There are always legal ways to save lakhs in income tax. But when you avoid or forget to declare your income from a couple other sources, it’s a fine line between strategy and mistake. So to help you out, we have curated a list of six very common mistakes that people make while filing income from other sources.
I know it’s a lot to remember and recall while filing your tax return for any financial year, and some people often forget to declare income from a couple other sources. To make sure you don’t make the same mistakes, we have put together six of the most common mistakes people make when filing income from other sources. Here’s what not to do:
- Not showing income from Interest on FD: Fixed deposits with a bank provide a higher rate of interest than savings accounts. They can also be rolled over once maturity is reached. Interest on a fixed deposit is taxable, but people often avoid declaring income from an FD due to ignorance or oversight.
- Not showing income from interest on savings bank account: It’s a misconception that interest earned from a savings bank account is tax-free. Even though there is no tax deduction at source (TDS), the interest you earn on the money in your savings account is taxable. If the amount of interest earned is less than Rs. 10,000, you don’t need to pay tax on it. But don’t go creating multiple savings accounts just to avoid paying taxes on the interest. For all your savings accounts from all banks combined, you can claim up to Rs. 10,000 in deduction under section 80TTA of the IT Act if you’re an individual or a HUF.
- Not showing exempt income – Interest on PPF/ gifts received in marriage: Amount from sources like PPF and EPF are exempt from tax, but do need to be declared as exempt income from other sources. Gifts received as a wedding present are also tax-exempt. But income from dividends is taxable, and must be declared.
- Not showing income from investments made in the name of spouse/children: People commonly invest in the name of their parents, spouse, or child as a way to save tax. Purchasing a fixed deposit or life insurance in the name of their child or buying stocks, land, shares, mutual funds, or a building in the name of their spouse lets them get away with it. A gift to your child won’t be taxable, but the interest earned on it will add to his income and may put him in a [higher] tax bracket. Section 64 of the IT Act clubs income from investments or assets in the name of a close relative with the income of the investor, and this income is taxed. However, there are legal ways to save tax doing this.
- Not showing dividend income in your ITR: Dividends are the profits a company periodically distributes to its shareholders. So essentially, dividends are income and must be declared. Also, in a year, gifts up to Rs. 50,000 won’t be taxed. But anything more than that and the gift becomes taxable.
- Not showing income received as gifts/ cashback: If your friend gifts you a Rs. 1 lakh watch, the entire amount of 1 lakh gets added to your income and is taxed at your slab rate. Similarly, if a yearful of cashback sums up to more than Rs. 50,000, they become taxable. Lotteries are taxable too- at 31.2%!
Now you know what mistakes to avoid while filing income from other sources. It’s just not worth it to try and avoid declaring income from sources like fixed deposits and savings accounts. So go ahead and file your taxes, (and make sure to declare income from all the sources we just talked about!)
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