- Date : 23/07/2018
- Read: 5 mins
As the last date of filing taxes is just around the corner, ensure that no income goes unreported.
As the last date approaches for filing one’s taxes online, people are hurriedly getting things sorted out. Amidst the rush, many are unaware that there are certain other sources of income that are taxable too, and often forget to include these in their income tax returns (ITR).
While filing ITR, all forms of income are required to be disclosed to the IT department. Income such as capital gains and losses from investments, interest earned on deposits and savings, tax-free gains, etc. should all be included.
To ensure that no income goes unreported, watch out for these while filing your ITR.
1. Interest on fixed deposit (FD) – FDs are subject to TDS deduction and although there is a prior tax deduction by the bank in the interest rate that you receive, your applicable tax rate and the TDS rate may vary. The typical tax deduction rate is a deduction of 10% but you may fall under a different category where the rate that applies to you may be 5, 20 or 30%. This amount needs to be included in your ITR and you can either claim a refund or discharge the balance tax liability, as you deem fit. Even when you’re eligible for a refund, the interest from your FD needs to be shown in your income. Ultimately, the computation of taxable income includes this income as well, regardless of whether there has been prior TDS deduction in the interest or not. Additionally, accrued interest on fixed deposits and accrued income on NSC purchased follow the same procedure.
2. Interest on a savings account – The interest on a savings account ranges from 3 to 7% annually. If a savings account earns up to Rs 10,000 interest that account qualifies for deduction under Section 80 (TTA). There is no TDS but this income needs to be stated when one files the ITR. If the amount accumulated is less than Rs 10,000 you still need to state it in your ITR and later claim a deduction. These incomes fall under the ‘income from other sources’ category and can be claimed as a deduction under Section 80 (TTA).
3. Capital gains for the number of mutual funds units switched throughout the year – During the year switching mutual fund units in the same fund house from one scheme to another due to a scheme that is poorly performing or because of Systematic Transfer Plan (STP) is expected. The profit and loss of such switches go unreported as it does not reflect in your bank statement. This switch may necessitate different tax treatments, like how the treatment of equity-oriented funds is treated differently from debt funds. To make sure the funds receive proper treatment, the profits and losses need to be disclosed.
4. Notional rental for deemed to have been let out property – If you own and occupy a house the taxable income is nil. This opportunity applies to only one property. If you own and occupy more than one property, one will be treated as yours and the other will be treated as let out. Another instance is where, in addition to your current residence, you own a house in your hometown that you occupy when you visit. This house will be considered as let out. For houses that are deemed to have been let out, a notional rental income for tax needs to be paid.
5. Income of a minor child – Income that is received by minors on account of gifts needs to be combined with the income of the higher earning parent. Typically, gifts that minors receive are invested by the parents. The income or interest that this investment earns will be taken into account in the parent’s income. An amount of up to Rs 1500 per child per year is exempted. Any amount that exceeds Rs 1500 per child is to be considered as in the parent’s income. If a minor earns money due to their own effort or skill it will not come under the parent’s income.
6. Gifts or other benefits received in your own business – In this day and age of business, gone are the days when gifts or other benefits were only personal in nature. Today, gifts and other benefits are given to businessmen by other businessmen, business associates, etc. Gifts such as foreign trips do not reflect in your books of accounts or bank account, and hence go unreported. Such details need to be disclosed to your chartered accountant.
7. Public Provident Fund (PPF) interest – Interest credited annually from PPFs is exempt from tax. Yet, it needs to be declared in one’s ITR. Most people with PPF accounts fail to do so.
8. Interest received on income tax refund – If your income tax refund has been delayed and on this delayed amount you receive interest, this amount needs to be added to your income as it is taxable. Yes, the income tax refund is not taxable but the interest you receive is. It’s taxable in the year the refund was received, under the ‘other sources’ category.
There you have it – keep these eight potential income traps in mind when filing your ITR and the exercise will become less taxing for you!