Barely a day-and-a-half remains for the deadline to file your income tax returns (ITR). The last date — July 31— is round the corner. Stick to this deadline if you do not want to pay a late fee, penal interest on due tax and let-go other benefits of filing the ITR before the due date.
At the same time, it is crucial that you do not forget to report off-beat or unusual incomes that you might have earned during the last financial year, irrespective of the amount. Most of these incomes are either non-taxable or exempt to a certain extent, but you still need to disclose the amount in the appropriate column and schedule, and claim the exemptions.
You earn interest income on your balance in savings accounts, or if you have term deposits in a bank or post office. The interest earned above a certain limit is taxable.
“Interest income earned in the financial year is taxable under the heading ‘Income from other sources.' The taxability of interest income is determined by its source,” said Deepak Jain, Chief Executive, TaxManager.in, a tax e-Filing and compliance management portal.
“A deduction of up to Rs 10,000 is allowed (sec 80TTA of the Income Tax Act) on your total interest income savings bank accounts in a financial year. Senior citizens can avail a deduction of up to Rs 50,000 in this case, under section 80TTB,” added Jain.
However, not all interest incomes are taxable. For instance, interest income from public provident funds is exempt from tax.
Income from capital gains
“Profits made on the sale of capital assets such as immovable property, shares and securities, etc., are treated as capital gains,” said Yeeshu Sehgal, Head of Tax Markets, AKM Global, a tax and consulting firm.
The tax rate on capital gains differs based on the assets it has been derived from, and the holding period. For instance, “gains from listed shares are considered long term (LTCG) if held for more than a year (taxable at 10%), and two years in case of unlisted shares (20% with indexation).
"On the other hand, short term capital gains are taxable at 15% in case of listed shares, and as per the slab rate in case of unlisted shares.
"For property, LTCG is considered after two years of holding, at 20% (with indexation), while STCG is taxed at slab rates," explained Sehgal.
There is a separate space in ITR forms to disclose capital gains. “Income from capital gains (whether short-term or long-term) needs to be reported under schedule CG of the income tax returns,” said Sehgal.
Gifts and inheritance
Gifts are always welcome, but in a few cases the tax department may want a share of it.
“Gifts in cash or kind come with a tax liability, unless they fall under the exempt category. Gifts are to be shown under the head ‘Income from other sources’ and are taxable per the slab rate,” said Jain.
Gifts received from relatives like father, mother, brother, sister and spouse are exempt from tax, irrespective of the amount. Any inheritance from family is also exempt under the Act. Nonetheless, “recipients are still required to disclose the exempt gift amount or inheritance under the schedule ‘Exempt Income’ in the ITR,” said Sehgal.
However, gifts received from others are treated as income and tax is to be paid in case the aggregate of gifts received during the year exceeds Rs. 50,000. There is no tax liability if gifts received are within the threshold of Rs. 50,000 a year,” added Sehgal.
"If the aggregate value of monetary gifts received during the year exceeds Rs. 50,000, then the total value is taxable. In other words, if two of your friends gift Rs 25,000 each, totalling Rs 50,000, there will be no tax on it. But if one gives a gift of Rs 26,000 and the other Rs 25,000, the total comes to Rs 51,000. In which case the entire Rs 51,000 will be taxable, and not just Rs 1,000.
"However, if you have received a gift on the occasion of your wedding, then the entire gift is non-taxable, irrespective of whether given by close relatives or friends or anyone else for that matter. Apart from marriage, there is no other occasion when monetary gifts received by an individual is not charged to tax, if beyond the Rs 50,000 threshold.
Thus, monetary gifts received on occasions like birthdays, anniversaries, etc., will be charged to tax.
Prize or lottery
If you have won any prize or lottery, it attracts tax. “Prizes and winnings from lotteries shall be reported as income from other sources,” said Sehgal. Moreover, the tax is applicable at a flat rate. “Prizes and winnings from the lottery are taxable at the rate of 30%,” said Sehgal.
Make sure you use correct ITR form
If you are a salaried individual and have additional interest income, you can use the ITR-1 form to file your returns. However, if you have income other than salary and interest, you may need a different form to file your ITR. “In case of gifts, lottery, and capital gains income, form ITR-2 and 3 can be used for individuals and HUFs,” said Sehgal.Make sure you file your return in the correct ITR form and fill the details under the right schedule, else your return may be considered as invalid. Read more here.