SOME IMPORTANT ASPECTS LOOKS AT THE TIME OF FILING INCOME TAX RETURN
“The hardest thing in the world to understand is the income
tax.” – Albert Einstein
Income Tax – hardest to be understood by the
genius of Albert Einstein, then what to say of the layman or even professionals
like us. With this article I have attempted to simplify this hardest thing for
better the understanding of our readers. Here I have covered items of incomes
which are taxable, but unknowingly we tend to ignore, thus remain unaccountable
in our return of income due to sheer ignorance. But it is important to take
these into account to make your life easier.
Incomes normally missed out:
Notional income in respect of more than one house property
Under the provisions of Income Tax Act, you do not have to pay
any tax in respect of a house property which is occupied by yourself or your
family members. This tax benefit is available only in respect of one
residential house property. However, in case you own more than one house
property and all are occupied by you, you have to exercise an option to treat
one of the house as self-occupied for the purpose of income tax and offer
notional income in respect of the other house/s. Majority of the tax payer are
under the impression that since no rent is received by them, they are not
liable to pay any tax on extra house property.
In case the second house is let out, rent received in respect of
that house is anyway offered for taxation. However, in case both the houses are
occupied by you, ensure that you offer a notional income in respect of the
house chosen by you as such. The income to be offered is an amount of rent
which is expected to be received by you in respect of this property. Your
Chartered Accountant will be in a position to help you 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 tangible and valuable
gifts from their business associates in the course of their business. As these
are not reflected in the bank account, hence these go unreported, but these are
taxable as business income. These include gift of any tangible as well intangible
benefits like paid holidays etc. received from business associates in the
course of business. Ensure to disclose this to your Chartered Accountant.
CAPITAL GAINS ON UNITS OF MUTUAL
FUNDS SWITCHED :-
Some times due to below average performance of your investments
in any scheme of mutual fund, you tend to switch these units to units under
other scheme of the same mutual fund. Since the units are of the same mutual
funds but of different scheme, this does not get reflected in the bank account
and may escape notice of your Chartered Accountant. You may also have forgotten
about these switches by the time you sit to prepare you tax return.
The switch effected by you may be in respect of units held for
less than a year or for more than a year. The profit or loss on short-term
units and long-term units entail different tax treatment. Even tax treatment is
different between debt fund and equity oriented funds. Disclose such switch
over transaction to your Chartered Accountant for proper and correct treatment
of loss of profit on sale of such units.
Interest received on bank’s savings account and fixed deposits:
There are other incomes too which people normally consider as
non-taxable and one of these items is interest on saving bank account. Earlier
there used to be deduction available under Section 80L in respect of bank
interest and therefore this income was not shown at all. But this is not the
case now but people still carry this notion and omit to offer interest on
saving bank for taxation.
The other items which are normally not included by the tax
payers under their income is interest received on bank Fixed Deposits (FD)
presuming that since TDS has already been deducted by the bank, there is no
need to offer it for tax. Please bear in mind that though tax is deducted at
source on interest paid on Bank FD, the rate at which TDS is deducted and the
rate which is normally applicable in your case is different. The tax is
deducted @ 10% where your marginal rate of tax may be 20% or 30%. It is your
liability to pay the difference between the tax already deducted and the rate
at which you are liable to pay tax.
Also include interest in respect of Fixed Deposit with banks
which have been renewed on maturity and are not reflected in your bank
accounts. Do not forget to include the income in respect of NSC etc.
purchased in the earlier years.
INCOME EARNED ON INVESTMENT OF MINOR
CHILD
As per the provision of Income Tax, the income earned by a minor
child is required to be included in the income of the parent whose income is
higher. Parents normally invest money belonging to their minor child received
as gift on several occasions, in savings accounts, recurring deposit account or
bank fixed deposits. The interest earned by the minor on these investments is
required to be included in the income of the parent. However, please note that
only income in excess of Rs. 1500 only is taxable in the hand of the parent and
any income derived by each minor up to Rs. 1,500 is exempt from tax.
To conclude, I request you to include all the above items in
your tax returns which are normally not disclosed due to ignorance or wrong
perception.
