I am a salaried person. My only other income is: a) Interest on my savings bank account and b) Interest on government of India’s relief bonds (taxable, 2003). As per my knowledge I need to fill up ITR-2 for my tax returns, since ITR-1 is only for salaried income. However, almost everybody I know are filling ITR-1, and not showing their interest income from savings accounts.
ITR-1 has a column “income from other sources” but the instructions say that in it, one has to write only “income by way of interest chargeable to income-tax”. Further they say that “there should not be any exempt income other than agricultural income or interest income.” The meaning of this is rather unclear.
Would be obliged if you could guide me, since it seems a waste of resources to fill up the 8 page ITR-2 for just one line about my interest income.
?Ajey Hardeekar
ITR-1 is for salary and interest income. ITR-2 is for salary, interest income, and capital gain and / or house property income. So you may use ITR -1 only.
Currently, interest from all sources except PPF is taxable. Your bank interest will be taxable and the same has to be mentioned.
The instruction in ITR-1 that says “there should not be any exempt income other than agricultural income or interest income.” means that if you have long-term capital gains income that is exempt, ITR-2 has to be used and not ITR-1.
Can loss on investment in mutual funds (MFs) be used as business loss, the way we can do in the case of trading losses with respect to stocks?
?Riddhi
Generally this cannot be done, unless you can prove that investing in MFs is indeed your business. This can be ascertained by examining the facts of the case —your past tax returns, whether you have borrowed money to invest in MFs, etc. Normally, this is applicable only to share transactions, as day trading is possible. In MFs because of the loads, among other things, one cannot and should not trade frequently, so treating the loss as business loss may not be feasible.
I am a retired government servant, providing a professional consultancy service. I have earned Rs 2.80 lakh as “Professional Consultancy Fee”. I haven’t maintained any profit and loss account for this service. How should I treat the fees earned as a consultant in filing the tax return? Since I haven’t maintained a P&L account, is there any provision under which I can show some percentage of this fees under the head of “profit & gain from business” in computing my taxable income?
?C M Bhatt
The income received from a professional consultancy service will be taxable under the head ?profits and gains from business or profession?. You will have to file your tax return using ITR-4. Under the new series of forms, there is no requirement of attaching any annexures like profit and loss account (P&L).
However, you may specify the expenses incurred by you in order to earn such an income and then subject the net income after expenses for tax. In other words, though you do not have to create a formal P&L account, you will need to mention the expenses and income. In the absence of any records, you may refer to your bank passbook for ascertaining the expenses.
I have the following query related to mutual funds investment.
1) How is dividend income treated in IT computation in an equity scheme?
2) How is the dividend on debt fund treated in computation of IT? What about LTCG and STCG in the debt scheme of a mutual fund? What about dividend distribution tax on a debt scheme?
?Vikas
Equity-based MF schemes are governed differently from debt-based schemes. In both the cases, dividend is tax-free in the hands of the investor. However, there is a dividend distribution tax @14.1625% payable by the MF directly to the exchequer in the case of debt-based, whereas the equity-based are exempt from this tax.
Equity-based schemes are also exempt from long-term capital gains tax. The short-term capital gains are taxed @15% only.
In the case of debt-based schemes, short-term gains are treated as normal income of the assessee and taxed at the rates applicable to the assessee. The long-term gains will attract tax @10% without indexation or @20% with indexation, whichever is more beneficial to the assessee.
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