1. Not reporting interest income

Though interest earned from fixed deposits, recurring deposits, even tax-saving bank deposits and infrastructure bonds, is fully taxable, people often do not report any interest income below Rs 10,000. The exemption of Rs 10,000 a year under Section 80TTA applies only to the interest earned on the balance in a savings bank account. Even so, you are supposed to declare it in ITR and then claim the deduction.

Another common misassumption is that one need not pay tax as TDS has been deducted on the income. What people forget is that the tax deducted by the bank at source is at a flat rate of 10%. However, tax slabs may vary. So, if you fall in a higher tax slab, your liability may be more and you will have to pay the balance while filing returns. Many people forget to re-calculate their liability and end up with a notice, paying higher taxes with interest and penalties.

The department can catch such mistakes by matching your ITR with Form 26AS. The taxman also digs deeper, going beyond TDS. It tracks the deposits and interest income where TDS has not been deducted, that is, where you have submitted Form 15 G/H. The penalty is more severe (up to 200% of the tax evaded) as it is not a mis-calculation, but concealment of income.

2. Overlooking clubbing of income

Many people invest in the names of spouse or minor children. There is no limit to the amount you can give your spouse, but if you invest the gifted money, Section 64 of the Income Tax Act, a provision for clubbing income, comes into play. Under this, any earning from the gifted amount is added to your taxable income. It doesn't matter if your spouse has an income or not. The money will be clubbed with your income. For a minor child, the earning is treated as income of the parent who earns 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, 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 you don't need to file returns because you don't have a tax liability, you are mistaken. This exemption is only for those with an annual gross income below the basic exemption level of Rs 2.5 lakh. Anyone with an income above this has to file a return. The basic exemption is Rs 2.5 lakh per year for people below 60 years, Rs 3 lakh for senior citizens above 60, and Rs 5 lakh for very senior citizens above 80. The rest, including NRIs, have to comply. If you fail to file your return in time, the assessing officer may levy a penalty of Rs 5,000 under Section 271F.

Besides, the limits are for gross incomes, that is, the income before deductions and tax breaks. So, if your annual income is Rs 4 lakh and you invest Rs 1.5 under Section 80C, your tax liability will be zero. However, you are required to file your ITR. Similarly, if you have paid tax as TDS or advance tax, you will need to file the return.

Many salaried people, who earn less than Rs 5 lakh, don't file an ITR. The confusion is because of an ad hoc rule introduced in 2011-12, where salaried individuals with taxable incomes of Rs 5 lakh or less, and earning less than Rs 10,000 as interest from savings account, with no refund due, were exempt from filing returns. However, 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 regularly to your account, every single paisa has to be reported. If you fail to inform your current employer about a job change, there is a chance that lesser tax will be deducted from your salary than you are liable to pay. However, this discrepancy will be immediately reflected when you file your return. You may have to pay higher tax as duplicate benefits will be rolled back. Do not try to escape it as defaulters have to pay the balance tax along with interest at the rate of 1% per month for delay as penalty.

5. Not reporting tax-free income

Tax-free does not mean it is not your income. All your earnings are included, be it the interest earned on PPF, tax-free bonds, or capital gains from stocks and gifts from specified relatives. Even if you are not liable to pay any tax on these incomes, all your interest income has to be reported in the ITR. You can later claim exemption for it under various sections.

From India, Ahmadabad
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