Few days are left to efile income tax return. You may be in a hurry to submit the income tax return as soon as possible. But, in this hurry you can make some mistakes. Therefore, it is better to take precautions beforehand. I am listing the some common mistakes.
You may be aware that every person who is earning above a limit must file income tax return. Even if you are not liable to pay income tax, the return is necessary. The income tax is the most important direct tax among many taxes in India.
1. Not Reporting Interest Income of FD & RD
Often people do not report their interest earning of less than Rs 10,000 from the fixed deposit and recurring deposit.
There is a misconception that interest earned from the FD and RD is tax-free up to Rs 10,000.
The interest earning up to Rs 10,000 is tax-free of the saving accounts only. The interest earned from the FD and RD is subject to the tax. You must mention this amount in the other income column. The tax is levied on the accrued interest of every year, what if you get the maturity amount after 5 or 10 years. You can calculate the interest every year using RD and FD calculator.
2. Not Reporting Interest Earning of Wife And Children
You gift some money to your wife or children. They open a fixed deposit and earn the interest. You do not consider it a taxable income.
The money and interest earning belong to the children or wife therefore the interest earning should be taxable to them. As their total earning is way below the tax-free limit, there is no need to mention it.
The money given to your non earning wife and minor children is considered as yours. It is called as the clubbing provision. Hence, the interest on their FD and RD account is added in your taxable income. You must add this earning to the other income. However, further earning on this interest is considered as the separate earning of your wife or children.
3. No Need to Mention Income Which you got After TDS
You get some payments after the TDS. It may be some commission, bank interest or any remuneration. You do not mention these payment in the Income tax return form.
Since, tax is deducted at source why should you mention it again in the income tax return. It can duplicate the tax liability.
The TDS on other income is subject to a flat rate of 10%. But your tax liability can be more or less than the 10%. If you are in 30% tax slab, the tax deduction should be at the rate of 30%. Similarly, you are not required to pay any tax if you fall in the tax-free bracket. In such cases you should get back the deducted tax.
Hence, It is necessary to mention the every other income and TDS as well.
Also Read: Income Tax Slab Rate For FY 2016-17
4. No Need to Tell About the Exempted Income
You earn some dividend and redeemed the PPF maturity amount. But you did not mention it in the income tax return.
The agricultural income, dividend, EPF & PPF maturity amount and gratuity are some of the exempted income. These incomes are not subject to tax. What is the need to mention in the income tax return.
It is true that mention of exempted income does not change your tax liability. But it puts you on the right side. It prevents you from the unnecessary notice by the income tax department.
Because of the exempted income, there may be big credit in your account. This amount is noticed by the income tax department. But, if you don’t mention it’s exempted nature, how would tax departments know about it. The department can consider it black money and send you a notice. To avoid such situation, it is always better to put the facts right.
5. Not Reporting of Short Term Capital Loss
This mistake is made by the new trader. Often new stock market trader bear loss, but, they never report it on the income tax return.
People never care of the income tax on a loss. We all know that income tax is levied on the net profit. If there is a net loss, It is not the matter of income tax.
The loss in short term trading can be set off against the short term gain. This set off provision is not only for the current assessment year. You can carry forward your loss for the 7 years. It means any gain in the future from the short term trading can be set off by the current loss. This provision is very big relief to the traders. This set off rule is also applicable for other short term losses.
However, please note, the short term loss can be set off only against the short term gains not by the long term capital gains. The short term loss and gains can be from any type of investment.
6. Home Loan Interest Value in Positive
We struggle to get the column to fill the home loan interest in income tax return form. After some internet search we get to know about the column of ‘Income from house property’. We fill the interest of home loan in this column.
We never think that home loan interest should be filled with negative value. Like all other value we also put the home loan interest in positive. But, please note it is column for income, while interest is an expense. It means home loan interest is a negative income. Hence, You should always fill the home loan interest in negative.
