Wednesday, November 2, 2016

TAX FREE INCOME

THIS MAY NOT be a serious offence but a taxpayer is required to mention tax-free income in his return. Tax-free income includes interest earned on PPF, tax-free bonds, life insurance policies, capital gains from stocks and equity-oriented funds and gifts from specified relatives. Even if you are not liable to pay any tax on these incomes, all your interest income, including savings bank interest, has to be reported in the ITR. The taxpayer can then claim exemption for the same. While you may not receive a notice for not mentioning tax-free income, it will certainly create an inconsistency in your return.

Similarly, dividend income has to be reported in the ITR even though it is tax-free. This year's Budget has proposed a tax on dividend income if it exceeds `10 lakh. The new rule will impact HNIs who use dividend stripping strategies to earn tax-free income.

 

Mention all tax-free income in your ITR but claim exemption for it under various sections.

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