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Do not forget these incomes while filing ITR Income Tax Return for AY 2020-21
October, 27th 2020

Since significant number of salaried people file their income tax return themselves they may some commit some omissions not with any intention but due to sheer ignorance of the law. Based on my experience of practicing as a Chartered Accountant, I wish to point out certain errors of omission generally committed in respect of certain taxable income.

Income of minor child

As per the tax laws any passive income arising to a minor beyond 1,500 is required to be included in the income of parent with higher income. Such income may arise out of investments made by parents of the money received by their minor child as gift on several occasions. Many parents are not aware about this law of clubbing of minor child’s income and thus unintentionally contravene the law by not including it in the ITR of any parent.

Capital gains on mutual funds

The investments and redemption of your existing investments is done through various ways like Systematic Investments Plan(SIP), Systematic Withdrawal Plan (SWP) and Systematic Transfer plan (STP). In case of STP where money is shifted from one scheme to another periodically the investments and redemption does not reflect in your bank statement, and therefore any profits made on such redemption transaction in the source scheme may go unreported. Likewise the investor may switch from one scheme of the same fund house to another fund house randomly, which also may not reflect in your bank statement.

So please get transaction statement of all your mutual fund investments for the year and verify all the transaction so as to avoid such mistakes. Since all the capital gains are now taxable, whether debt schemes or equity oriented schemes, it is necessary proper and full reporting of such transactions.

Interest income

As per my observation majority of the salaried people get their ITR filed through the ITR filing facility either online or offline where the ITR filer, files your ITR based on just your form No. 16 without bothering to gather information about your other income. Due to this many income may get unreported. In almost all such cases the interest on saving bank account for sure gets unreported though you can claim deduction upto Rs. 10,000 for it. Many people including salaried carry an impression that such interest is fully exempt and need not be included in ITR. Strictly as per the law even if your interest on saving bank account does not exceed Rs. 10,000/-, the right course of action is to first include it in your income under the head “Income from Other Sources" and then claim deduction under Section 80 TTA. In case the saving interest happens to be more than rupees 10,000/- you have to pay tax on such excess amount.

Many senior citizens, who place their retirement corpus under various fixed deposits to earn regular income for their monthly expenses. Many of such senior citizens are under the impression that since tax has already been deducted from their interest they are not required to include such interest in their income while filing ITR. Such an impression is wrong as the TDS rate and the slab rate applicable to you may be different and in case the slab rate is higher than 10%, the rate at which the tax is deducted, you have to pay the differential tax separately. In case the slab rate is lower than the TDS rate or you do not have any tax liability based on aggregate of your income, you may be entitled to claim a refund.

Even in case of fixed deposits which are automatically renewed, the interest till maturity of the fixed deposit needs to be included in your income even if the same is not credited in your bank account.

Notional income in respect of more than one house property

Presently an Individual is allowed to have two self owned house as self occupied as exempt from tax liability. But in case you have more than two houses for occupation of yourself or your relatives, you have to treat the excess house/s as deemed to have been let out and offer notional rent in your ITR even though you have not received any rent. Many taxpayers are not aware about it. Such situation may especially arise in cases where you have two or more houses at the place of your work and one house inherited by you in your native place without you even realizing it.

So in case you have more than two houses owned by you and used or kept for your own occupation, please offer the notional income in respect of any of the house/s in excess to be on the right side of the law. The notional rent is not the same as nominal rent. Notional rent is the market rent which the property is expected to fetch if let out in the open market. Once a house is treated as deemed to have been let out, you can claim full interest for home loan as well as 30% standard deduction subject to the restriction on set off of not more than two lakh of losses under the house property head against your other income..

So from above discussion it becomes clear that there are various items of income which need to be included in our income tax return but are omitted to be included due to oversight or ignorance of the legal provisions. I would advise all the taxpayer to take help of a professional to file their ITR.

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