Income tax returns filing date extended; 8 common mistakes taxpayers should avoid
August, 02nd 2016
Tax management is an important part of personal finance. Often people make mistakes while filing tax return. The mistakes either results in higher or lower tax liability, causing mismatch with the tax payment requirement. If more tax is paid than what is due, you may not be troubled by it. But paying lesser tax than what you’re accountable for could get you a notice from the Income Tax Department. Government has extended the last date for filing income-tax returns for 2015-16 (assessment year 2016-17) from July 31 to August 5 after a day-long strike at public sector banks.
Let’s check out some common mistakes you should avoid while filing your tax returns.
Not reporting interest income
We save money in savings bank accounts, which helps us generate interest at rates between 4% and 7% per annum. Banks do not deduct TDS on such interest. Such interest is credited periodically, therefore people often forget to mention income from savings interest while filing their tax returns. Under Sec 80TTA, interest from savings account up to Rs. 10,000 in a financial year is exempt from income tax. Any interest earned beyond that threshold is taxable.
You are also supposed to pay tax on interest earned from the fixed and recurring deposits. Banks cut the TDS above the threshold of Rs. 10,000 per year. Some taxpayers distribute their deposits across multiple banks to save TDS. But such a practice will soon be plugged after the implementation of centralised KYC (CKYC).
Soon, CKYC would enable banks to access details of deposits in all banks mapped to an individual, therefore leaving the practice of splitting the deposits useless.
Not filing a return
If you are thinking of not filing tax returns because your net income is below the taxable limit, you are making a mistake. Suppose, your total income is Rs 4 lakh and you make investments under Sec 80 (C), Sec 80 (D) etc., thereby bringing your net income below Rs. 2 lakh, which is below the taxable limit. Despite this, you must file your tax returns to inform the I-T Department that you are below the taxable limit. Sometimes the IT Department sends notices to non-taxpayers, in which case you’ll have to explain why you chose not to file your returns. Regular filing also helps in inculcating better tax management and often a mandatory requirement while applying for a loan.
Leaving out transfers to family members
Many times you may make investments in the name of your non-working family members—often, dependent parents, minor children, or spouse. You are accountable for such investments and all such accounts will be clubbed to compute your taxable income.
It is best to keep a proper record of all your investments. If you have purchased a property in your spouse’s name, then all the income from such property will be clubbed with your income.
Not reporting income from other jobs
Apart from your regular job you may also work part-time or irregularly. Such gigs could include being a visiting faculty or doing freelance work. The payment you receive for doing such work may come after a TDS deduction. If you do not mention income from such sources, you may be get a notice from the IT Department.
Before filing the return, always check Form 26AS to list out your total TDS deducted from all sources where you have earned an income. This way, you won’t miss any source of income.
Income from gifts
If you receive gifts worth more than Rs. 50,000 in a financial year, you must take it into account while filing a return. Such gifts are taxable if worth beyond the threshold.
Purchase of ornaments If you buy expensive ornaments, gold bars etc. in a financial year, they must be mentioned in your ITR. In future if you sell these assets, your tax computation on capital gains could be justified based on the reporting of their purchases.
Skipping information of loans to friends and relatives
Borrowing and lending money between friends and relatives is common. If you have offered such a loan, then you must declare the same in your IT returns and also report any interest earned from such a loan. Similarly, any loan taken in such a manner must also be reported in the ITR.
Not mentioning exempted income
If you do not mention your exempt income such as income from PPF, LIC, or long term capital gain from stocks, then you may not get penalised for it but this would lead you to indiscipline in tax management. If there is any scrutiny in your IT return, then each detail that you mention during the tax filing could help you in proper explanation.
Apart from the above mentioned points, you must take care of all the high-value transactions that happen through your bank account. It may be a debit or the credit transaction. You must keep reasons noted for such transactions. The IT Department keeps a record of all the high-value investments that you make such as investments of more than Rs 1 lakh in bonds, mutual funds, stocks, etc. Keep records of all the requisite documents and assess every minute detail of your finance before filing the return. Still, if you get a notice from the IT department, then always consult your tax advisor.