The income tax return filing season has just set in with 31st July being the deadline. While filing the income tax return salaried people only provide copy of the form No. 16 to the person preparing the income tax returns without any further details. This is due to the impression that interest on saving account is fully exempt and tax on the fixed deposits has already been deducted so they do not need to show these items while filing their income tax return. This is not correct. Additionally there are many items which are taxable but are omitted due to oversight. In this article I am attempting to cover a few of the items of income which are taxable, but unknowingly we tend to ignore and do not include in our return of income.
- Savings account interest , fixed deposits interest and interest accrued on NSC :
There are some incomes which we 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 80 TTA up to Rs. 10,000/- in a year but even if the amount of such interest is less than Rs. 10,000/- strictly speaking you are required to include the same in your income under the head “Income from other sources” and claim deduction under Section 80 TTA.
Likewise bank deducts tax on interest on your bank fixed deposits so a layman is under the impression that the tax liability for 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 may be different. The tax is deducted @ 10% where tax rate applicable to you may be 5%, 20% or 30%. It is your liability to discharge the differential tax liability and in case excess tax has been deducted you can claim refund for the same by including the income in your return.
Additionally please include interest in respect of Fixed Deposits 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 in case you are following accrued method for this head.
- 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. However 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 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 reflecting in our 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 your bank statement 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 and be fully compliant.
- 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 only in respect of 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 treat the other/s as 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 letting 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 own 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. He can be reached at jainbalwant at gmail.com and @jainbalwant)