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Sunday, February 16, 2014

Filing I-T return? Don’t ignore income from other sources

The current financial year is going to end soon and then it will be time to file your I-T return. However, before you do this, you should remember that there are various heads under which you need to file your income tax return. Income from salary, income from house property, income from profession & business, and income from capital gains are the main heads under which you show your earnings. But there still remain some kinds of income which are not categorized under either of these heads.

"Some of these are fully taxable, without any exemptions available. All such incomes fall under a different head, called 'Income from other sources'. In simple terms, this includes all such incomes which cannot be categorized as either salary, property or business income. Do remember that missing out any information on this can lead to imposition of penalty under the Income Tax Act," says Jitendra P.S. Solanki, a SEBI-registered investment adviser and founder of JS Financial Advisors.

However, before any income can be categorized as 'income from other sources', it has to meet a certain precondition which states that "the income should not be exempted under provision of this act and such income should not be chargeable to tax under any other head, viz., 'income from salary', 'income from house property', 'profit and gains of business & profession' and 'income from capital gain'. If it satisfies this condition, you will have to show it under 'income from other sources'. Let's look at some of such incomes:

1. Winning from Lotteries, Crossword Puzzles, Horse Races and Card Games: Any income you derive from the winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort (for instance, income from Kaun Banega Crorepati), gambling or betting of any form or nature whatsoever is chargeable to tax under this head. "All such incomes are fully taxable as no deduction in respect of any expenditure or allowance is allowed. The tax rates applicable to these incomes are 30% (cess of 3%) irrespective of the taxability of individual," informs Solanki.

2. Gifts of Money From Unrelated Person: Any sum of money (in excess of the prescribed limit of Rs 50,000) received without consideration by any individual is chargeable to income tax in the hands of the receiver. According to Section 56(2), the gifts not only include money from unrelated person, but also the gift of property or property acquired for inadequate consideration. Foreign/NRE gifts are also covered in this section.

3. Dividend Income: Since dividends from a domestic company and mutual funds are exempted from tax, only dividends received from a foreign company are taxed. However, dividend is defined clearly under Sec 2(22), which states that it also includes debentures issued to shareholders and bonus shores allotted to preference shareholders along with distribution in case of liquidation of a company.

4. Interest on Securities: Interest income by way of investment in securities is chargeable under this head. There is no specific definition of security given by income tax, but if we look at the general meaning, then a security is an acknowledgement of a debt or claim, which is secured. Bonds, Central or state government securities, debentures issued by companies or local authorities are secured debts and hence fall under this category.

"Here also the income earned through investment in securities is taxed at a special rate of 30% (cess 3%) irrespective of one's income tax slab. However, one has an option of paying tax either on receipt basis or accrual basis. But an assesse should be following the same accounting system in all his income," says Solanki.

5. Pension Received by Legal Heirs of Deceased: After the death of an employee, any pension received by legal heirs is taxable under the head 'Income from other sources'. However, as per Sec 57, legal heirs can claim standard deduction of 33 1/3% or Rs 15000 whichever is less.
There are also other incomes which generally do not fall under the other four heads of income and so they get chargeable to income tax under this head.

Here are some of them:

Insurance Commissions, Interest on Bank deposits/deposit with companies, Interest on loans, Interest received on unrecognized PF, Rent from a vacant piece of land, Interest received on delayed refund, Some perquisites to the director of a company.

You should remember that all such income, even if minuscule in nature, is subject to income tax, and therefore need to be included in your ITR form.

Source:-The Economic Times

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