The income tax return season is in full swing with 31st July
approaching fast. While filing the income tax return salaried people only
provide copy of the form No. 16 to the person preparing his income tax returns
without any further details. This is due to the impression that interest on
saving account is fully exempt and tax on their fixed deposits has already been
deducted so they need not show these items while filing their income tax
return. This is not show. Additionally there are many items which are taxable
but are omitted due to oversight. With this article I have attempted to cover
certain items of income which are taxable, but unknowingly we tend to ignore in
our return of income.
Savings account and fixed deposits interest :
There are some other incomes which people normally presume
to be tax free or not required to be included in the return of income. One of
such items is interest on saving bank account. Though interest on saving bank
account is eligible for deduction under Section 80TTA upto Rs. 10,000/- in a
year but even if the amount of interest on saving bank account is less than Rs.
10,000/- legally you are required to include it in your income under the head
“Income from other sources” and claim deduction under Section 80TTA. Likewise
bank deducts tax on interest on your bank fixed deposits so you are under the
impression that the tax liability in respect of such interest stands
discharged, which is not true. Please bear in mind that even if tax is deducted
at source on FD interest, the TDS rate and the rate which is normally
applicable in your case is different. The tax is deducted @ 10% where tax rate
applicable to you may be 20% or 30%. It is your liability to discharge the
differential tax liability.
Also include interest in respect of Fixed Deposit with banks
which have been renewed on maturity and are not reflected in your bank accounts. Do not forget to include the accrued income
on NSC etc. purchased in the earlier years.
Income earned on investment of minor child:
Any income earned by a minor child is required to be clubbed
with the income of the parent whose income is higher. Parents normally invest
money belonging to their minor child received as gift on several
occasions. The income/interest earned by
the minor on these investments is required to be included in the income of the
parent. The amount to be clubbed in the income of parents is over Rs. 1500/-
per child so any interest/income of each minor is exempt up to Rs. 1,500.
Capital gains on switching of units of mutual funds during
the year:
With more and more people opting the route of investing
through the route of mutual funds, cases
being discussed here would be on higher side. We as mutual fund investors shift
from one scheme to another for various reasons without there being any
corresponding entry in the bank statement. The switching may be due to below
average performance or regular transfer of funds from one scheme to another
scheme like Systematic Transfer Plan (STP) or Systematic Withdrawal Plan (SWP)
Since the units switched are of the same mutual funds house these do not get reflected in the bank account so
your chartered accountant may not even come to know about it. It might escape
your memory as well by the time you sit down to prepare you tax return.
The profit/loss on switching of units may be short-term or long-term entailing different tax treatment. Even tax treatment
for debt fund is different from equity oriented funds. Disclose such switch
over transaction to your Chartered Accountant for proper and correct treatment
of loss or profit on such switch.
Notional rental income in case more than one house property
is self occupied.
As per the income tax laws any income from your house
property is taxable under the head “Income from house property”. For a self
occupied house the taxable value of the same is taken at nil. However this
option is available in respect of only one house property and in case you are
occupying more than one house for your self or your family members, you have to
exercise the option to treat any one of the house as self occupied and the
other/s are deemed to have been let out. In respect of such deemed to have been
let out property you have to offer the notional rental income for tax.. Please note notional rent is not the same as
nominal rent. The income to be offered is rent which is expected to be received
in respect of the property. Your
Chartered Accountant will be in a position to help you in ensuring that your
tax treatment of additional property is correct.
There are many people who own more than one house and the
same are used either by themselves or by their parents. Since no rent is in
fact received in majority of the cases, tax payer are under the impression that
they are not liable to pay any tax on extra house property. Such situation may
also arise in case you have a house property in your native place which is not
let out and thus is deemed to be self occupied by you in addition to the
property used for your residence at your work place.
Gifts or other promotional benefits received by you in case
you carrying on business
This is the age of discounts and gifts in business. The same
is offered not only to the customer but also to the businessman by the company
manufacturing/distributing the product. So a few of you might have enjoyed
tangible and valuable gifts from your business associates. Some of you would have been treated with
foreign tours as incentives for achieving certain targets. Since such items are
not reflected in the bank account and thus not accounted in your books and thus
go unreported. Please disclose this to your Chartered Accountant to be fully
compliant.
I am sure this discussion will help you better comply the
law and help you make your life easier.
If you are looking at discussing any other aspects of income
tax law or for any other income tax related queries, please get in touch with
me at the email address given below.
The author is a CA, CS and CFP. Presently working as
Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He
can be reached at jainbalwant@gmail.com and @jainbalwant
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