Types of Income Often Missed While Filing Income Tax Return (ITR FY 2022-23)

The Income Tax Return (ITR) filing season is on, and as the deadline to file ITR approaches, taxpayers must accurately disclose all income and relevant information.

Filing Income Tax Returns can be a daunting task sometimes due to a plethora of sources and deductions to report, and it is easy to get lost under reams of documents. In the midst of the chase to the deadline for Income Tax Return filing, sometimes you might forget to declare certain sources of income. Not disclosing the various types of income sources may result in serious repercussions.

Don't be late to file your tax returns. Every taxpayer should file their ITR on or before the specified due date, i.e. July 31st, 2023. Begin the process of filing your Income Tax Return today with the help of our articles:

Easy ITR Filing Process: 10 Steps to File Your ITR Online for FY 2022-23 (AY 2023-24)

Income Tax Return for FY 2022-23: Which ITR Form Should You Choose?

ITR Filing Made Easy: Document Checklist for FY 2022-23 Tax Season

The tax filing process is about checking all the boxes. However, taxpayers frequently overlook a few minor facts, which leads to an unfavourable notice from the Income Tax Department. So, it is essential to take proper care and pay attention at the initial stage itself. There are various heads of income under which you need to file your ITR. Notably, while submitting ITR, taxpayers fail to disclose several sources of income that periodically accumulate, such as freelance work and interest from bank accounts.

Despite the fact that the majority of people are aware of popular income sources, including income from wages, income from real estate, money from a job or business, and income from capital gains, there are lesser-known streams of income that often go unnoticed. Failing to disclose such income can lead to penalties and legal complications from the Tax Department.

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Here are the five most common income sources that taxpayers overlook:

1. Interest Income from Savings Bank Account

One type of revenue that is frequently overlooked is this one. Banks have gradually lowered the return rates on savings accounts. As a result, compared to income from other sources, the interest generated is substantially smaller. Therefore, even if there is no effective tax impact, it must still be taken into consideration. If savings bank interest is not disclosed, it could result in a discrepancy in the information available with the Tax Department, and this is usually enough to warrant a notice.

[Read: How You Can Put the Surplus Money in Your Savings Account to Best Use]

Under Section 80TTA of the Income Tax Act, such interest is eligible for a deduction of up to Rs 10,000 per year. But if the interest income exceeds that cap, it will be taxed according to the individual's tax bracket. Do note that the deduction available is not per bank account but on the total interest earned on all your bank accounts.

2. Accrued Interest

Accrued Interest is interest that an investment is currently earning but that you have not collected yet. In a nutshell, you accrue interest every quarter/month and receive it on the payment date.

This is the income that is earned but not received by the taxpayers. This can be because the investment is a cumulative deposit or a bond where the interest will only be paid out on maturity. However, this income could have tax deducted at source, so it is essential to disclose it in your income tax return file.

3. Income Received under Minor's Name

If a minor (someone under the age of 18) earns money beyond the income tax slab, their parent or legal guardian is responsible for filing taxes on their behalf. Yes, under Section 64(1A), any money that is earned by or paid to a minor is included in the parent's income and is subject to taxation in the same manner as the parent's own income. Investing on behalf of a minor is common. This typically takes the form of a bank account that is created in the child's name, with the parent acting as the guardian.

[Read: How to Manage Mutual Fund Investments of a Minor Turning 18 Years of Age]

In a rush to meet the deadline for the tax-filing process, earnings from these investments are often missed out. The investments and bank account in the name of the minor might be earning some interest, or nowadays, there are teenagers who are working and earning money for themselves, and this has to be clubbed with the parent's income. The parent whose PAN is used with the investment or the account must show this along with their income. However, a deduction of Rs 1,500 is available for such clubbing of minors' income.

4. Tax-free Income

This is the most missed-out income by taxpayers while filing ITR. There are quite a few investments that yield tax-free returns. While this income is tax-free, it doesn't mean that it does not have to be shown in the tax return. The Income Tax Act 1961 mandates disclosure of all sources of income, whether taxable or non-taxable.

Such tax-free sources of income may include proceeds from tax-free bonds or even income that falls within the ambit of specific sections of the Income Tax Act, like interest on the Public Provident Fund. Taxpayers may mention their tax-exempt income under Section 10 of the ITR, but they must provide the entire amount of such income. The purpose of the taxpayer may appear fraudulent in the tax report if all sources are not listed. Therefore, you must report all of your sources of income, even tax-free ones, to avoid any confusion.

5. Income from Foreign Investments

Indian investors having foreign investments must pay the required taxes. Many investors have some foreign investments in overseas markets to have global exposure, increase returns, and reduce portfolio risk through diversification. This is either in the form of direct equity holdings or foreign funds and even, in some instances, residential property abroad. Investments in overseas equity and debt instruments by Indian investors are taxed under short-term capital gains and long-term capital gains. And the foreign property will be taxed in the same manner as Indian property.

The relevant section in the Income Tax Returns file must contain a disclosure of these investments and the income the individuals have generated. Equity, debt, and real estate investments made by Indian investors abroad must be declared in either ITR-2 or ITR-4. If you are currently paying tax abroad on your investments, make sure to fill out the prescribed form 67 to claim a credit for taxes paid overseas.

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.

She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.

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Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.