5 Innocent Mistakes Honest Taxpayers Usually Make
Posted on October 01 2020
1. Not reporting interest income
Though the interest earned from the fixed deposits, recurring deposits, tax-saving bank deposits and infrastructure bonds are fully taxable, but people often do not report about any interest income which is below Rs 10,000. The exemption of Rs 10,000 a year under Section 80TTA is applied only to the interest which is earned on the balance in a savings bank account. Even though, you are supposed to declare it in the ITR and then claim for the deduction.
Another common mistake is that one is not required to pay tax as TDS has been deducted on the income. What people mostly forget is that the tax which is deducted by the bank at source is at a flat rate of 10%. Therefore, the tax slabs may vary. So, if you fall in a higher tax slab then your liability may be more and you will have to file your income tax return and pay the balance. Many people forget to re-calculate their liability and end up receiving a notice and paying higher taxes with interest and penalties said by Archit Gupta, the Founder and CEO, ClearTax.com.
The Income Tax Department can match your ITR with Form 26AS to identify your mistakes. The taxman also deep inside, beyond the TDS. It records the deposits and interest income from where TDS has not been deducted, that is, where you have submitted Form 15 G/H. The penalty is very severe up to 200% of the tax evaded, as it is not a mis-calculation, but it is the concealment of the income.
2. Overlooking clubbing of income
Many people basically invest in the names of spouse or minor children. There is no limit to the amount you can give to your spouse, but if you invest the gifted money, the Section 64 of the Income Tax Act, a provision for clubbing the income, comes into play. Under this, any income earned from the gifted amount is added to your taxable income. It doesn't matter if your spouse has any income or not. The money will be added with your income said by Tapati Ghose, Partner, Deloitte Haskins & Sells LLP. For a minor child, the earning is treated as the income of the parent who is earning more. You also get an exemption of Rs 1,500 a year, per child, up to a maximum of two kids. If you want to escape tax then invest the gifted money in a tax-free option, such as the PPF or ELSS scheme. Or invest in the name of your parents or a major child, where clubbing provision does not come into play.
3. Not filing returns
If you think that you are not required to file your income tax returns because you have no liability, but you are mistaken. This exemption is only for those whose annual gross income is below the basic exemption level of 25 lakh. Any person whose annual gross income is above this has to file an income tax return. The basic exemption is Rs 2.5 lakh per year for those people whose is below 60 years, Rs 3 lakh is for the senior citizens who is above 60 years, and Rs 5 lakh is for very senior citizens who are above 80 years. The rest includes the NRIs who have to comply. If you fail to file your income tax return in time then the assessing officer may levy a penalty of Rs 5,000 under the Section 271F.
Besides, the limits are for the gross incomes, that is, the income before deductions and the tax breaks. So, if your annual income is Rs 4 lakh and you have invested Rs 1.5 under the Section 80C, your tax liability will be zero. Therefore, you are required to file your ITR. Similarly, if you have paid tax as TDS or advance tax, you will require to file your income tax return.
Many salaried people, who earn less than Rs 5 lakh, do not file an ITR. The main confusion is because of a special rule which was introduced in 2011-12, where the salaried individuals with taxable incomes of Rs 5 lakh or less, and earn less than Rs 10,000 as interest from the savings account, with no refund due, were exempt from filing income tax returns. Therefore, this rule has long been withdrawn.
4. Missing income from old job
Whether you received a single cheque from a part-time freelance assignment or salary was credited to your regular account, each and every single paisa has to be reported. If you fail to inform your current employer about a change in your job then there is a chance that lesser tax will be deducted from your salary than the one you are liable to pay. Therefore, this difference will be immediately reflected when you file your income tax return. You may have to pay higher tax as duplicate benefits will be rolled back. Do not try to escape it; defaulters have to pay the balance tax along with 1% rate of interest per month for delaying as penalty.
5. Not reporting tax-free income
Tax-free does not mean that it is not your income. All your earnings are included, like the interest earned on PPF, tax-free bonds, or capital gains from stocks and gifts from your specified relatives. Even if you are not subjected to pay any tax on these incomes, but all your interest income has to be reported in the ITR said by Gupta. You can claim for exemption later for it under various sections.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.