In order to accurately calculate tax liability, taxpayers and tax professionals should be well aware of how income from various sources has to be reported and should know about the various deductions available for them.
HIGHLIGHTS
- CBDT has recently extended the deadline for ITR filing to December 31 for the year 2021-22.
- Taxpayers who file their own return should be aware how incomes from other sources have to be reported in the ITR.
- The provision for disclosure of assets is applicable for the tax payers whose taxable income exceeds the Rs 50 lakh in a year.
To provide some relief to the taxpayers, the Central Board of Direct Taxes (CBDT) recently extended the deadline for income tax return (ITR) filing for the year 2021-22 to December 31 from the earlier deadline of September 30.
his will provide taxpayers and tax professionals with enough time to accurately calculate tax liability, avoid interest charges and duly report income from other sources. This is especially important for taxpayers who file returns on their own.
They should be well aware of how income from various sources has to be reported and should know about the various deductions available for them. In addition to this, there are some incomes that are exempted from tax but are still required to be reported in the ITR.
Other income to be disclosed in ITR:
In order to be able to compute accurate tax liability, there are some tax rules that all taxpayers should know of. For instance, a lot of people do not report interest incomes in their returns even though it is fully taxable.
Here are some tax rules that one should be aware of while preparing his/her tax return.
New tax regime:
There are now two tax regimes to choose from. Taxpayers can select a tax regime based on their preferences. The new tax regime allows lower tax rates. However, deductions and tax benefits allowed in the old tax regime are not provided.
The taxpayer will have to communicate the selection of tax regime by sending an intimation through Form 10IE to the income tax department before filing the return.
Calculating capital gains:
Long-term capital gains from equities and equity-oriented mutual funds beyond Rs 1 lakh in a year are taxable. People are not only required to maintain records of all transactions but also properly calculate capital gains because of the different tax rates applicable to various instruments.
The new rule requires details of the scrips, buying price, selling price and dates of transactions to be mentioned in the return form if the taxpayer has made long-term gains. However, according to the tax department, mentioning scrip-wise details of transactions when reporting short-term gains is not required.
Reporting unlisted shares, foreign assets:
Taxpayers must also report their investment in unlisted shares and foreign assets. Foreign assets requiring disclosure are foreign depository accounts, foreign custodial accounts, foreign equity and debt interest, shares held in any foreign company and so on.
Foreign assets held outside India (both as owner and as beneficiary) have to be mentioned in Schedule FA (foreign assets).
Undisclosed foreign income or assets are taxed at 30% plus a penalty, which is 300% of the tax payable on the income or value of the undisclosed asset. An additional penalty of Rs 10 lakh may be levied for failure to disclose such foreign assets in the return.
Dividends are not exempted from income tax:
Notably, from the financial year 2020-21, dividend distribution tax was removed and investors have to pay tax on the dividend income. These incomes are added to the taxable income of the taxpayer and are taxed as per the slab rates.
Interest income is taxable:
Interest earned fixed deposits, savings accounts, post office term deposits and some other small savings schemes are completely taxable. However, few taxpayers fail to report these incomes in their returns.
It should be noted that all interset payments are reported to the income tax department by the financial institution paying the interest, as these investments are also linked to your PAN. These interest incomes have to be reported as ‘income from other sources’ in the tax return.
Banks deduct TDS on interest at 10 per cent of the interest (20 per cent if PAN is not provided). Additional tax on the interest is to be paid if a taxpayer is on a higher tax slab.
On the other hand, it is also advisable to report the exempted income such as the interest earned on tax-free bonds, PPF and the Sukanya Samriddhi Yojana in your tax return, as explaining the credit of large sums then becomes easier.
Reconcile income and expenses:
In addition to the aforementioned rules and regulations, taxpayers having a net taxable income of more than Rs 50 lakh in a financial year are also required to disclose specified asset details like land, building, movable assets, bank accounts, shares and bonds. They also have to disclose the corresponding liabilities against those assets, if any.
Furthermore, high-value expenses mentioned in Form 26AS must match the income you declared in your return.
For example, if a person’s expenses exceed his/her income, the tax department may send a notice regarding the same.
