Five tax mistakes to avoid in 2014
EVERY new year comes with many resolutions, but these resolutions keep fading with each passing day. This holds true for almost each one of us regardless of the serious consequences on our health and wealth. One very important resolution is compliance with income tax to avoid tax notices and penalties. Tax authorities, nowadays, can track all financial transactions with their integrated database. So, keeping in mind the following tips can help you save yourself from the prying eyes of the income tax department (ITD).
Don’t forget to file IT returns
It is mandatory for every individual, those who earn above R2 lakh, to either efile or manually file their income tax returns. For those with income above R5 lakh, it is mandatory to efile the return. The true objective of ITD behind tax notices is to keep an eye on the non-filers of tax returns and tax evaders. The department scrutinises cases through Computer-Assisted Scrutiny System (CASS). This system matches information re- ceived on the basis of your PAN with the I-T returns filed by you. If any mismatch is found in the income that you have declared and your investment and expenditure, ITD will promptly issue a notice to you. The chances of getting a notice rise tremendously if you don’t furnish your ITR at all and there are transactions reported against your PAN.
Never submit wrong declaration in Form 15G/15H to avoid TDS
Generally, people split their deposits in different banks or branches to avoid TDS, but this won’t help much. Firstly, check whether you are eligible to submit 15 G/H or not. As per laws if the income from interest on bank deposits exceeds R10,000 a year, the bank deducts TDS. Those who have tried to avoid TDS by submitting Form 15G or 15H in spite of having taxable income are being caught easily through their PAN. A wrong declaration can cost you R10,000.
One very important new year resolution is compliance with income tax to avoid tax notices and penalties
Don’t hide income neither exempt nor of small value
It has been noticed that majority of tax payers are not declaring saving bank interest as well as exempt income. The ITD can slap you with tax and penalty up to 300% of tax evaded anytime in next 8 years. The other common mistake is not declaring FD interest where TDS has already been deducted by bank. In this case if the total income is above R5 lakh, the tax slab would be 20%. Hence, additional 10% tax needs to be deposited on FD interest income. Similarly, any commission, rental income on property, amount received from a non relative above R50,000 during the fiscal, gain/loss on sale of capital assets i.e. property, shares, gold, paintings, etc, is to be disclosed in the ITR.
Match returns data with Form 26AS
Form 26AS reflects all your income and tax credits. Always match your return data with Form 26AS before filing the return. Numerous tax demand notices are being sent to taxpayers, because the TDS being claimed in the income tax return is not reflected in form 26 AS. This could be due to submitting wrong PAN to employer/deductor or a case of typo error by employer or delay in depositing the TDS amount by the employer.
Invest in tax saving options after knowing tax laws
Don’t invest in tax saving options without knowing current tax laws. Every year there are changes in tax laws and ter ms and conditions for eligibility. PAN of the landlord is now mandatory for rent payment of more than R1 lakh per annum. Not giving your PAN to the employer leads to higher TDS of 20% of salary, even if you fall in lower tax bracket. Reverse mortgage has been introduced for the benefit of senior citizens. However, it is not being used as an instrument of tax free retirement planning.