Don't Forget To Include These Incomes In Your Income Tax Return

Are you filing Income Tax Return? If yes, this article is for you.

The due date for filing of Income Tax Return is extended to 31^st December 2021 from 30^th September 2021 for the Financial Year 2020-21 i.e. A.Y. 2021-22.

In this article, we will discuss the incomes that are part of taxable income but many taxpayers don’t include these incomes in their income tax returns.

Incomes to be reported in income tax return

Interest Income

Many taxpayers think that interest earned from banks, post offices is exempt. In reality, interest earned on bank deposits, bonds, and some small savings schemes is fully taxable. Even the interest on saving bank balance is also fully taxable and to be reported under the head of “Income from other sources” in the tax return.

TDS is to be deducted by banking company or post office or any person on interest paid or credited to a taxpayer in a year of amount Rs. 40,000 or more. Even if TDS is not being deducted, it does not mean that the interest income is exempt. All interest payments are reported to the tax department by the financial institution paying the interest.

Some taxpayers even believe that no tax is payable if their bank has deducted TDS on the interest. This is also a misconception. TDS is only 10% of the interest (20% if PAN is not provided). If a taxpayer is in a higher tax slab, he needs to pay additional tax on the interest. Check your interest income for the financial year in Form 26AS. It will have details of the TDS deducted from interest payments. If Interest Income is up to Rs. 40,000 then it may not be shown in the Form 26AS. Taxpayers need to collect Interest Certificates from banks.

The income declared in your income tax return must be equal and more than from information in Form 26AS, otherwise, be ready for a tax notice. (Interest Income declared in your ITR can not be less than from information in the Form 26AS.)

There are some interest incomes that are exempt from income tax such as interest on tax-free bonds, PPF, and the Sukanya Samriddhi Yojana. You also have to report this interest income in your tax return.

Taxpayers can claim deduction under section 80TTA up to Rs. 10,000 in respect of interest on deposit (other than a fixed deposit) in a saving account with a bank, post office, and co-operative society.

However, the limit of deduction for senior citizens is Rs. 50,000 in respect of interest on deposit including fixed deposit under section 80TTB.

Rental Income

Rent received from commercial or house property is also taxable. After allowing a 30% deduction on rental income, the balance amount is taxable under the head “income from house property”.

However, interest on borrowed capital is allowed as a deduction on an accrual basis, if capital is borrowed for the purpose of purchase, construction, repair, renewal, or reconstruction of the house property.

Capital Gain

We all know that Income from salary, rental income, and business income is taxable. But what about income from sale or purchase of shares whether quoted or unquoted, house property, mutual funds, Jewelry? Income/Loss from sale of equity shares is covered under the head ‘Capital Gains’. There are a number of people taking to mutual fund and stocks in recent years, capital gains are now common.

If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller may make a long-term capital gain or incur long-term capital loss and in case of holding period of shares less than 12 months then short-term capital loss or profit occurs.

Short-term capital gains are taxable at 15%. A special rate of tax of 15% is applicable to short-term capital gains, irrespective of your tax slab. Also, if your total taxable income excluding short-term gains is below taxable income i.e. Rs 2.5 lakh - you can adjust this shortfall against your short-term gains. The remaining short-term gains shall be then taxed at 15% + 4% cess on it.

The long-term capital gain of more than Rs 1 lakh on the sale of equity shares or equity-oriented units of the mutual fund will attract a capital gains tax of 10% and the benefit of indexation will not be available to the seller.

Short-term capital loss from the sale of equity shares can be set off against short-term or long-term capital gain from any capital asset. If the loss is not set off entirely, it can be carried forward for a period of 8 years and adjusted against any short-term or long-term capital gains made during these 8 years.

Gift Income

A common man does not know the applicability of income tax on the gift and so he does not report the same in his income tax return.

As per the income tax act, the amount sum of money received without consideration exceeds Rs.50, 000 the whole of such value is chargeable to tax. If the amount of sum of money is less than Rs.50, 000 then nothing will be taxable. For the ceiling of Rs. 50,000 all transactions of the previous year will be considered.

However, there are some exemption has been given in some cases where gift received from relative and on the occasion of marriage. You also have to report these exempt incomes in your tax return.

Dividend Income

From the removal of dividend distribution tax, dividends are now fully taxable in the hands of a recipient from the financial year 2020-21 under the head “Income from other sources”.

Companies are liable to deduct the TDS at the rate of 10% on the declaration and payment of a dividend of an amount exceeding Rs. 5000 in a year.