents
Maintain proper documentation of any inheritance to separate it from business income.
Clearly state in the Income Tax Return if minor’s income is being clubbed.
For business families: consult a tax advisor before adding assets in a child’s name.
Frequently Asked Questions (FAQs)
Q1: Can a minor file their own tax return in Pakistan?
A: Generally, no. Minor’s business income is taxed in the hands of their parent with the highest taxable income unless it is from an inherited business.
Q2: Is part-time freelance work by a minor treated as business income?
A: Yes, if it qualifies as business activity. The income is taxable under the parent’s return.
Q3: What about capital gains or rent income received by a minor?
A: This section applies only to income under “Business”. Other types of income follow separate rules under Sections 92 or 80.
Q4: Can minor income be invested tax-free in business?
A: No. If the business income is not inherited, it’s still clubbed with the parent’s income and taxed accordingly.
Q5: How do I prove that a business is inherited by a minor?
A: You will need valid documentation (e.g., will, succession certificate) showing transfer of business to the minor.
Q6: If both parents have no taxable income, where does the minor’s business income go?
A: If no parent has taxable income, the tax may still apply under general provisions. Consult a tax advisor for proper handling.
Q7: What is the age cutoff for minor under this rule?
A: Under Pakistani tax law, anyone under 18 years of age is considered a minor.
Q8: Are gifts or scholarships received by a minor taxable under this section?
A: No. Only business income is covered under Section 91.
Q9: Can the income be split between parents for tax purposes?
A: No. It is added to the income of only one parent—the one with the higher taxable income.
Q10: Does this apply to adopted children too?
A: Yes, adopted minor children are treated as minors for tax purposes under this section.
Section 91 ensures that parents remain accountable for business income earned by their minor children, preventing misuse of tax laws by attributing business income to non-taxable minors.
Parents should stay vigilant, maintain proper documentation, and ensure income is declared appropriately in tax returns.
⚠️ Disclaimer: This blog is for informational purposes only and does not constitute legal or tax advice. For individual tax matters, always consult a certified tax advisor or legal professional.
