AIS Dilemma: Exempt Incomes and Unreported Transactions in Income Tax Filing

Relying solely on your Annual Information Statement (AIS) to file your income tax return (ITR) without verifying other sources of income can lead to trouble with tax authorities. The AIS may not reflect certain types of income, and if you fail to report them in your tax return, you may receive a notice for underreporting of income. This can result in penalties or the need to file a revised tax return.

For example, if you have invested in certain financial instruments like Reserve Bank of India (RBI) floating rate bonds or Sovereign Gold Bonds, the interest earned from these investments will not be shown in your AIS. The same applies to the interest earned in your Public Provident Fund (PPF) account. It's important to note that the interest earned from Sovereign Gold Bonds and RBI floating rate bonds is taxable, whereas PPF interest is exempt from income tax.

The AIS reflects financial transactions reported by specific entities, such as banks, post offices, and non-banking financial corporations. However, entities like the RBI, which issues Sovereign Gold Bonds and RBI floating rate bonds, are not reporting entities for the AIS. Therefore, the interest income from these bonds may not be reflected in the AIS, even though it is taxable.

Exempt incomes, such as the interest accrued in a PPF account, are also not reflected in the AIS. While PPF interest is exempt from tax, it's advisable to report exempt incomes to the Income Tax Department to avoid any potential issues.

It's worth noting that the AIS is subject to certain criteria, and changes may be introduced periodically. Certain exempt incomes and incomes without tax deducted at source (TDS) may not be currently reported in the AIS. However, there are exceptions, such as taxable savings bank interest, which is reported in the AIS because the issuing entity is a banking company.

In summary, the AIS provides information about various sources of income, but it may not capture all types of income, especially those that are exempt or not subject to TDS. It's important to be aware of these limitations and ensure you report all applicable incomes in your tax return to avoid any potential discrepancies.

The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.