Most of us have a common question while filing our taxes- Are we supposed to disclose all forms of income in the return, irrespective of exemption? Well, read on to find out!
Every year, each individual who earns an income is subject to income tax. Income tax, simply put, is the tax an individual pays to the government on the yearly income earned. However, seldom do people understand how much tax is one subjected to and what he/she needs to declare while filing their ITR. More importantly, most are unclear whether they need to declare the income that is tax exempt or not. Well, here’s an eye opener. You most certainly do!
Before we dig deeper, let’s understand what kinds of income make up for your income tax, followed by what is exempted.
The income tax department has divided income into 5 broad heads, namely
Income from Salary- This covers the income earned from salary or pension
Income from House property- This includes income earned from renting out an owned property
Income from Capital Gains- This includes income from sale of assets like house, mutual funds, shares etc.
Income from Business- This purely includes income one receives from running a business. Individuals such as life insurance agents, doctors, chartered accountants and lawyers are subjected to this category.
Income from other sources- This encompasses other sources of income such as savings bank account interest, fixed deposits interest or lotteries.
Now, let’s look at incomes that are exempt from tax
House Rent Allowance.
Allowance on transportation, children’s education, subsidy on hostel fee.
Exemption on Housing Loan.
Income defined as per Section 10, Section 54 of the Income Tax Act, 1961.
Leave and Travel Allowance.
Given that these forms of income are exempt, one still needs to declare the same when filing returns. Here’s how For salaried individuals, one needs to make a disclosure of exempt income under Schedule S - Details of Income from Salary’ while filing income tax as per ITR-2. As mentioned above, the exemptions are:
a. House Rent Allowance
b. Leave Travel Allowance
c. Leave Encashment Amount
d. Pension Amount
e. Gratuity Amount
f. Any form of perquisites received
g. Amount received from a Voluntary Retirement Scheme
On the other hand, for self-employed or non-salary account holders, there are a few incomes categorized under exempt income. These include dividends, agricultural income, interest on funds, capital gains, which need to be disclosed under Schedule EI while filing income tax as per ITR-1.
Consequences of not disclosing Exempted Income
While certain income does not attract any tax, several taxpayers fail to disclose details regarding these types of income. However, individuals who do not declare these particulars might end up being under the scanner of the Income Tax Department, as they will be unable to pinpoint the origin of such income. Therefore, it is always wise to disclose all income to save yourself from a penalty.