Benjamin Franklin said this once, “Nothing can said to be certain except death and taxes.” Income tax laws in the country ask us to report our every paisa of income in the income tax return forms.
However, I have noticed many instances where individuals misreport their incomes in their income tax returns, not because they intend to, but just out of sheer ignorance of the tax laws.
So, here is an article dedicated specially to the taxation rules of some extra incomes one might have apart from their salaries or business income. These are being discussed in detail below:
- Interest on Savings Account – Most of the individuals do possess a bank account and as per the latest guidelines, the banks need to credit the interest on the funds in our accounts on quarterly basis. However, not more than 10% of the individuals report the interest on Savings Account in their returns. An extra incentive to report such income is that an equal deduction of maximum upto Rs. 10,000 in a financial year is given for such interests. So, in short, you don’t need to pay any extra tax for declaring interest upto Rs. 10,000. The balance interest is taxed at the normal tax slabs applicable to an individual.
- Interest on Fixed deposits (FD) and Recurring Deposits (RD) – Interest earned on FDs and RDs are added to the income and taxed as per normal tax slabs applicable to the individual. Further, in case interest from a bank/ post office exceeds Rs. 10,000 in a financial year, they will deduct tax from the interest and deposit it with Income Tax Department on your behalf. However, there is a typical notion that if tax has been deducted by bank, you don’t need to declare such income in income tax returns, but this is completely untrue and you still have to include such income in your returns and pay tax accordingly.
- Rental Income – Any rental income received (net of property tax paid) during the year is eligible for 30% deduction towards repairs and maintenance of the rented property and accordingly, only 70% of such amount is subject to income tax. Further, an individual is eligible to claim deduction towards interest on housing loans , subject to certain limits.
- Profits from Shares – Any profits from shares held for more than one year are exempt from taxes, provided the transaction is done through a recognised stock exchange and is subject to securities transaction tax. Further, even when shares have been held for less than one year, special rate of 15% is applicable on such profits. Also, any dividends earned from the shares are completely tax free in the hands of the investor. However, if you receive dividends more than Rs. 10 lakhs in a year, you attract special super riches dividend tax of 10%.
- Returns from Tax-free bonds – As the name suggests, any interest earned on tax free bonds is completely exempt from tax. Further, capital gain on sale of tax free bonds held for more than one year is taxed at special rate of 10%, while for bonds held for less than one year, gains are taxed as normal income.
Returns from Corporate Bonds and Debentures – The interest income from Corporate bonds is taxed as other incomes. Further, the capital gain taxation rules are similar to those applicable to tax free bonds as discussed above.
- Returns from Equity Mutual Funds – Equity oriented mutual fund is the one which invests at least 65% of its assets into equity. The taxation rules are similar to that applicable to shares.
- Returns from Debt Mutual Funds – Debt mutual funds invest primarily in debt instruments. Gains on such mutual funds held for more than 3 years are taxed at special rate of 20% after adjusting the investment cost for inflation index. If such funds have been redeemed after holding of less than 3 years, it is taxed at normal tax rates applicable. Dividends from debt funds are exempt in the hands of the investor.
- Returns from Gold and Gold Funds – Gains from gold and gold funds are similar to taxation rules as applicable to debt funds discussed above.
- Returns from Sovereign Gold bonds – Gains from redemption of Sovereign Gold Bonds are exempt from income tax. However, if the god bonds have been transferred prior to its redemption, gold bonds shall be subject to similar tax rules as gold funds. Further, interest on investment in Sovereign Gold Bonds is subject to normal rates of tax.
- Returns from Filing Income Tax Returns Correctly – This helps you live a stress-free life, eventually leading to smiles which are completely tax-free.
An attempt has been made to include taxation aspects of few extra incomes that an individual might earn. Don’t commit mistakes in the name of ignorance and pay your taxes accordingly.
Happy Earning and Happy Learning!
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5 thoughts on “Extra Incomes and their Taxation!”
Your theme is extremely useful especially as we prepare to file returns! The mistakes in investments can be rectified next year!!!!
Is income tax refund taxable? Will be included in other income?
Spice of Life!
this is surely helping, in face of the recent panama leaks 😉
Direct Dial Se …..
I love seeing this “caption” when I enter to your blog :).
And yay the post is very good 1,
We must keep knowledge of extra incomes and their usage, and tax values .
This is such a useful post dear Simardeep…Explained very clearly and yeah I too loved the “Direct Dil Se” thing 🙂
But on the whole, with extra income comes extra tax implications and it can be really tricky to work out for yourself whether or not you should be paying tax on your money-making schemes.