As the due date for filing of return is just around the corner and most of you would be in a hurry to file their return of income, here are a few things related to your return of income that nobody advises you about. Take a pause and have a look at it before you file your return of income.
1. Report your Interest Income
Though interest earned from fixed deposits, recurring deposits, even tax-saving bank deposits and infrastructure bonds, is fully taxable, people often do not report any interest income below Rs 10,000. The exemption of Rs 10,000 a year under Section 80TTA applies only to the interest earned on the balance in a savings bank account. Even so, you are supposed to declare it in ITR and then claim the deduction.
Another common misconception is that one need not pay tax as TDS has been deducted from the income. What people forget is that the tax deducted by the bank at source is at a flat rate of 10%. However, tax slabs may vary. So, if you fall in a higher tax slab, your liability may be more and you will have to pay the balance while filing returns.
The department can catch such mistakes by matching your ITR with Form 26AS. The taxman also digs deeper, going beyond TDS. It tracks the deposits and interest income where TDS has not been deducted, that is, where you have submitted Form 15 G/H. The penalty is more severe (up to 200% of the tax evaded) as it is not a miscalculation, but the concealment of income.
2. Consider clubbing of income
Many people invest in the names of spouses or minor children. There is no limit to the amount you can give your spouse, but if you invest the gifted money, Section 64 of the Income Tax Act, a provision for clubbing income, comes into play.
Under this, any earning from the gifted amount is added to your taxable income. It doesn’t matter if your spouse has an income or not. The money will be clubbed with your income. For a minor child, the earning is treated as income of the parent who earns more.
You also get an exemption of Rs 1,500 a year, per child, up to a maximum of two kids. If you want to escape tax, invest the gifted money in a tax-free option, such as the PPF or ELSS scheme. Or invest in the name of your parents or a major child, where clubbing provision does not come into play.
3. File your Income Tax Returns
Any person whose income crosses the basic exemption limit is required to file the return of income. The basic exemption is Rs 2.5 lakh per year for people below 60 years, Rs 3 lakh for senior citizens above 60, and Rs 5 lakh for very senior citizens above 80. The rest, including NRIs, have to comply. If you fail to file your return in time, the assessing officer may levy a penalty of Rs 5,000 under Section 271F.
Besides, the limits are for gross incomes, that is, the income before deductions and tax breaks. So, if your annual income is Rs 4 lakh and you invest Rs 1.5 under Section 80C, your tax liability will be zero. However, you are required to file your ITR. Similarly, if you have paid tax as TDS or advance tax, you will need to file the return.
Many people, who earn less than Rs 5 lakh but above Rs. 2.5 lakh, don’t file an ITR. This is because of a rebate provided u/s 87A of the Income Tax Act. However, to obtain the rebate under the above-said section, one has to file their return of income.
4. Report Income from Earlier Job
If you have changed jobs recently make sure you inform your current employer about your earlier income earned from previous employment. If you fail to inform your current employer about a job change, there is a chance that lesser tax will be deducted from your salary than you are liable to pay and this will have an impact when you file your return as you may have to pay higher tax as duplicate benefits will be rolled back. Do not try to escape it as defaulters have to pay the balance tax along with interest at the rate of 1% per month for delay as a penalty.
5. Disclose tax-free income
Tax-free income does not mean it is not part of your income. All your earnings are required to be included, be it the interest earned on PPF, tax-free bonds, or capital gains from stocks and gifts from specified relatives. Even if you are not liable to pay any tax on these incomes, all your tax-free income has to be reported in the ITR. You can later claim an exemption for it under various sections.
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