Several types of income are often ignored by taxpayers while filing their income tax returns. Here's what you need to know about them.
There are several types of income which are often ignored by taxpayers while filing their income tax returns. Such incomes fall under the category of ‘Income from Other Sources’. This may happen because they are unaware of the taxability of such income or because they knowingly hide it from the tax authorities. The Income Tax Return (ITR) filing season is on. Therefore, it is important for you to understand what comes under the head ‘Income from Other Sources’, tax implications of such income and implications if you ignore such income.
“There are various heads of income under which you need to file your ITR like income from salary, income from house property, income from profession and business and income from capital gains. However, there are certain types of incomes which do not fall under any of the categories mentioned earlier. Such incomes fall under the category of income from other sources. People often miss to report these incomes due to ignorance. To avoid such a mistake, it is important to match your income details from your Form 26AS, also known as Tax Credit Statement,” says Chetan Chandak, Head of Tax Research, H&R Block India.
For any income to be considered income from other sources, it needs to satisfy certain conditions. Firstly, it should not be exempt under the provisions of the I-T Act, 1961. Secondly, it should not fall under any of the other heads of income. Let’s have a look at such incomes:
Several other incomes: Income made in the form of insurance commissions, interest on bank deposits/deposit with companies, interest on loans, interest received on unrecognized PF, Senior Citizens Savings Scheme, recurring deposits, National Savings Certificate, Post Office Savings Scheme, rent from a vacant piece of land, interest received on delayed refund, some perquisites to the director of a company also fall under this head of income.
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Gifts: Any income that you make in the form of gifts, if exceeds Rs 50,000 without adequate consideration, is taxable. However, any gift you receive from a person who qualifies as a relative under the I-T laws is exempt from tax.
Dividend income: Not all kinds of dividends are taxable. Dividends that you receive from a domestic company and mutual funds are exempt from tax. However, “if dividends received from a domestic company exceed Rs 10 lakh, then that will be chargeable to tax @ 10%. However, dividends received from a foreign company are taxable under the head income from other sources. As per section 2(22) of the I-T Act, 1961, dividends also include debentures issued to shareholders & bonus shares allotted to preference shareholders along with distribution in case of liquidation of a company,” says Chandak.
Interest on securities: Any interest income that you make through your investment in securities is chargeable to tax under this head. Although what comes under securities is not defined under the I-T laws but by general definition bonds, central or state government securities and debentures issued by companies or local authorities fall under this category of income.
Pension received by legal heirs of deceased: Any pension received by legal heirs of deceased is taxable for them. However, this income isn’t fully taxable. They can claim a deduction @ 33.33% of such income or Rs 15,000, whichever is less.
Winnings from lotteries, horse races, gambling etc: Any income that you get from winning lotteries, crossword puzzles, horse races and card games, gambling, betting or even game shows like Kaun Banega Crorepati are chargeable to tax and fall under the category of income from other sources. These incomes are fully taxable and they are taxed @ 30%.
Consequences of ignoring other sources of income
It is important to match your income details with form 26AS because any mismatch can result in incorrectly filed ITR. If you make mistakes in your ITR, you may receive I-T notices. If you had claimed TDS but did not report interest income, then the Assessing Officer (A.O.) will consider your return as defective and send you a defective return notice under section 139(9). However, “if you did not show your income as well as did not claim credit of taxes, then A.O. will send you inquiry before assessment notice u/s 143(2) and scrutiny assessment notice u/s 142(1) and you will be asked to pay taxes due along with applicable interest as per I-T provisions. Moreover, if the A.O. determines that you have misreported or under-reported your income, then you will have to pay taxes due along with interest u/s 234B and 234C. Additionally, he can impose a penalty ranging from fifty per cent to two hundred per cent of the amount of tax payable on under-reported or misreported income u/s 270A,” informs Chandak.
As you can see, knowingly or unknowingly ignoring your income from other sources can create a number of problems for you. Therefore, file your return carefully this time and remember to refer to your Form 26AS.