There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” This quote, perhaps, best summarizes what many taxpayers think about doing their income tax returns. For why else would so many individual ITR filers use immature tactics such as concealment of income to lower their tax assessment? The quote is taken from Robert A Heinlein’s 1966 science fiction novel, ‘The Moon is a Harsh Mistress’, about an off-planet outpost’s revolution against earth and a character express his anguish thus.
Common mistakes that Income Tax Filers Commit
Tax laws have traditionally been complex and cumbersome but things are changing for the better. Ignorance of compliance norms could also be a key reason why people filing their own ITRs make such mistakes and end up receiving tax notices.
A reasonable checklist when doing your taxes is given below:
- Have personal documents such as PAN, AADHAAR and bank details ready.
- Use e-filing on online sites which auto-read Form 16 data into the income tax authority portal to minimise data input errors.
- Count and write down all your sources of income. Determine your annual income.
- Once you’re done with your tax form filling, make sure to either send the acknowledgement ITR-V form to the CPC, Bangalore via post or use a digitised signature on your tax portal account.
At a recent conference for central and state tax officials, income tax data was proposed to be analysed by using Big-Data analytics. This means that various huge databases across multiple agencies and institutions can be compared to identify tax discrepancies and violators. So, if most people belief that a certain method for evading taxes was safe because you didn’t get a notice last time, you may be in for a shock.
False Rent Receipts to claim HRA exemption
Consider for example, HRA exemption claims by producing a false HRA rent receipt signed by a relative or spouse. The Income Tax Appellate Tribunal decided that tax assessing officers will now have the power to demand proof of tenancy from the person filing his returns. The proof may include registered rent agreements, letter to a housing society identifying such tenant, water and/or electricity bills etc. Even though, a tax official may decide not to investigate a particular case, a person found in breach of his declaration can be punished, by law, with a jail term extending from 3 months to 2 years. Technology may help identify violators by tagging discrepant behaviour.
A better option, according to experts at All India ITR, a tax solutions firm, may be to actually pay a small amount as rent to the relative (but not spouse) with complete contractual documentation, rent receipts and cost break-ups. This will help you save at least some amount on your tax liability via the exemption on HRA.
Interest on Term Deposits with Banks is Taxable
Most individual income tax payers seem to be unaware that interest income on all but a few schemes aretaxable. The exemptions being:
- Savings Bank Accounts if the interest income remains below Rupees 10, 000/-
- Sukanya Samriddhi Yojana.
- Tax Saving Bonds
- Public Provident Funds, Employee Provident Funds
- ULIP schemes
Banks will automatically deduct TDS if your interest income from any account exceeds the exemption limit or as in the case of Fixed Deposits, is fully taxable. Form 26AS generated by banks is assessed by tax authorities to determine income tax return discrepancies.
Another mistake is spreading your accounts over multiple banks in the hopes that interest income would not be added up. Your PAN and AADHAAR are mandatorily linked with your bank account and it can easily be identified which accounts are linked with which PAN identifier.
Form 15G or 15H used to request banks not to deduct TDS, can be compared with 26AS to unearth concealment and perjury.