Filing your income tax return (ITR) is a demanding task that requires you to pay careful attention to your various income streams.
What makes it even more complex is that income is categorised under five different heads — salaries, business and profession, capital gains, house property, and `other sources.' It is essential to disclose all your income under each head.
Beware of common errors
According to Suresh Surana, a Mumbai-based chartered accountant, non-disclosure of income from all sources is a common mistake that most return-filers make. “Taxpayers need to disclose the income earned from all sources, inclusive of interest, dividend, royalty, rent, gambling income, etc., as well as exempt income. Additionally, resident and ordinary resident taxpayers are required to disclose all their foreign assets (including ESOPS, financial interest in any foreign entity, etc) and income earned from abroad,” says Surana.
One category that often slips through the cracks is 'Income from Other Sources'. Yeeshu Sehgal, Head of Tax Market, AKM Global, a tax and consulting firm, says that many people forget to report all their heads of income while filing returns.
For example, salaried individuals tend to consider salary as their only income source and often fail to report interest income, rent, etc. "Failing to disclose these income sources can lead to complications, penalties, and a prolonged assessment process,"' he cautions.
Income from other sources
As the name suggests, income from 'other sources' is a residual category of earnings under the Income Tax Act, 1961. It includes any income that doesn’t fall under the four primary heads, i.e., salary, house property, business or profession, and capital gains.
The most common types of income that should be reported under income from other sources include interest income from savings accounts, fixed deposits (FDs), recurring deposits (RDs), and bonds. Most people operate savings accounts, and many also have fixed deposits. Banks typically credit interest from savings accounts, FDs and RDs directly to one's bank account. However, often people do not notice, ignore, or are not aware that this income also needs to be disclosed in the ITR, irrespective of the amount.
Remember, disclosing interest income is mandatory; however, it may or may not be subject to taxation. Under section 80TTA of the Act, for taxpayers below the age of 60, savings bank interest income of up to Rs 10,000 is tax-exempt. However, for senior citizens (above 60), savings bank interest income (including interest from other types of deposits) up to Rs 50,000 is tax-exempt under section 80TTB.
Besides interest, dividend income from shares, mutual funds, and monetary gifts exceeding Rs 50,000 in a financial year from non-relatives also fall in this category. Likewise, you need to declare lottery, crossword, and game show winnings (taxable at a flat rate) under this head. Family pension received by family members after the death of the pensioner also qualifies as income from other sources.
Why disclosure is crucial
Selecting the appropriate ITR form based on your sources and level of income is crucial. Income from other sources can be reported using forms ITR-1, ITR-2, ITR-3, and ITR-4. Failing to disclose income from other sources can be considered tax evasion. The income tax department uses various mechanisms, including data matching and third-party reporting, to track undeclared income.
Non-disclosure can result in significant penalties and interest on the unpaid tax. Sections 234 B and C of the Income Tax Act outline the penalties for shortfalls and deferred advance tax, respectively.
To ensure a smooth tax filing process, thorough preparation and timely disclosure are essential. As you prepare your ITR, make sure you review and include all income sources to avoid any hassles.
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