Ignorance is never bliss, when it comes to calculating how much you need to shell out by way of taxes! When errors crop up due to lack of awareness you could end up evading tax unknowingly! That could turn out to be a costly mistake somewhere down the road! So be wise, get your tax facts right!
Here is a quick sample checklist for you!
Agricultural income and property Avinash owns some land in Pollachi and earns an income of Rs. 20 L from farming and Rs 5 L from renting out the building situated on a part of this land on an average every year. Can he claim Rs. 25 L as agricultural income?
No, he cannot. As per the direct tax laws, he can only claim Rs 20 L as agricultural income. Rs 5 L has to be treated as income from house property.
Further, if someday Avinash sells the land and makes a net profit of Rs 2 crore, he cannot claim this as agricultural income but has to include it as part of capital gains and pay tax on it.
Maturity proceeds of a Life Insurance Policy are not extended to the proceeds of a Keyman Insurance Policy. (This policy is taken on the life of one person by another - e.g. Employer - employee).
When the policy matures and is assigned to the employee, it is taxable as part of the salary, unlike the exemption available under section 10 (10D) with respect to the LIC policy.
Gifts by Non relatives
Any sum of money or gifts received by non relatives is taxable when its value exceeds Rs 50,000.
E.g: Anush gets Rs 1 L from his parents and Rs 40,000 and Rs 15,000 from his friends Bharath and Craig. As per tax laws, Rs 1 L is not taxable as it is a gift from relatives, on the other hand Rs 55,000 from friends is fully taxable without any exemption.
However, this rule is not applicable on the occasion of marriage
Interest and loans
When an individual takes a loan against the security of a fixed deposit, interest on such a loan cannot be deducted from the interest income earned on the FD. However, it is allowed if the loan is taken to support a business.
Lottery, betting, racing
Income from winning a lottery, crossword, horse race, gamble or bet is not exempt. Tax at the rate of 30% is applied.
Further, no expense allowance is possible against such an income. E.g. cost of lottery tickets purchased during the year cannot be deducted from the lottery winnings.
Also, no basic exemption limit and no benefit of carry forward and set off for loss is allowed against such gains.
From his funds, Satish takes an FDR for Rs 10 L ( earning an interest of 10% p.a payable half yearly) in the name of his wife. An interest of Rs 1 L earned was invested by her in a business, which resulted in a profit of Rs 1.6 L for the year.
In the above case, the Rs 1 L interest earned needs to be clubbed with Satish's income and is taxable. However, the profit of Rs. 1.6 L needs to be taxed in the hands of Satish's wife. Jewels and paintings
If a person sells personal jewels (made of platinum, gold and other precious metal) and paintings, they are subject to capital gain tax.
E.g. If Lekha sells jewels made of platinum and paintings worth Rs 10 L for Rs 45 L she is subject to a capital gains tax of Rs 35 L.
It is worth a mention here that the term 'jewellery' is not just used to describe ornaments. Almost all items containing gold, silver or any other precious metal would be considered jewellery. Thus, furniture or clothes with precious stones embedded on them would be regarded as jewellery!