Report shifting of funds in MF schemes in I-T return

A majority of the salaried taxpayers do file their income tax return (ITR) by themselves and thus are bound to commit some mistakes due to ignorance of the law. In this article, I will discuss some of the errors of omission committed by such taxpayers about some of the items of income, which are taxable but are generally omitted to be included in our ITR. 

Capital gains on units of mutual funds switched

With an increased number of people investing in mutual funds, this mistake is committed by many mutual fund investors. We as an investor shift and switch our investments from one scheme to another scheme of the same mutual fund house for various reasons. The reasons may be non-performance of a particular scheme or it may be due to shifting to direct plan from regular plans or may be transferred under the Systematic Transfer Plan (STP). Since these transactions are not reflected in the bank statements, on the basis of which your tax advisor files the ITR in case you are not filing. As transactions pertaining to switching of schemes are not routed through a bank account, the profit made on such transfer go unreported if not disclosed in the return of income. With the long-term capital gains on equity-oriented schemes also becoming taxable, every transaction of switch or shift from one scheme to another results into a profit or loss and thus needs to be properly reported in the ITR.

Interest received on bank's savings account and fixed deposits

Most of the salaried people avail the facility of ITR filing provided by people either online or offline where the filer helps you file your returns just on the basis of Form16 without even looking at your bank statements. Though the interest on saving bank account is eligible for a deduction of up to Rs 10,000, people, especially salaried class, carry the impression that it is fully exempt and hence do not include it in the income. So, even if your interest from saving bank account is less than Rs 10,000, you still need to include the same under the head “Income from Other Sources” and claim deduction under Section 80 TTA. In case it happens to be more than Rs 10,000, you are required to discharge tax liability in respect of such excess interest.

Many senior citizens place their money in fixed deposits with banks to earn a regular income to support their monthly expenses. They feel that as tax is deducted by the bank, they need not include it in their income while filing the tax return. This is not correct. The discharge of your tax liability is different from the TDS on your income. This is especially true in case the tax rate applicable to your income is different from the rate at which tax it is deducted. It may either result in a refund or may necessitate payment of further taxes in case the rate applicable to you is higher than the TDS rate. 

Income earned on investment of minor child

The income of each of your minor child is exempt up to Rs 1,500 a year and any income beyond this limit has to be clubbed with the income of the parent whose income is higher. Income to minor may arise from various sources like on the investments made out of gifts received by the child. Most parents are not aware of this requirement of clubbing income of the children with their income and contravene the law due to ignorance. They are under the impression that since the income of the minor is below the exemption limit, there is no need to file an ITR and pay taxes.

Notional income in respect of more than one house property

As per income tax laws, you are allowed to have only one self-owned house as self-occupied house property which is exempt from tax liability. However, in case you own and occupy more than one house, you to have select one of these houses as self-occupied and other houses/s as deemed to have been let out. This situation may arise in cases where you have one house at the place of your work and other being inherited in your native place without even realising it.

For such deemed to have been let out house property, you have to offer notional rent for taxation though no rent is received. Please note that the notional rent is not the same as nominal rent. It is the amount of rent which the property is expected to fetch in the open market. Against such notional rent, you can claim full interest for a home loan as well as a 30% standard deduction. Please note the interim Budget has amended this provision of law which is applicable from the current year where you are allowed to have two self- owned and self-occupied houses instead of presently allowed one.

So from the above discussion, it becomes clear that there are various items of income which need to be included in the income tax return but are not omitted to be included due to oversight or ignorance of the legal provisions. 

The writer is a tax and investment expert