7. Giving Gross Income Instead of Taxable Income
People put the value of gross income in the given column.
The gross income is written first in the form 16. Often people confuse it with a taxable income.
You should take the income given in column 6 of form 16. It is the taxable income which is arrived after deducting all the exemptions. The exemptions include HRA, medical allowance and conveyance.
8. Not Earning Rent From a Vacant House, No tax
You have a second house which is vacant. You don’t earn any rent from the house. While e-filing income tax return, you don’t mention this house
No earning, no Tax. It is the simplest tax principle. Since, you are not earning any income from the vacant house, where is the question of tax. On which amount, the tax would be applicable. Since the income is zero. The tax should also be zero
No earning, no tax formula is not applicable at every place. You have a house which can earn rent, but leaving it vacant is your’s choice. Because of your apprehension or requirement, you lose the income. But why should the government lose the tax because of you. For a second house, the tax is levied on the value not upon the actual rent. The value of the second house is arrived through the notional rent. It is derived from the market rate.
9. E-filing is not Compulsory
Instead of the e-filing, you want to continue with the old physical way of income tax return filing.
The income tax return e-filing is the easiest way to file an income tax return. It is not mandatory for individual taxpayers. It is mandatory for companies and high net worth individuals. I can submit physical income tax returns as well.
Income tax return e-filing is mandatory for most of the people. An individual person can file physical income tax return if he fulfills following condition.
- The income is less than Rs 5 lakh.
- No Foreign asset.
- No business income
10. Not Availing Tax Deduction for Disability and Critical Disease
Very few of us know about the tax deduction available for the expense of a disabled family member. We also rarely know about the deduction available for the serious illness of family members. Whereas if you spend money for the treatment of serious illness or disabled person, you can enjoy the tax benefit over and above the section 80C.
11. Not Reporting Tuition Fees
Tuition Fees of children and self is also eligible for income tax deductions under section 80C. But this deduction is little talked about. Whereas, child education expense has risen substantially. In such scenario tuition expense can save big tax.
But people forget it to report because of the habit. The first time parents often forget to take this benefit initially.
12. Excess Investment for 80C Benefit
Often we don’t plan for tax saving at the right time. Rather, we rush for tax planning in January and February. In this rush, we invest heavily on endowment insurance plans. We invest a lump sum in ELSS. We even put money in tax saving fixed deposit.
But, do we really need so much investment for tax saving? Note the following points before tax saving investments.
- Under 80C, you can’t claim tax deduction on more than Rs 1.5 lakh.
- The EPF contribution by the employee is also part of 80C deductions. For a person who earns Rs 5 lakh annually the EPF contribution makes 60,000.
- The tuition fees of children are also part of section 80C. This can be Rs 20-50 thousand for two children.
- Home loan principal payment is also part of 80C. It increases every subsequent year. Note it can fill a major chunk of your 80C limit.
After the above deduction, there might be little amount left for the further tax saving investment. Hence, It is better to have a rough income tax calculation before investing for tax benefit.
13. Not Paying Tax on Other Income
You are salaried but never bothers about some extra income which is in the form of rent, interest, commission or donations. These minor income is not reported in the income tax return.
You pay income tax on the salary. The employer itself deducts the applicable tax. Hence, it is not your responsibility to add all the other income and calculate the tax liability. It is easier to omit.
All the money you get, is reported to the income tax department through the PAN. Hence, it is difficult to hide any extra income. If someone doesn’t get the notice for this type of tax avoidance, it is because of the paucity of resources. The income tax department goes through the random checks. The next time it can be your turn for the income tax notice. Therefore, it is better to enter all the extra income into ‘other income’ column. See, how much tax is payable. Pay this amount through the ‘epayment of tax‘ facility. Finally, you should enter the Challan no of paid tax into the income tax return form.
These are the common mistakes while filing income tax return. Do you also find some mistakes? Please add up in this list. It will help to others.