Common Mistakes That Can Lead to Tax Liability

A tax is any liability payable to the government without expecting any returns in the future. For example a person pays tax in any form may not expect that the government would spend that particular amount for any task that would lead to his/her benefit particularly. A tax may be direct or indirect in nature.

Any tax that needs to be paid to the government should be filed very carefully. Even the slightest mistake may affect the tax liability.

Things to be kept in mind before the tax returns-

-    Category of income- As per the Indian judicial system, the income tax payment is divided into three categories. People with an annual income of up to 5 lacs shall be liable to pay 10% income tax, up to 10 lacs shall be liable to pay 20% income tax and people with more than 10 lacs shall be liable to pay 30% income tax.

-    Mention all your income sources- Do not forget to mention any of your sources of income even if it may be additional. This may give a true picture of you as a citizen in the GDP. It should also include the interest incomes.

-    Remember to claim tax relieves- This tax relief makes sure you don’t end up paying extra tax because you received your dues late and tax rates are higher. For more information about tax relieves refer to section 89(1) of income tax act.

Be Careful, These Errors Can Get You a Tax Notice-

A notice from the income tax department is a dreaded experience for many. Following are a few mistakes which can fetch you a notice from the IT department.

1. Not reporting interest income

This is a common mistake. Interest income from fixed deposits, recurring deposits and even tax saving bank deposits and infrastructure bonds are fully taxable. TDS. These taxpayers don't realise that TDS is only 10% of the income.  In a survey, almost 50% of the respondents who got this wrong have an annual income of over Rs 10 lakh. So, one should act smartly by calculating the interests received on all the   FD’s, RD’s and should simply add them to their earned income.

2. Not filing tax returns

A lot of taxpayers, especially senior citizens have received notices for not filing their tax returns. Anyone who has an income above the basic exemption is liable to file his tax return. The basic exemption is Rs 2.5 lakh per year for people below 60, Rs 3 lakh for senior citizens above 60 and Rs 5 lakh for very senior citizens above 80.

So don't miss filing your return even if your tax is zero or all your taxes are paid.

3. Tax is levied on property sold before 5 year

Most of the population is aware of the tax exemption that the government offers on purchase of property on loan. But as per the law, if an individual becomes a seller of the same property on which the loan has been taken and further the tax exemption has been granted, he/she becomes liable to pay the tax on it. It wouldn’t be actually possible to pull curtains on the eyes of the income tax department regarding the sale of the property and gain tax exemptions as the buyer would also like to gain a tax exemption on the same property which has been sold. So the tax exemption gets automatically reversed as soon as it enters the exemption records. So either patience of at least 5 years is required or a loss of tax which used to exempted needs to be suffered.

4. Not deducting TDS when buying property

It is a common fact that sale and purchase transactions of property consist of a lot of unaccounted transactions. Seeing this, the government expands its income by deducting 1% of the total transaction amount (only above 50lacs). Actually, the sale price needs to be taken into consideration which shall include only sale price not the circle rate.

Neither brokerage nor other expenses need to be added to calculate TDS. Also, the payment that the seller receives should consist of the TDS. One should clearly ask the seller that the amount will include the TDS in order to be on the safer side or shall have to bear the loss.

 

 

5. Not recording foreign assets

 

Not reporting your foreign assets while preparing tax can lead you to problems. Most of the citizens who make any investments abroad are unaware of this uncommon policy of the Indian Income Tax act. The government would term such assets as black money and can penalise the person with a huge amount just for a minor error. So it will be better to collect the receipts of the purchases much before the last date of filing taxes.

   

 

 

6. Not reporting tax-free income

This may not be a serious offence but a taxpayer is required to mention tax-free income in his return. Tax-free income includes interest earned on PPF, tax-free bonds, life insurance policies, capital gains from stocks and gifts from specified relatives. Even if you are not liable to pay any tax on these incomes, all your interest income, including savings bank interest, has to be reported in the ITR.

 

 

How to rectify the tax mistakes?

 

Sometimes in a rush to file the tax within the due date, taxpayers make mistakes which can even be a costly affair. However, if you have filed your return within the due date, then you need not worry as you can revise your return.

Tax laws keep on changing, so it is assumed that every taxpayer may not be aware of the changes in taxation policies. So, if the taxes are paid within the due date, then they can be revised so that both the government and the taxpayer do not bear any loss.

 

Who can file revised returns?

Of the many advantages of submitting your I-T returns timely, the most important is that it can be revised. Only those IT returns may be revised which have been filed within the due date. However, to make your revision process smooth, it's better not to verify a return.

 

How many times can you revise your return?

If you have filed your tax return on time, then you can file a revised return any number of times up to 31st March two years after filing. Though one can revise one's tax return any number of times, but this facility should be avoided as it may increase the chances of your return being selected for scrutiny,

 

Verifying your returns

A revised return filed online must be verified. You can verify it by several methods including net banking or Aadhaar OTP (One-time Password).