Friday, February 21, 2014

Some Common Tax Filing Mistakes

As we inch closer to March 31st the time we have left to complete our Income Tax related formalities is just getting shorter and shorter by the day. So, I hope you all have already planned out your Taxes for this financial year already. If you haven’t done so already, I would strongly urge you to finish your plan ASAP. Paying Taxes is our duty and responsibility as a Citizen of this country to help further the Nation’s development but, we also have the right to plan & save our taxes to take advantage of all the perks and benefits the Taxation Laws in our country offer.

Ok, coming back to topic, as we move closer to the Tax Planning Deadline, we will be covering many Tax Related topics in our blog starting with some common tax filing mistakes we may be doing without being aware of the fact that it is a big mistake…

Mistake No. 1: Misconception About Section 80TTA

Some people are of the impression that Section 80TTA exemption of Rs. 10,000/- in Interest Income from banks includes all possible investments that are available at banks. Unfortunately, this exemption only covers Interest earned from your “Regular Savings Account”. Any interest that you may earn from Fixed Deposits and Recurring Deposits are NOT covered for exemption under this section and have to be included in your Tax Returns failing which you will be considered a TAX EVADER

Mistake No. 2: Misuse of Section 80TTA

You might already know that Section 80TTA gives us an exemption of Rs. 10,000/- on interest we earned on our Regular Savings Account. However, most people do not realize that, though we have this exemption, you need to mention the actual interest you earned from your savings account and claim the exemption (Just like how you claim HRA or LTA or any other Tax Exemption). Not mentioning the amount of exemption you are claiming under Section 80TTA amounts to Incorrect Tax Filing and you will be considered a TAX EVARDER

Mistake No. 3: Misuse of Forms 15G and 15H

Most of us have Fixed Deposits at banks and we hear about and most probably use Forms 15G and 15H that people fill-up to prevent the bank from deducting TDS on the Interest you earn on your Deposit. Banks deduct TDS on the interest you earn if the annual interest you earn crosses Rs. 50,000/- in any financial year. However, most people do not realize that, the use of these forms is only for people who do not owe any tax and may not need to file their tax returns.
This means that, if you are in any tax bracket (Even if you owe just Rs. 10/- as Income Tax for the financial year) you are not eligible to use forms 15G and 15H. The harsh truth is that, even if you actually mention the interest you earned from your Bank FD in your Tax Returns and pay proper taxes on it, using these forms while you are going to file your Tax Returns amounts to Tax Avoidance and you will be considered a TAX EVADER.

Mistake No. 4: Not Mentioning your Abroad Investments & Assets

These days being an NRI is very common. Every other guy you see may be working or may have worked in some foreign country at some point in his life. Many of us may own Assets outside India while we are employed. According to our tax laws, you are expected to file your tax return even if you do not have any taxable income in India while you own assets abroad. Depending on the double taxation avoidance agreement (DTAA) that India has with the country where you actually hold the asset, there could be Income Tax levied in India on those foreign assets.

You have to provide details of your foreign assets in your tax returns. For ex: If you own an FD in US or UK in any bank there, you will have to report the name of the bank, the account number, amount deposited and amount of interest you earn each year. Similarly if you own a house abroad, you need to mention the address, cost of the property, the year it was purchased and rental income (if any). You may need to file “Schedule FA” if any of the following foreign assets exist in your name:
1. Foreign Bank Accounts
2. Financial Interest in any Business Entity (Outside India)
3. Immovable Assets (Property/Real Estate)
4. Membership in any Trust where you are the Trustee
5. Being the Signing Authority of any Institution (Incorporated Outside India)

Not filing your tax returns and mentioning your foreign assets amounts to Tax Avoidance and you will be considered a TAX EVADER.

Some Last Words:

You may be wondering what exactly would happen to you if the Income Tax department actually finds out these mistakes in your Tax Returns. You will be sent a Notice where you will be asked to explain the mistake along with a penalty that will result in you paying-up a lot more than what you actually missed paying. So, it is better we stay cautious and meticulously file our tax returns properly the first time…

As you might be aware, I had recently published my first attempt at writing a book titled “Your Complete Guide to Indian Income Tax and Retiring as a Crorepati” where you will find all the info you need about the Individual Income Tax. You will also find ideas on how you can create a CROREPATI Retirement Portfolio by utilizing your 1 lakh Section 80C benefits each year. On top of this, I have also outlined the best investment options as on date including Fixed Deposits and various categories of Mutual Funds. If you haven’t bought the book already, I would suggest you request a Preview of the book and take a look at the first few pages of the book. It will help you decide on whether you want to buy the book or not.

See here for more information: Books by this Blog Author

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