Majority of the salaried taxpayers do file their ITR by themselves and thus are bound to commit some mistakes due to ignorance of law. In this article I will discuss some of the errors of omission committed by such taxpayers about some of the items of income, which are taxable, but are generally omitted to be included in our ITR.
With increased number of people investing in mutual funds, this mistake is committed by many mutual fund investors. We as an investors shift and switch our investments from one scheme of the same mutual fund house to other scheme of the same fund house for various reasons. The reasons may be non performance of a particular scheme or it may be due to shift to direct plan from regular plans or may be transfers under Systematic Transfer Plan (STP). Since these transactions are not reflected in the bank statements, on the basis of which your tax advisor files the ITR in case you are not filing your ITR yourself. As the transactions of switching are not routed though bank account the profit made on such transfer go unreported if not disclosed in the return of income. With the long term capital gains on equity oriented schemes also becoming taxable every transaction of switch or shift from one scheme to another results into a profit or loss and thus needs to be properly reported in the ITR.
Most of the salaried avail the facility of ITR filing provided by people either online or offline where the ITR filer helps you file your ITR just on the basis of your form no,16 without even looking at your bank statements. Though the interest on saving bank account is eligible for deduction upto Rs. 10,000 but people, specially salaried carry an impression that it is fully exempt so do not include it in the income. So even if your interest from saving bank account is less than 10,000 rupees, you still need to include the same under the head “Income from Other Sources” and claim deduction under Section 80 TTA. You need to include whatever be the amount of saving interest in the income and then claim deduction upto Rs. 10,000/-. In case it happens to be more than rupees 10,000/- you are required to discharge tax liability in respect of such excess interest.
Many senior citizens place their money in fixed deposits with banks to earn regular income to support their monthly expenses. They feel that as tax is deducted by the bank, they need not include it in their income while preparing ITR. This is not correct. Discharge of your tax liability is different from the TDS on your income. This is specially true in case the tax rate applicable on your income is different from the rate at which tax is deducted. It may either result in refund or may necessitate payment of further taxes in case the rate applicable to you is higher than the TDS rate.
Income of each of your minor child is exempt upto Rs. 1500/- in a year and any income beyond this limit has to be clubbed in the income of the parent whose income is higher. Income to minor may arise from various sources like on the investments made out of gift received by the child. Most of the parents are not aware of this requirement of clubbing of income of your children with your income and contravene the law due to ignorance. They are under the impression that since the income of minor is below the exemption limit, there is no need to file an ITR and pay taxes.
As per income tax laws you are allowed to have only one self owned house as self occupied house property which is exempt from tax liability. However in case you own and occupy more than one house, you to have select one of these houses as self occupied and other house/s are treated as deemed to have been let out. This situation may arise in cases where you have one house at the place of your work and the other house may be the one which is inherited by you in your native place without you even realizing it.
For such deemed to have been let out house property, you have to offer notional rent for taxation though no rent is received. Please note that the notional rent is not the same as nominal rent. It is the amount of rent which the property is expected to fetch in the open market. Against such notional rent you can claim full interest for home loan as well as 30% standard deduction. Please note the interim budget has amended this provision of the law which is applicable from the current year where you are allowed to have two self owned and self occupied houses instead of presently allowed one.
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 not omitted to be included due to oversight or ignorance of the legal provisions.
The author is tax and investment exepert and can be reached at [email protected] and @jainbalwant on twitter.