Why You Should Disclose Tax Free Income in Your Income Tax Returns?

Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    Let's begin this explanation with a simple example. Say you bought shares worth Rs 50 lakhs a year ago and have now sold it to for Rs 80 lakhs after one year and two months. Now, this is not far fetched and the way stock markets have risen you would have easily made that kind of money.

    Why You Should Disclose Tax Free Income in Your Income Tax Returns?
    Now, since you have held onto the shares for more than one year, the extra profit of Rs 30 lakhs does not qualify for payment of tax. Profits made on sale of shares after holding onto them for more than one year does not qualify for tax.

    Now, if you invested this extra Rs 30 lakhs in fixed income then the next year it could raise suspension from the IT department as to where the Rs 30 lakhs came from.

    While in the first instance it may not have been mandatory to declare the profit, if you had to declare the profits it would have been a better proposition. There are many such income that is tax free. These include:

    1) Interest earned from PPF

    2) Interest earned from Tax Free Bonds

    3) Dividend from shares

    4) Interest earned from SB Accounts up to a cap of Rs 10,000 per financial year

    5) Dividend distributed by mutual funds

    Why disclose tax free income in ITR?

    As mentioned at the very outset, you need to declare the tax free income as there could be a sudden scrutiny by the authorities in the subsequent years. It's best to tell them if you have sold something at a profit and realised gains, even though they are not liable for tax.

    This would also mean that you are creating lesser stress for yourself in the subsequent years declaring tax free income. Please note, that it may not be mandatory as per law, but it is best if declared. Of course, most of the tax free income would not run into several lakhs, especially dividends, but its highly possible to make windfall gains from the sale of shares etc.

    Do also remember to keep checking the laws and guidelines which keep changing at frequent intervals. For example, interest income on SB accounts being restricted to Rs 10,000 was changed a few years ago.

    Conclusion

    It's best to declare tax free income as and when you have the same, especially if it is larger amounts that could come under scrutiny a few years down the line.

    GoodReturns.in

    Read more about: tax returns
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more