Filing your ITR? Income you should not forget to declare

Balwant Jain

The income tax return season is in full swing with July 31 approaching fast. Salaried individuals generally consider Form16 for preparing their return without any further details about other sources of income. This is due to the impression that interest on savings account is fully exempt and tax on their fixed deposits (FDs) has already been deducted so they need not show these items while filing their tax return. However, it is not correct approach. Additionally, there are many items which are taxable but are omitted due to oversight. 

Let us discuss some of the incomes which we unknowingly forget to include in our income tax return (ITR).

Interest on savings, FDs 

Though interest on savings account is eligible for deduction up to Rs 10,000 a year under Section 80 TTA, taxpayers presume it to be tax-free. So, even if the amount of interest is less than Rs 10,000, legally you are required to include it in your income and claim a deduction under Section 80 TTA. 

Likewise bank deducts tax on interest on your FDs, so you are under the impression that the tax liability in respect of such interest stands discharged, which is not true. Note 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 at 10 per cent where a tax rate applicable to you may be 20 per cent or 30 per cent. It is your duty to discharge the differential tax liability.

Also include interest in respect of FDs 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 National Savings Certificates purchased in the earlier years.

Minor child’s income

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 gifts 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 parent can claim an exemption of Rs 1,500 for each minor child whose income is clubbed.

Capital gains on MFs

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 such as 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 your 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 funds is different from equity funds. Disclose such switch over transaction to your CA for proper and correct treatment of loss or profit on such switch. 

Notional rental income 

As per tax laws, any income from your house property is taxable. For a self- occupied house, the taxable value 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 yourself 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. Note the notional rent is not the same as the nominal rent. The income to be offered is rent which is expected to be received in respect of the property.

There are many people who own more than one house and the same are used either by themselves or by their parents.  No rent is received in the majority of the cases as taxpayers assume 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, it is deemed to be self-occupied by you in addition to the property used for your residence at your workplace.

The author is CA, CS and CFPCM. At present, he is working as Company Secretary at Bombay Oxygen Corporation Limited. The views expressed in this article are his own.