1 min read.Updated: 24 Jun 2021, 05:37 AM ISTRenu Yadav
The tax department captures information regarding high-value transactions from banks, registrars, companies, mutual funds and authorized dealers, etc. Taxpayers must therefore be vigilant and mindful of their sources of income and expenses
Income tax return (ITR) should be filed with utmost care, but people make some common mistakes during the process, which may have consequences. One common mistake is the failure to disclose tax-exempted income in ITR.
To understand its implications, let us first understand what are the common exempt incomes that you might knowingly or unknowingly miss out on disclosing in the tax forms.
Exempted income: Agriculture income of up to ₹5,000, gift from certain relatives, sum received under a life insurance policy or bonus from a life insurance company other than what is mentioned in sub-clauses (a) to (d) of Section 10(10D) of the Income-Tax Act, sum received from statutory provident fund, approved superannuation and scholarship for education rank among income exempted from tax.
Implications: The income may be exempt, but any income earned by investing the exempted income may be taxable. So, not disclosing the same may result in the tax department asking for the source of income. “For example, if a father receives a certain sum of money from his son and invests it in the purchase of property, the income tax department may ask the father to explain the source of funds for the purchase since such funds may not be commensurate with his income, as disclosed in the ITR form," said Neha Malhotra, director, Nangia Andersen LLP.
“The tax department captures information regarding high-value transactions from banks, registrars, companies, mutual funds and authorized dealers, etc. Taxpayers must therefore be vigilant and mindful of their sources of income and expenses," she added.
Disclosure: Taxpayers must disclose exempt income in the schedule called ‘Exempt Income, “which is automatically excluded while computation of final tax liability", said Malhotra.
Exempt income of minor children clubbed with parent also needs to be reported in ITR. “In computing the total income of an individual taxpayer, income accruing or arising to his minor child (not being a differently-abled child or a child who earns such income on the application of his skill or talent) is clubbed in the hands of the parent whose total income is greater, or the one who maintains the child. However, exemption up to ₹1,500 is allowed to the parent. Income so clubbed in the hands of the individual parent is required to be disclosed in schedule SPI (statement of income) and schedule EI (exempted income) of the ITR form," said Malhotra.