- Know the myths surrounding tax filling to ensure you don’t fall into their trap
- Demystifying myths related to tax-filling is a way of secure financial planning
A myth is a widely held misconception or a false belief. There are certain types of myths about tax filing; if you are unaware of them then they could cost you a lot. Don’t believe everything you hear about tax filing. Income tax department does not allow revision of returns if there is any misapprehension, you can’t carry losses and you can’t claim refund. Hence you should be very much well aware about the myths that can cost you dearly.
Here is the list of 9 common tax mistakes and how to avoid them-
Myth 1 – E-filing tax returns is not mandatory
E-filing tax returns are mandatory under three conditions:
1. Individuals who filed their ITR in previous Assessment years
2. Individuals having total income of Rs. 5 lakhs or more
3. Individuals who want to claim a refund
Myth 2- One need not disclose previous salary amount to one’s current employer
If an individual switches jobs in the middle of the year and do not disclose the previous salary amount to the current employer, tax will be levied on the current salary but the truth is tax will be deducted from the total amount of salary that one has received in the previous year. When the two salaries are added, it could put the individual in a higher tax bracket.
Myth 3- One doesn’t need to pay tax on interest
One of the most common myths is that people usually think that they don’t need to pay tax on interest as the bank has already deducted the tax at the source. The truth is you may be liable to pay tax on the income from your savings account, recurring account, fixed account and fixed deposit as per the tax bracket you fall in. Let’s take an example here if your salary is Rs. 6 lakh per annum, interest earned from your fixed deposit is Rs. 30,000, Tax deducted from your bank is 3,000 and you fall in the tax bracket of 20% then you will have to pay the tax of Rs 6,000 (out of which your bank has paid 10% only)
Myth 4- All Monetary gifts are tax-free
Monetary gifts that are received from a charitable organization, inheritance (ancestral) or on your wedding from your family members and relatives are tax-free. However, monetary gifts received from all the sources other than these are not tax-free and you are liable to pay tax on the gifts those values more than Rs 50,000.
Myth 5- If you do not get HRA (House Rent Allowance) from your company, you cannot claim deduction
Contrary to the wide held belief, the fact is you can claim deduction even if you don’t get HRA from your company. The deduction can be claimed under Section 80GG if you meet all the following conditions-
1. You have filed the declaration under Form 10BA.
2. You employer does not provide you HRA; you can claim exemption under Section 10(13A).
3. You do not own a residential accommodation where you take part in business activities or where you are a member of HUF (Hindu Undivided Family).
4. You do not own a residential accommodation whose value has been determined under Section 23(4) (a) or Section 23(2) (a).
Myth 6- You cannot claim a deduction on your Housing Loan Repayment
If you are repaying your housing loan of a principal amount up to Rs. 1.5 lakhs, you can claim deduction under Section 80C. On both self-occupied (up to Rs. 2 lakhs) and (on lease) property, you can claim deductions on interest.
Myth 7- Mentioning just one bank account is not wrong
Generally people think that since only one bank account is required for the refund therefore it’s fine to mention only one bank account that you hold. Make sure that you fill all the correct bank account numbers or else your refunds can be refunded to the wrong account.
Myth 8- If you submit your tax returns online, the process of e-filling is complete
Your process of e-filing is not complete until you get an acknowledgement that your ITR has been successful. Even after submitting your tax returns there is one more step and that is you need to e-verify the returns with your Aadhaar card and if you do not hold one, you will be required to send a signed copy of the ITR-V acknowledgement to the Central Processing Centre, Bengaluru, within 120 days of e-filing your tax returns. Once you send the copy you will get the acknowledgement of the completion of the process.
Myth 9- Filing electronically causes audits
E-filing is the new system for the people and so they hesitate to go through the process and they begin to think that the people who file electronically are more likely to be audited. However the IRS audit rate remains same at less than 2% of all returns.