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Avoid Common Tax Filing Mistakes

    IndianMoney.com Research Team | Thursday, August 20,2015, 11:53 AM
 

The deadline for filing tax returns is almost upon you. August 31st the deadline to file your tax returns is not far away. So have you filed your tax returns?

Oh yes…you have filed your tax returns. It wasn’t much of a problem. You don’t have any benami property or money stashed in some foreign country.

Then a moment of dread…What if the tax returns you have filed are faulty?

Make sure you pay your taxes; otherwise you can get in a lot of trouble.”

                                                                                                                                                                              –Richard M. Nixon

Remember: Just filing tax return in not enough. You have to file it right.

Mistakes you make when filing tax returns

You believe Section 80 TTA is an exemption for interest on FD

You have filed tax returns believing that the interest you get from your fixed deposit is tax free, up to INR 10,000 a year. You quote Section 80 TTA to make your case. You could not be more wrong.

The tax exemption of INR 10,000 a year under Section 80 TTA is for interest you get from your savings bank deposit. The interest you earn on your fixed deposit and recurring deposit is fully taxable.

The bank has cut TDS on your FD so don’t mention it

Your bank has cut TDS (Tax Deducted at Source), on the interest earned on the FD, you have invested with them. You believe that you do not need to mention this interest income on your FD, as the bank has already deducted TDS on your interest income.

Yes…Your bank has deducted TDS on the interest on the FD, but only at 10%.What if your income makes you fall in the 20% or 30% tax bracket? You would have to pay additional tax on the interest income from your fixed deposit. You must mention the interest income on your FD when you file your tax returns.

However if your income is below the basic exemption limit, you can claim a refund on the TDS you pay. If you submit Form 15 G stating that you have no taxable income, then your bank will not deduct TDS on the interest you earn from your FD. If you are a senior citizen you will have to submit Form 15 H.

The tax department generally views this (filling interest income incorrectly), as a small mistake. The tax department might not charge you a penalty. The final call is made by the tax assessment officer. If he believes that you have deliberately tried to evade tax then he might levy a penalty.

You just cannot escape TDS

Earlier you could escape TDS on the interest on your bank FD, by spreading your investments across bank branches.TDS was deducted on the interest income from your fixed deposit at a particular bank branch (each bank branch where you have an FD), only if it exceeded INR 10,000 (the set threshold), in the financial year. Basically INR 10,000 threshold on interest income had to be exceeded in each bank branch, for TDS to kick in.

Now the TDS rules have changed. TDS will be deducted only if the interest income from your FD’s at all of the bank branches, exceeds the threshold limit of INR 10,000.This holds true even for interest earned from your recurring deposit, in any financial year.

The TDS which has been deducted, is recorded in the taxpayers Form 26 AS. If you do not declare the interest income on your FD or your recurring deposit, when you file your tax returns, there will be a mismatch between returns you have filed and the interest income and TDS deductions on the Form 26 AS.

The Computer Aided Scrutiny Selection (CASS), of the tax department detects this mismatch, and you land up with an income tax notice.

You own more than one property

If you own more than a single property, then you have to make a mention of it, when you file your tax returns. This has to be done even if the property is lying vacant.

You do not have to pay tax on your self-occupied property (the property you reside on).If you have rented out your second property, then you have to pay tax on the rent you get from it.

The rental income is added to your taxable salary and you are taxed as per the income tax slab you fall under. You will have to declare the rental income in your tax return form and pay tax on it.

Remember: If you fall in the higher tax brackets (20% or 30% tax bracket), you will have to pay a higher tax.

What if your second property is lying vacant?

You will have to pay tax on the notional rent you get from your property. This notional rent is calculated based on the current market rates at that location (area where the second property is located).The new tax form has a separate column where you have to mention details of your second property.

What if you don’t mention your second property while filing tax returns?

If you do not mention your second property while filing your tax returns, you will be held responsible for concealment of income. You will become a wilful defaulter and have to pay a heavy penalty.

Is there a chance of escape?

Any property transactions above INR 50 Lakhs attract TDS (Tax deducted at source).If you sell the second property and claim an indexation benefit on your long term capital gain, or even try to get a refund on the TDS which has been deducted, the tax department will want to know details of this second property. The tax department will also want to know why this property was not declared while filing tax returns.

Filing income tax returns on time is great. You also need to file your returns in a proper manner, so that you avoid a tax notice and a penalty.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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