Monday, 25 July 2011

Show all source of Income in IT Return

When you file income tax return do not forget to include all income from other sources such as Gift, interest, income from property etc. to avoid penalty. Now all are busy with filing income tax return before the due date of July 2011. You may have doubt about what is to be included in your income tax return and what should not. Here The Times of India daily tells you through an article that what you should show in the income tax return and pay tax to avoid penalty and interest and how can you show these items if you already file income  tax return without mentioning these income.

Filing tax return? Include income from all sources


The clock's ticking away and the taxman's waiting. Calculating your tax liability right is more than a matter of being conscientious; you'll have to cough up a penalty of 100-300 % of the tax amount you're caught evading. In addition, you'll be liable to pay interest at the rate of 1.5% a month on the outstanding amount, which is charged from the day your tax returns, ought to have been filed.

To compute your total tax liability, you need to consider more than the Form 16, and the profit & loss account. Don't forget to factor in 'Income from other sources' lest you find yourself an unwitting tax offender. Here are some of the other such sources of income.

Interest income 

Never mind how minuscule the amount, the interest earned on your savings account, FDs, bonds and National Savings Certificates (NSC) is taxable. Factor in any interest amount that you've earned during the year even if you expect to receive the money after the deadline for filing returns. This has to be added to your income and taxed accordingly.

Gifts 

Cash gifts of over 50,000 received from anyone who does not qualify as a specified relative falls in the ambit of income from other sources. Such relatives include parents, grandparents, spouse, siblings, your spouse's or your parents' siblings, children, grandchildren and their respective spouses. All non-cash gifts too have to be accounted for and the value to be declared is the cost of the asset on the day it was gifted. However , gifts received on your wedding as well as any inheritance will not be taxed.

Income from gifts 

If you invest the cash gifted to you, the income generated from this will be taxed. Though the one who receives the gift has to bear the tax burden on any interest earning from it, the case is different in the case of spouses. Says Homi Mistry, partner, Deloitte Haskins and Sells: "Suppose a man gifts his spouse 5 lakh which is put in a fixed deposit earning 9% interest a year. This means that the wife will earn 45,000 as interest income, but this money will be added to the husband's account and he will have to pay tax on it."

Income earned by minor child 

If you have opened a savings account or a fixed deposit in the name of your minor child, the interest earned will be taxable. You can claim an exemption of up to 1,500 per child in a year (for two children only). The amount will be clubbed with the income of the parent who earns more and is taxed accordingly. However, once clubbed, the same parent will continue to bear the tax burden even if the earnings ratio changes. On the other hand, if your child has earned money himself, the income cannot be clubbed and a separate tax return will have to be filed.

Property 

Even if you own a flat that is lying vacant, you will have to pay tax on it. Says KH Viswanathan, executive director, RSM Astute Consulting: "In case an individual owns more than one house and one of them is vacant, the latter will be taxed on a notional basis." The vacant house will be taxed on the notional rent that is at par with the rent earned by other houses in the same locality.

Another common mistake made by property owners is to assume that the 1.5 lakh ceiling on interest deduction on home loans also extends to rented properties. "This is applicable only for self-occupied property," he adds. So, you can claim deduction on the entire interest paid on the home loan for your second house as long as it is rented out.

Capital gains 

If you sell assets, such as property and gold, within three years of purchasing them, the profits have to be mentioned under the heading of short-term capital gains. In case of shares, debentures or mutual funds, short-term gains is the profit earned on any units sold before the completion of one year. All such gains will be taxed.

However, if you have any short-term losses, they can be set off against short-term as well as long-term capital gains. These losses can be carried forward for eight years. Says Vineet Agarwal, director, KPMG: "This ultimately results in lowering the current year's tax liability." But you can do this only if you file your tax returns before 31 July.

Gratuity 

This amount is generally paid to an employee only after he has worked in the same company for five successive years. The gratuity amount received on death or retirement is fully exempt from tax. Otherwise, the exemption limit is 10 lakh. However, if an employee receives gratuity earlier, it will be fully taxable. The employer would include this amount as income in the Form 16.

Have you already filed your returns without considering these income sources? Fret not, for you can file a revised tax return till March 2013.

Source : The Times of India

 

 

 

 

 

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