If you are a salaried individual, it is likely that salary, which is captured in Form 16, constitutes a large part of your total income. But that shouldn’t let you overlook incomes you may have earned from other sources. In most cases, Form 16 does not include details of other incomes you may have earned.
Remember that there may be consequences of not revealing income from other sources even if such income is not liable to tax.
Incomes to consider
Interest: Don’t forget that interest earned on a savings account or fixed deposit maintained at any bank, cooperative society or post office is taxed in the hands of an individual as “income from other sources". “Individuals typically omit to report incomes such as interest earned on savings bank account, fixed deposits and post office schemes," said Archit Gupta, founder and chief executive officer, Cleartax.com, a tax filing and investing portal. You are required to consolidate the interest earned from various accounts and add them under the head “income from other sources" and show it in your ITR.
However, interest earned from bank and post office deposits are exempt from tax till a certain limit. Under Section 80TTA, which was included in the Income-tax Act from the assessment year (AY) 2013-14, interest up to ₹10,000 from all savings accounts is tax-exempt. Further, under 80TTB—a new sub-section added to the Act from AY20—if the gross total income of a senior citizen assessee includes income from interest on deposits or savings bank account, a deduction of up to ₹50,000 shall be allowed on this income.
Capital gains: Often taxpayers don’t disclose capital gains or losses made from selling shares or redeeming mutual fund units, or selling a property or jewellery. Profits or gains arising from transfer of such capital assets are considered as capital gains and taxed under the income head “capital gains" as short-term or long-term gains depending on the period of holding. Irrespective of the amount gained or lost, one must disclose these in ITR.
Even if capital gains earned are tax-exempt, they need to be disclosed. For instance, long-term capital gains (LTCG) from equity investments are exempt up to ₹1 lakh per year. Similarly, LTCG from transfer of property is exempt if it’s reinvested in a residential property or designated bonds, within the stipulated time and rules.
Dividends: You will have dividend income from time to time if you invest in shares or dividend options of mutual funds. Typically, such dividend gets credited to your bank account directly. While companies do send an intimation, you may not notice the addition in your bank balance if the amount is small.
This income may not necessarily be taxable, but you still need to include it in your ITR. Remember that dividend received from investment in shares of domestic companies up to ₹10 lakh is tax-free in the hands of shareholders. However, dividend received from foreign companies is fully taxable.
Insurance proceeds: The taxable as well as the non-taxable parts of the maturity corpus or claims you receive from an insurance policy need to be disclosed.
The maturity proceeds from a life insurance policy are exempt under a certain condition. If the premium of a policy does not exceed 10% of the sum assured for policies issued after 1 April 2012 and 20% of the sum assured for policies issued before 1 April 2012, any amount received on maturity is fully exempt from tax under Section 10(10D) of the Act.
Income from intra-day share trading: Not just gains, even losses incurred in intraday trading need to be disclosed. Such gains are taxable at your slab rate, while losses can be set off against gains from similar speculative income sources. However, gains or losses from intraday trading are not treated as capital gains or losses and need to be included under the head “business income". “In case of speculative business (intraday trading), while gains are aggregated with the gross total income, the speculative losses have to be reported and can be carried forward up to four succeeding years," said Gupta.
Gifts: The value of gifts received in cash or kind in a year also need to be disclosed. While certain gifts are tax exempt, they still need to be reported. You don’t need to pay tax if the aggregate value of gifts received in a year is less than ₹50,000 or if they are received from eight designated relatives as per the Act or are received on the occasion of a couple’s marriage.
Income in names of minors: If you want to make an investment in the names of your minor children, be ready to pay tax on the income from such investment—after availing exemption of ₹1,500 per child—and report that in your ITR. “Any income earned on investments made in the name of minor children should also be reported by the parent since it is generally clubbed with the income of the parent earning a higher income than the spouse," said Gupta.
Over the years, the tax department has become vigilant and tracks all transactions and compares them with the ITRs filed by individuals.
If you want to avoid scrutiny, disclose all incomes even if tax is not payable on them. “Even incomes of exempt nature must be properly disclosed. Although such incomes do not attract tax, but by not declaring the sources, taxpayers may find themselves being scrutinized by the department. For instance, a high-value transaction made using the money which is not disclosed in ITR owing to its exempt nature may give rise to suspicion and possible scrutiny. Such scrutiny can pose unnecessary problems," said Neha Malhotra, executive director, Nangia Advisors (Andersen Global), a chartered accountancy firm.
Further, misreporting or under-reporting income can be traced, and you may end up paying a penalty and fine. “Tax evasion is a criminal offence in India and can lead to the levy of hefty penalties in addition to the tax (already payable). In some cases, it may even land the defaulter in jail for a minimum period of three months," said Malhotra.
Under Section 271(1)(c) of the Act, the penalty for not providing correct details of income or concealing income can be three times the amount of tax sought to be evaded, in addition to the original amount of tax payable. Further, as per Section 270A of the Act, which deals with the levy of penalty in case of under-reporting and misreporting of income, penalty can be 50% or 200% of the amount of tax payable, respectively, explained Malhotra.
What to do
If you have already filed your ITR but have missed out disclosing any income that was not included in Form 16, there’s a way out. “A taxpayer may inadvertently omit to disclose certain income in ITR or may make a mistake in reporting any income or loss. In such cases, the income tax law allows for filing of revised ITR to correct the error or omission," said Gupta. A revised return can be filed till the end of the relevant AY or till the assessment of the original return, whichever is earlier. For the current AY, you can file a revised return till 31 March 2020 or till the department assesses the already filed return, whichever is earlier.