Here's what not to miss while filing income tax returns
July, 26th 2013
The hardest thing in the world to understand is the income tax." - Albert Einstein
If it looked difficult to Albert Einstein, then what can be expected of lesser mortals?
One can imagine that how difficult it is for the layman to understand the income tax laws. So I thought of sharing this with you that the care you should take while filing your income tax returns.
Also read: Having trouble in filing returns? Here's a checklist
In this article I intend to discuss the items of income, which are taxable. But we forget to include the same in our income tax returns. Thus these remain unaccounted in our return of income due to sheer ignorance.
Incomes normally not included by us in our income:
Notional income in respect of more than one house property
We are allowed to have only one house property as self-occupied with annual value as nil. So, in case we own and use more than two properties for self-occupation, we are required to exercise an option to treat one of the houses as self-occupied for income tax purpose. A notional rent in respect of the additional house property should be offered and used for self- occupation though no rent is actually received by us.
Most of us think that since no rent is received on such property, we are not liable to pay any tax on that extra house property. The notional rent is the rent which the property is expected to fetch if actually let out.
This happens in cases where you stay in one house and the other house is occupied by your parents or other relative on which you do not receive any rent. Please consult your chartered accountant in ensuring that your tax treatment of additional property is correct.
Gifts or other benefits received by the person carrying on business
Many businessmen receive various gifts whether in the tangible form or intangible form from their business associates in the course of the business. Though the non tangible gifts are not reflected in the books of accounts but these are taxable as business income.
These include gifts like paid holidays or gifts of various valuable items. Please tell your chartered accountants about such gifts and comply with the law fully.
Capital gains on units of mutual funds switched:
For those of us who invest in mutual funds schemes do shift from one scheme to another scheme of the same fund house due to poor performance of the scheme. As this transaction of shifting from one scheme to another is not routed through your bank account, your chartered accountant (CA) may not even get to know about such switch.
You might have forgotten about such switch by the time of filing of your income tax return. The switch affected by you may be in respect of units held for less than a year or for more than a year.
Gains made on short-term units and long-term units entail different tax treatment. Even the tax treatment is different between debt schemes and equity oriented funds. Please ensure that the capital gains on such switches are disclosed to your chartered accountant to that the same are included in your income.
Interest received on bank’s savings account and fixed deposits:
There are other incomes too which people normally consider as non-exempt without any limit like interest on saving bank account and on fixed deposit. As per the present law only in respect of interest on saving bank account you can claim deduction and that too upto Rs 10,000.
So include the interest on saving bank account above Rs. 10,000 in your income as well as all the interest on your fixed deposits with various banks. Even in cases where fixed deposit has been renewed, you are supposed to include the interest for the year in current year’s income.
If you are following receipt basis of accounting even the full interest on renewed FD is taxable as the interest on such renewed fixed deposit is deemed to have been received in the year of renewal.
Even in case cases where tax is deducted on interest on such FD, you are supposed to include the income in your income and claim credit for TDS. The interest is taxable at the applicable rate and the same may not be the same as the rate on which the bank has deducted TDS.
Income earned on investment of minor child:
As per the current income tax laws, the income of a minor child is clubbed in the income of the parent whose income is higher. The money received as gift by the child is invested by parent in bank fixed deposits in the name of the child.
The interest on such FD or any other investment made is earned by the minor is to be included in the income of the parent. However an amount upto Rs. 1500 is exempt in respect of each year for every child.
So please ensure that all the above income discussed above is included in the return of income which you are filing now so as to fully comply with the law. This will certainly make your life easier.
If you are looking at discussing some other aspects of income tax or for any other income tax related queries, please get in touch with me at the email address given below.