Income Tax

Incomes to be reported in your Income Tax Return

The Income Tax Return is a form which must be submitted to the Income Tax Department of India. The return contains the information regarding the income of a person and taxes that has to be paid on it. The due date for filing ITR has been extended to December 31, 2021, for Financial Year 2020-21. This article discusses the incomes that are included as taxable income but are not included by many taxpayers in their ITR. So if you are filing ITR, then do read this article.

Report these incomes in Income Tax Return

Don’t ignore income from these sources while filing your Income Tax Return this year.

• Income from Interest

There are certain taxpayers that believe interests earned from banks, post offices are exempt. However, please note that the interest earned from bank deposits, bonds and through some small savings scheme is taxable. The interest on savings bank balance is taxable and must be reported under the head- Income from other sources.

TDS has to be deducted by the banking company or post office or any person on interest paid or credited to a taxpayer in a year of amount 40k rupees or more. If TDS is not being deducted, it doesn’t mean that the interest income is exempt. All interest payments must be reported to the income tax department by the financial institution paying the interest.

There is also other misconception among taxpayers that no tax has to be paid in case their bank deducted TDS on interest. In case where a taxpayer falls under higher tax slab, he must pay additional tax on interest. One can check their interest income for the financial year in Form 26AS. It would have the details of TDS deducted from the interest payments. In case the interest income is up to 40k rupees, then it may not be shown in Form 26AS. Taxpayers should collect the interest certificate from banks.

The income reported in the ITR should be equal and more than from the information in Form 26A. (Interest income reported in the ITR shall not be less than from the information in Form 26AS).

There are certain interest income which are exempt from income tax, like interest on tax free bonds. PPF and the Sukanya Samriddhi Yojana^[1]. You must report this interest income in your ITR. Further taxpayers may claim for deduction under Section 80TTA of up to 10000 rupees pertaining to interest on deposit in a savings account with a bank, post office and co-operative society. However, the deduction limit for senior citizens is 50000 rupees regarding interest on deposit, including fixed deposit under Section 80TTB.

• Income from rent

Rental income obtained from property is also taxable. The balance amount shall be taxable under the head- Income from House Property after 30% deduction on the income obtained from rent.

However, interest from borrowed capital is permitted as deduction on accrual basis if the capital borrowed is for the following purposes-

1. Purchase;
2. Construction;
3. Repair;
4. Renewal or reconstruction of the house property.

• Capital Gain

The income/loss from the sale of equity share is covered under Capital Gains. In case where the equity share listed on stock exchange is sold after a year of the purchase, the seller can make long term capital gain or incur long term capital loss, and if the holding period of shares is less than a year, then short term capital loss or profit takes place.

It may be noted that the short term capital gains is taxable at the rate of 15%. The long term capital gain over 1 lakh rupees on the sale of equity shares or equity oriented units of mutual fund shall attract capital gains tax of 10%.

Short term capital loss arising from the sale of equity shares may be set off against short or long term capital gain from any capital asset. In case the loss is not set off wholly, then it may be carried forward for 8 years and can be adjusted against any short or long term capital gains made during 8 years period.

• Income from Gift

According to the Income Tax Act, if the sum of money obtained without consideration is more than 50000, then the whole of such value is chargeable to tax. In case the sum of money is below 50000 rupees, then nothing would be taxable.

However, there are certain exemptions in cases where gift is received from a relative and on marriage. One should report these exempt incomes in their Income Tax Return.

• Dividend Income

From the financial year, 2020-21 dividends are fully taxable in the hands of recipient under the head- Income from other sources. Companies must deduct TDS at 10% on declaration and payment of dividend of amount exceeding 5000 rupees in a year.

Conclusion

The income obtained from the sources mentioned above is not considered by many taxpayers, and thus they don’t include in their Income Tax Return. As a taxpayer, you are advised to report income from these sources while filing ITR this year.

Read our article:A Brief on Advance Tax Payment, Liability and its related Rules