Is it compulsory to disclose exempted income in the income tax return?

Is it compulsory to disclose exempted income in the Indian income tax return? Can NRI ignore the direction given in the tax return to declare exempted incomes such as his foreign income? As there is no such specific provision in the Income Tax Act, and since no tax is sought to be avoided, non-disclosure of exempted income should not attract penalties/prosecutions. Right? Asked  By A Member on Linkedin.com

First of all , contrary to your belief , the Income Tax Act clearly provides u/s 139(6) that assessee shall  furnish details of exempt income if such details are prescribed in the form of return

139(6) The prescribed form of the returns referred to in sub-sections (1) and (3) of this section, and in clause (i) of sub-section (1) of section 142 shall, in such cases as may be prescribed, require the assessee to furnish the particulars of income exempt from tax, assets of the prescribed nature , value and belonging to him, his bank account and credit card held by him, expenditure exceeding the prescribed limits incurred by him under prescribed heads and such other outgoings as may be prescribed.

Why  should you  provide the information regarding exempt income?

1.  It is binding u/s 139(6) for assessee to declare exempt income if return form requires.
2.  Section 139(9) of the I T Act empowers A.O to treat the return as defective if all columns ,annexures are not duly filled in. Unnecessarily , one will be giving chance to an authority to question the return.
3. Income tax law is such complex that it is a matter of interpretation that one income which an assessee thinks as exempt , may be in the eyes of A.O be taxable. It might just be the case that the income is indeed is taxable under I T Act. If an assessee , under bona fide belief , did not show such income which he thought to be exempt from tax , which is he supposed ti show u/s 139(6), the A.O will not only charge tax on such income but may also initiate penalty and prosecution for concealment of income.

                For example take section 9 of the I T Act which is regarding ”income deemed to accrue or arise in India” which is taxable even for non resident.Tomes have been written about this section  . Its common perception among non resident that once you become non resident ,income earned outside India  is not taxable in India. But that is not the case. Depending on the facts  and circumstances, income  becomes taxable.The court battle have been fought ,but many a judgment of court in favour of Revenue department.

Therefore, in my opinion it is better to reveal your exempt income.

Is there any relief to Non Resident from filing of return?

There is some relief to Non Resident Indians under section 115 C to 115I of I T Act. But relief is limited to long term capital gains on capital assets purchased in foreign exchange or any income derived by Non Resident from an asset purchased or subscribed in convertible foreign exchange . In those case ,if NRI wishes , he may even not file return of Income as given in section 115H  which is given under:

115G. It shall not be necessary for a non-resident Indian to furnish under sub-section (1) of section 139 a return of his income if

(a) his total income in respect of which he is assessable under this Act during the previous year consisted only of investment income or income by way of long-term capital gains or both; and

(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.