Filing income tax returns: How to save yourself from from taxman
July, 08th 2016
A little diligence at the time of return filing goes a long way. Some extra caution while preparing your tax return can reduce your odds of receiving a tax notice significantly. Here are common errors people make in their tax returns:
Not reporting email id and mobile number correctly: The income tax department has moved the bulk of its communication online. Now the tax department communicates exclusively through emails in many cases and therefore you should take extra care to report your email id correctly. It is preferred to use a personal email as opposed to your office email id, since you may change jobs and lose critical communication from the tax department. Taking care to mention your mobile number correctly is very important too.
Not reporting income corresponding to TDS credit: Most of us own fixed deposits on which TDS is deducted by banks. This TDS can be adjusted against our final tax liability, since it is TDS already deducted and deposited on our behalf. However, a lot of taxpayers fail to fully report the interest income on which TDS is deducted. The income tax department does not allow claim of TDS if you do not report the income on which it is deducted. So, make sure you have accounted for every income in your tax return while taking its TDS credit.
Not reporting gain from sale of shares: A lot of taxpayers earn capital gains from sale of shares or mutual funds but do not report them in their tax return. Mutual fund houses and investment companies are mandatorily required to submit a report of all investments and transactions of the fund holders. Therefore the government regularly receives details of your investment activity. Why not make records proper and report all shares and mutual funds sale and gains thereof? Saves us headache from an income tax notice.
Not reporting sale of an under construction property: Some taxpayers have this misconception that an under construction property is not an asset and gain on its sale is not taxable. Any right to a capital asset, in this case a right to a property is also a capital asset and any gains have to be treated like capital gains. If you have held on to the right for a period exceeding 3 years, your gains are treated as long term and taxed @ 20% after indexation of costs. You can even claim capital gains exemption by either investing in another property or purchasing capital gains bonds. Capital gains are allowed to be invested until the return filing date i.e. July 31. So there is still time if you want to report your sale and invest your gains.
Not reporting more than one property: If you own more than one house property, you must report all of them in your tax return. Only one property is allowed to be considered as self-occupied and the remaining are assumed to be on rent and tax must be paid on estimated rent. The choice of which property you want to report as self-occupied has been allowed to the taxpayer. So make sure you report all your properties, pay tax on the actual rent if rented. Or pay tax on estimated rent if the property is lying vacant or unused.
Not reporting salary from old employer: When you change jobs during the year, salary earned from both the employers should be reported in your tax return. Sometimes your old employer may not give you a Form 16, in such a case you should take help from your pay slips and include this salary in your tax return. Such salary is taxable and should be a part of your total income, even if no TDS was deducted and a Form 16 was not issued. Any salary income earned by you should be included in your tax return.
Not reporting exempt income: If you have earned long-term capital gains which are exempt from tax or have recently retired and received gratuity and other retiral benefits, you must report them under exempt income. Sometimes taxpayers invest these monies in property or make large deposits with banks. You will have no trouble explaining the source of your assets or bank balance once these have been duly reported by you. Remember if you decide to park these funds in a fixed deposit, any interest earned on it is fully taxable. It should be included in your tax return under income from other sources.
Avoid common mistakes
* It is preferred to use a personal email as opposed to your office email id, since you may change jobs and lose critical communication from the tax department * Make sure you have accounted for every income in your tax return while taking its TDS credit * Mutual fund houses and investment companies are mandatorily required to submit a report of all investments and transactions of the fund holders * If you have held on to the right for a period exceeding 3 years, your gains are treated as long term and taxed @ 20% after indexation of costs * Ensure you report all your properties, pay tax on the actual rent if rented * If you have earned long term capital gains which are exempt from tax or have recently retired and received gratuity and other retiral benefits, you must report them under exempt income