ITR utility adds 'Other Income' field: Should you report exempt receipts?

Updated ITR utility now lets taxpayers disclose exempt receipts that don't fit existing categories to help avoid notices

The updated Income Tax Return (ITR) utility for Assessment Year (AY) 2026-27 introduces a small but potentially important change for taxpayers. A new residual 'Other Income' field has been added under Schedule EI (Exempt Income), giving taxpayers a way to voluntarily disclose exempt receipts that do not fit into any of the specified categories.

 

While reporting these receipts is not legally mandatory, experts say the new disclosure option can help taxpayers avoid scrutiny from the Income Tax Department, particularly when the transactions are already visible through its data systems.

 

What has changed in the ITR utility?

Earlier, taxpayers who wanted to report exempt receipts that did not fall under predefined categories in Schedule EI had no dedicated field to do so.

 

 

The updated utility now includes an 'Other Income' column under Schedule EI, allowing taxpayers to voluntarily disclose exempt receipts that are not taxable but may still be visible to the tax department through various reporting systems.

 

According to Parag Jain, chartered accountant and tax head at 1 Finance, the change fills a practical gap in the return filing process.

 

"The updated ITR utility for AY 2026-27 now includes a residual column for Other Income under Schedule EI, allowing taxpayers to voluntarily disclose exempt receipts that do not fit any specific exempt income category," Jain said.

 

Which receipts can be disclosed?

Experts say the field is particularly useful for receipts that are exempt from tax but are large enough to appear in the department's information systems.

 

Jain pointed to two common examples:

 

• Sale proceeds from rural agricultural land, which is not treated as a capital asset under Section 2(14) of the Income Tax Act, 1961, and therefore does not attract capital gains tax.
• Gifts received from specified relatives, which are exempt under Section 56(2)(x) of the Income Tax Act, 1961.

 

Although these receipts are exempt, they often leave a digital trail.

 

“The registration of rural agricultural land gets reported through the Statement of Financial Transactions (SFT), while gifts received through banking channels are reflected in the Annual Information Statement (AIS). In both cases, the money is visible to the department. An ITR that says nothing about either transaction leaves a gap the system will flag," Jain explained.

 

He added that disclosing such receipts in Schedule EI “costs nothing”, whereas responding to a tax notice later could require extensive documentation and explanations.

 

Is disclosure compulsory?

 

No. Experts stress that the exemption itself is provided under law, so taxpayers are not legally required to report every exempt receipt.

 

However, they say there is a practical advantage to doing so.

 

“The risk of silence is practical, not legal,” Jain said. "When a transaction appears in AIS and nothing appears in the ITR, the system generates a mismatch notice regardless of whether the receipt was exempt."

 

He advised that taxpayers should voluntarily disclose exempt receipts exceeding Rs 5 lakh if they are likely to appear in AIS or SFT, as this can reduce the chances of receiving mismatch-based notices.

 

Echoing the view, Mihir Tanna, associate director of direct tax at SK Patodia & Associate LLP, said disclosure is advisable because undisclosed transactions may otherwise fall under the department's risk parameters for further inquiry.

 

Why does this matter more now?

Experts say the Income Tax Department increasingly relies on data collected from multiple sources rather than only on what taxpayers declare in their returns.

 

"The ITR is no longer the department's primary source of information. It is a document the department cross-checks against data it already holds from banks, registrars, stock exchanges, insurance companies and SFT filers," Jain said.

 

Tanna noted that while processing returns, the department compares the taxpayer's declared income with information available through AIS and SFT to determine whether the financial transactions are consistent with the taxpayer's income profile.

 

Practical situations where disclosure may help

Tanna said the intention behind the new disclosure field appears to be helping the department understand the source of significant financial transactions.

 

For example, a taxpayer may:

• Purchase a house using a loan.
• Receive a large fixed deposit maturity amount.
• Redeem a substantial mutual fund investment and reinvest the proceeds elsewhere.

 

These transactions may be reported in AIS, but the source of funds may not be evident from the ITR alone, particularly where the taxpayer is not required to file a personal balance sheet.

 

"In such cases, the system may flag the transaction because past income may not sufficiently support the investment," Tanna said.

 

He added that receipts which are not income — such as gifts, loans or substantial redemption proceeds from investments — can be disclosed under the relevant field so that the return presents a more complete picture.

 

Other exempt receipts taxpayers often get wrong

Jain said taxpayers also commonly make mistakes while reporting exempt retirement-related receipts.

 

These include:

 

• Voluntary Retirement Scheme (VRS) compensation, which is exempt up to the prescribed limit under Section 10(10C).
• Leave encashment on retirement, where government employees receive full exemption, while private sector employees are eligible only up to the prescribed limit.

 

According to Jain, taxpayers should report the exempt portion in Schedule EI while offering any taxable portion under the appropriate head of income.

 

"The disclosure does not create liability. It prevents the question from being asked," he said.