If any source of income is not reported or accounted for when submitting a tax return, then it means you have under-reported your taxable income. This can include various types of income that may have been overlooked or forgotten during the filing process.
Here are 7 common taxable income sources that individuals may overlook when filing their tax returns:
Interest Income
Many individuals forget to include interest earned from savings accounts, fixed deposits, recurring deposits and small interest amounts, thinking they are negligible.
Interest earned on savings accounts, from various post office savings schemes, from fixed deposits (FDs), and recurring deposits are considered under the heading “income from other sources” and is subject to taxation under the Income Tax Act.
Interest income is added to the total income of the taxpayer and taxed according to the applicable income tax slab rates.
Banks and financial institutions may deduct tax (TDS) on interest payments if they exceed ₹40,000 in a financial year (₹50,000 for senior citizens).
The TDS rate for interest income is generally 10%. Taxpayers can claim credit for this TDS against their total tax liability.
If you have opted to pay taxes under the old tax regime, up to ₹10,000 of interest earned from savings accounts is exempt from tax under Section 80TTA (₹50,000 for senior citizens under Section 80TTB).
Interest income must be reported in the income tax return under the “Income from Other Sources” section.
Maintain records of interest earned and any TDS certificates received for accurate filing. Interest income earned in a financial year is assessed in the following assessment year.
If the total tax liability exceeds ₹10,000, taxpayers are required to pay advance tax in four installments.
Dividend Income from listed securities
As of the current regulations, dividend income is taxed as part of your total income. It is subject to the applicable income tax slab rates for individual taxpayers.
Companies are required to deduct TDS on dividends paid to shareholders at a rate of 10% if the dividend amount exceeds 5,000 rupees in a financial year. For domestic companies, this TDS is deducted before the dividend is distributed.
Dividend income must be reported in the income tax return under the head income from other sources if buying and selling of securities is not your main business, and any TDS deducted can be claimed as a credit against the tax payable.
If buying and selling stocks or financial securities is your main business, then it should be taxed as business income.
Some individuals may not fully understand that dividend income needs to be reported. Without proper record-keeping, individuals might not have an accurate account of their dividend income, leading to unintentional omissions.
To avoid missing such details, it’s beneficial to maintain organized records and possibly seek assistance from tax professionals. Before filing income tax return, cross check your available details of income with AIS as most of the dividends received by you are reported to the income tax department which reflects in AIS.
Gifts
In India, the taxation of gifts is governed by the Income Tax Act.
Gifts received by an individual are taxable if the total value exceeds Rs 50,000 in a financial year from non-relatives. If the aggregate value of gifts from non-relatives exceeds Rs 50,000, the entire amount is treated as income and taxed accordingly.
Gifts received from specified relatives are exempt from tax, regardless of the amount. Relatives include: Parents, Siblings (brothers and sisters), Spouse, Children and any lineal ascendant or descendant.
Gifts received in connection with a marriage are exempt, irrespective of the amount. Gifts from recognized charitable institutions are also exempt. Amounts received as inheritance are not taxable as gifts.
It’s essential to maintain documentation of gifts received, especially if they exceed the Rs 50,000 limit, to substantiate claims during tax assessments.
Taxable gifts must be reported in the income tax return as part of your total income.
Profit from sale of listed securities
In India, if you sell listed securities within one year of purchase, the profit is considered short-term capital gains and is taxed at a flat rate of 20%.
If you hold listed securities for more than one year, the profit is treated as long-term capital gains. As of now, LTCG exceeding ₹1.25 lakh in a financial year is taxed at 12.5% without indexation.
It’s crucial to report all capital gains on your tax return, regardless of the amount. Maintain detailed records of transactions, including purchase and sale dates, amounts, and any associated costs (like brokerage fees).
Crypto transactions in India
Profits from the sale or transfer of cryptocurrencies are subject to a 30% tax on the gains, regardless of whether they are classified as short-term or long-term capital gains.
Unlike other capital gains, there are no deductions allowed for expenses or losses when calculating the taxable amount on cryptocurrency profits.
A 1% Tax Deducted at Source (TDS) is applicable on payments made for purchasing cryptocurrencies if the amount exceeds ₹10,000 in a financial year. This TDS is deducted at the time of the transaction.
All cryptocurrency transactions must be reported in the income tax return, and it’s essential to maintain detailed records of transactions.
Losses from cryptocurrency transactions can be carried forward, but they can only be offset against future gains from the same asset class.
Winning from Games and Lotteries
Winnings from games and lotteries are taxed at a flat rate of 30% (plus applicable cess and surcharges). This rate applies to the total amount won, without any deductions for expenses.
The entity paying out the winnings (such as a lottery company or a gaming platform) is required to deduct TDS at the rate of 30% before disbursing the winnings if the amount exceeds 10,000 rupees.
All winnings must be reported in the income tax return as “Income from Other Sources.” The entire amount won is included in the total income for tax purposes.
Unlike other types of income, there are no exemptions or deductions available for winnings from games and lotteries.
It’s advisable to keep proper documentation of your winnings.
House rent
In India, income from house rent is classified as “Income from House Property” and is subject to specific taxation rules.
The income from house rent must be reported in your income tax return, and any applicable deductions should be claimed to reduce taxable income.
The income earned from renting out a property is calculated based on its Gross Annual Value, which is the higher of the actual rent received and the fair rental value determined by the municipal authorities.
A standard deduction of 30% of the Net Annual Value (GAV minus municipal taxes) is allowed for repairs and maintenance. Any municipal taxes paid by the owner during the year can be deducted from the GAV.
The Net Annual Value is calculated as:
NAV=GAV−Municipal Taxes
The taxable income from house property is calculated as:
Taxable Income=NAV−Standard Deduction
If the property is self-occupied, the income is considered as zero, and the owner can claim a deduction of up to ₹2 lakh on interest paid on housing loans.
If the expenses (including interest on loans) exceed the rental income, you can claim a loss from house property, which can be set off against other heads of income.
Many taxpayers do not report their income from house property thinking that the income tax department will not be aware of their rental income.
Please not, in certain cases you can not escape if you get caught. Especially when your tenant is paying rent to your bank account. Or in cases where your PAN is reported to the income tax department by your tenant. It’s always advised to report all income in tax return.
The income from house rent must be reported in your income tax return, and any applicable deductions should be claimed to reduce taxable income.
Important Considerations
Maintain all documents and records as the tax authorities may scrutinize your returns during this period.
Gather all necessary documents, including Form 16, bank statements, rent agreements, investment statements, and any other income-related documents.
Ensure you file your return before the due date to avoid penalties and interest on late payments.
Cross check your income with form 26AS and AIS which shows the income on which tax has already been deducted (TDS) by your employers, banks, and other entities and certain high value transactions reported to tax authorities. This helps ensure that all your income sources are accounted for and accurately reported in your tax return.
Ensuring all income is reported and that the correct TDS is accounted for can help you avoid penalties for under reporting income or miscalculating tax liabilities.
If you realize that you’ve missed reporting certain income after filing, you can file a revised income tax return under section 139(5) of the income tax act, 1961, within the specified time frame.
Make sure to stay updated with the latest tax regulations, as they can change, and consult a tax professional for personalized advice.
