If you’re filing an ITR, don’t forget to include these crucial facts

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Sonali Maity | Sep 16, 2021 | Views 585762

If you’re filing an ITR, don’t forget to include these crucial facts

If you’re filing an ITR, don’t forget to include these crucial facts

KEY POINTS

  • To prevent interest charges, take advantage of the extended ITR filing deadline by properly evaluating your tax burden and pay the matured tax.
  • Individual taxpayers should be aware of how to disclose income from various sources in the ITR.
  • Some sources of revenue are tax-free. However, these revenues must be reported on your ITR.

The CBDT this Friday extended the deadline for filing income tax returns (ITR) for assessment year 2021-22 from September 30 to December 31. However, while the new deadline is more than three months away, this does not imply you should put your return filing process on hold. Instead, you should use this deadline to accurately assess your tax burden and pay the matured tax to avoid incurring interest charges.

Importanly, this is significant for people who submit their own tax returns. They should be aware of how various sources of income must be disclosed in the tax return, as well as the numerous deductions that are available to them. There are also some sources of revenue that are tax-free. However, you must declare these revenues on your ITR in order to prevent receiving a notification from the tax department in the future.

Many taxpayers, for example, fail to disclose their interest income, despite the fact that it is completely taxable. Many others don’t disclose capital gains since it’s too time consuming to record each transaction. Many taxpayers are also unaware that dividends are now completely taxable and must be included on their tax returns. Incomes such as maturity profits from the Public Provident Fund and withdrawals from the EPF (after five years) are also tax-free. However, you must include them in your ITR so that the Income Tax Department does not question you about the source of this revenue when you invest it in the future.

“All income, whether taxable or exempt, must be disclosed in a taxpayer’s return.” While most people are careful to record taxable income, many fail to report exempt income such as PPF interest, withdrawals, and so on,” said Aarti Raote, Partner, Deloitte India.

There’s a possibility that taxpayers who submit their own ITRs will forget to record some of their earnings. While preparing ones personal tax return, one should be aware of the following tax rules. It’s worth noting that there are now two different tax regimes to choose from. If you don’t plan on taking advantage of any exemptions, the new tax regime attempts to tax your income at lower slab rates. Before you file your income tax return, you must choose a tax regime.Balwant Jain, a tax and investment specialist, stated that this must be done by filing a notice to the income tax department via Form 10IE.

Salaried taxpayers have the choice to alter their tax regime when filing their ITR, even if their employer has already computed their tax burden and deducted TDS based on the old tax system.

Calculating capital gains

With so many retail investors making an investment in equities and mutual funds, capital gains from these assets are almost certain. Long-term capital gains from equities and equity-oriented mutual funds in excess of Rs 1 lakh in a year are taxable.

Calculating capital gains is a time-consuming process, not only because you must keep track of all transactions, but also because different tax rates apply to different transactions. The new tax filing system was designed to automatically compute and pre-fill capital gains and tax on an individual’s tax form. However, as this has not occurred, taxpayers must calculate and fill out the form on their own.

If the taxpayer has made long-term gains, the new rule requires details of the stocks, buying price, selling price, and transaction dates to be included in the return form. When reporting short-term gains, the tax department has stated that scrip-by-scrip details of transactions are not required .On the other hand, Investors will have little difficulty in giving these facts because all fund houses give investors  a capital gains statement, which lists all transactions, profits, and losses made during the year. Similarly, most large brokers provide capital gains statements for their equity transactions to their clients.

Unlisted stocks and foreign assets are not to be overlooked

Taxpayers must record their investment in unlisted shares and overseas assets in addition to listed shares and mutual funds. “Foreign assets held outside India (as owner and beneficiary) must be listed in Schedule FA (foreign assets),” Mr Jain explained. It’s worth noting that hidden foreign revenue or assets are taxed at 30% plus a penalty of 300 percent of the tax due on the hidden asset’s income or value. Failed to disclose such foreign assets in the return could result in a penalty of Rs 10 lakh.

Foreign depository accounts, foreign custodial accounts, foreign equity and debt interest, shares held in any foreign company, details of trusts created under the laws of another country in which the assessee is a trustee, and any other capital asset are among the foreign assets that must be disclosed.

Dividends are no longer exempt from taxation.

Many investors believe that dividends earned from mutual funds and equities are tax-free. It should be recalled that, before 2019-20, fund houses deducted tax on dividends paid, whereas companies paid dividend distribution tax. Dividend distribution tax was abolished in the financial year 2020-21, and investors must now pay tax on dividend income. These revenues are added to the taxpayer’s taxable income and taxed at your slab rates.

Interest income is fully taxable

Although interest collected on bank fixed deposits, savings accounts, post office term deposits, bonds, and other micro savings schemes is fully taxable, many taxpayers fail to disclose it. Even interest on a bank balance must be disclosed on the tax return as “income from other sources.” Despite the fact that practically everyone earns interest, the majority of taxpayers fail to record it on their tax returns.

It’s worth noting that the financial institution that pays the interest must submit all interest payments to the Tax department. Please remember that your PAN is now required for not only bank deposits, but also investments in Post Office schemes, and the information on the interest gained eventually reaches the department.

Some taxpayers assume that interest income is exempt from taxation since their bank has already deducted TDS. This is also a misinterpretation. TDS is deducted at a rate of 10% of interest (20 percent if PAN is not provided). If a taxpayer is in a higher tax slab, he must pay additional interest tax. In Form 26AS, check your interest income for the financial year. Details of the TDS deducted from interest payments will be included. Otherwise, be prepared to get a tax notice if the income reported on your tax return does not match the information on Form 26AS.

It is wise idea that exempt income, such as interest on tax-free bonds, PPF, and the Sukanya Samriddhi Yojana, should be include in your tax return. You will find it easier to explain the credit of large sums when these investments mature if you have been reporting this income all along.

The clubbing of income is a common error that taxpayers make. If money provided by a spouse is invested, the income from that investment is combined with the giver’s and taxed proportionately, according to tax regulations. “On this, the law is crystal clear. Nonetheless, we come across circumstances where a couple owns property jointly despite the fact that the husband paid the entire amount. The rental revenue in such instances cannot be split between husband and wife. According to ET Wealth, Kaushik of Taxspanner, “it will have to be declared as his income alone.” Similarly, income from investments made in the name of a spouse or minor child must be included to the giver’s income.

Reconciling income and expenses

Taxpayers with a net taxable income of more than Rs 50 lakh in a financial year must also provide information of specified assets such as property, buildings, movable assets, bank accounts, shares, and bonds, and any corresponding debts against those assets if any. It included a new Section E to the Form 26AS last year that mentions high-value transactions made during the year. These high-value expenses listed on Form 26AS should match to the income you reported on your tax return.For example, if an individual spends Rs 8-10 lakh on a credit card and another Rs 4-5 lakh on international trip but claims just Rs 5-6 lakh in income, the tax department will want to know how his expenses exceed his income and may issue a notice.

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