When a law-abiding tax-payer is blamed for breaking the law or gets a notice from the income tax department, it can be reprehensible and unexpected at the same time. On top of that, the charge of penalty can be extremely heavy on the pocket. Following are some of the most common mistakes that even honest people can make.
5 commonly made errors by tax-payers
1. Not reporting interest income
People often make the mistake of not reporting interest income that comes under the taxable income bracket. Interest on fixed deposits, recurring deposits, tax saving bank deposits and infrastructure bonds are completely taxable. However, under section 80TTA of the Income Tax Act, an exemption of INR 10,000 per year is available, but only on savings account. Even then, you are expected to declare it, and then deduction can be claimed.
2. Not filing returns
Any individual below 60 years of age with an annual gross total income of over 2.5 lakhs is entitled to file returns. This limit is INR 3,00,000 for senior citizens and INR 5,00,000 for super senior citizens. Individuals who have an annual gross total income of under 2.5 lakhs, have the exemption, and are not obliged to file the returns. The failure in filing the return will qualify the assessing officer to charge you a penalty of INR 5,000 as per section 271F of the Income Tax Act (ITA).
3. Failing to mention the income from a previous job
If you fail to inform your existing employer about a change in job, it is probable that a lesser amount of tax will be deducted from your account. This is because he doesn’t take into consideration the income earned from previous job and offers a tax deduction to the employee all over again. However, when you file the return, this error will be noticed, and you will have to pay more tax, as a consequence.
4. Failing to report tax-free income
Even though you are not liable to pay a tax on this income, it still has to be reported. Be it an interest on PPF, agriculture income, long term capital gains from stocks or tax-free bonds, it needs to be disclosed.
5. Overseeing clubbing of income provisions for investments, gifts and loans
Many individuals choose to invest in mutual funds or other investment options in the name of their spouse or children, but the income generated from this investment needs to be clubbed in his own gross total income. Also, there are clubbing provisions in Section 61 to 64 of the ITA that need to be taken care of while gifting or while showing loans given to family members.
The above mentioned 5 points are some of the most common mistakes that many people make. Ensure that you are more cautious and vigilant while filing your income tax returns.