Avoid Being Labelled as a Tax Evader
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Avoid Being Labelled as a Tax Evader!

Income tax return filing season is about to begin and as a salaried taxpayer, I am gearing up to file my tax return. If you too are a salaried individual, one news headline today must have caught your attention. The tax department has issued a warning to the salaried class of tax filers against the use of illegal means to save taxes. If you are thinking how the tax department can say this so confidently, then you should know that they have employed an extensive risk analysis system. However, honest taxpayers like us do not need to worry about it. All we need to do is to file our returns carefully so that we do not end up being labelled tax evaders.

As per a PTI report, the CPC of the I-T department has advised the taxpayers looking out to get their returns prepared, to stay away from unscrupulous intermediaries. The I-T department will not only prosecute people using illegal means to save taxes through their returns but also ask their employers to take action against such person. So, it’s important to avail the e-filing services from a good service provider. You also need to be very careful while filing your return because any mis-match in your income and your ITR details can label you non-compliant taxpayer. Hence, this time when you file your Income tax return, avoid some of the common inaccuracies to avoid any trouble.

Filing return carefully through multiple form 16s

If you are among those who changed jobs in the previous year, you will need to refer to multiple form 16s along with your form 26AS while filing return. The tax department has all the data related your income from salary and taxes you have paid on it. So, you must calculate and find out if adequate amount of tax has been deducted from your salary or you need to pay some more.

Avoid claiming false deductions

You may be an honest tax filer but some tax professionals may lure you to use their service by promising high tax refund. These professionals can inflate your refund by inflating claims by making wrong claims under various sections of Chapter VI-A like, Tax Saving Investment u/s 80C, Education loan interest – u/s 80E, Deduction form Mediclaim policies – u/s 80D, Rajiv Gandhi Equity Saving Scheme – u/s 80CCG, Donations – u/s 80G, 80GGA, 80GGC or other deductions relating to disability or medical treatment of certain illness – u/s 80DD, 80DDB, 80U.

Now all your bank/financial accounts are linked to Aadhaar and PAN, which gives the tax department ability to digitally verify most of your claims. If it finds any discrepancy, the department can start an investigation against you which can ultimately lead to penalties and prosecution.

False claims of tax exemptions

Several taxpayers make false claims of tax exemptions under section 10 like HRA, LTA, medical reimbursement, etc. These can be easily identified since the department has started comparing data in the tax return with form 16, form 16A and Form 26AS. Also, the new ITR forms require you to provide the break-up of your salary, all exempt allowances and perquisites etc. Therefore, the government can verify your claims with ease. However, this does not mean that getting tax benefits is difficult. There are several ways to save taxes legally.

Inflating interest claim on home loan repayment

Do not try to inflate the claim of interest paid on home loan. The tax department may ask you to submit relevant proofs online. If it finds the claims to be insufficient, then it can reject your claim and take penal action against you.

Making fake claims of capital gains

The new ITR forms require the taxpayers to declare the details of capital gains claims made under section 54, 54F, 54EC etc. Certain cases of tax evasion through fake claims of capital gains triggered this action. Aadhaar and PAN are now linked to property transactions and financial accounts, so the tax department can easily verify your claims online.

Not showing the rent on housing property

As per the Income Tax Act, if the taxpayer is the owner of more than one house then, he can choose any one house as self-occupied and other/s is/are considered as deemed to be let out (if not actually let out). In such case,s the taxpayer should calculate and add the notional (deemed) rent/ actual rent of such property in his taxable income and pay due taxes on it. But many taxpayers are either not aware of this clause or ignore it to save taxes on such notional rental income. There are few others who ask their tenants to transfer the rent amount in the name of few their parent who do not own any property in their name.

But with all the properties being linked to your PAN and Aadhaar tax department can easily verify whether you are reporting the income or deemed income from all such property in your return properly or not. In case if it is found that you have underreported the rent actually received or deemed rent from any of the property it can result in penal action.

Agricultural income

Though agricultural income is not subject to income tax it is added to your taxable income to decide the tax rate applicable on your total income. But very few taxpayers actually account for it in their tax return. Again with the digitization of land revenue records tax department may compare your return as to whether you have reported the agricultural income in your return or not.

Capital gain on equity trading and redemption of mutual fund units

Now all your financial accounts are linked to Aadhaar and PAN so the department can easily compare the gains made by you in trading  in equity or MFs with that reported in your return and any under reporting or miss-reporting can land you in trouble.

Clubbing of Income

If you transfer any asset or sum to your spouse as a gift then any income derived by them on such sum or property should be added to your taxable income. Since last few years tax department is comparing the tax profile of the individuals and the investment made in their name. If these investments are found disproportionate to tax profile of the person then tax department may send notice to him asking for an explanation. If during such investigation it is established that a particular income is to be clubbed in your hands and you have not paid the due taxes on it by adding such income to your taxable income it can land you in deep trouble.

Changing the ownership percentage in case of joint property

Under the tax laws if you own the property in joint name with someone else then you should report rental income and deduction for housing loan interest and principal in the ratio of your ownership only. And the ratio once determined shall be consistently followed year on year. Unfortunately few taxpayers claim these deduction as per their discretion (ex. husband claims the deduction for entire interest and wife claim only principal or in the first year the ratio followed was 70:30  and the second year it is 50:50). As the tax department has now started doing a lot of data analysis it is very likely that the tax department will even catch these type of taxpayers.

Not showing the rent on house property

If you own one house property, you do not need to worry about any income tax payment on it. But if you own more than one house, then your additional properties are considered as deemed to be let out if they aren’t actually let out.

Hence, you need to add the deemed rent or actual rent received from such properties in your income for calculating your tax liability. However, several taxpayers often ignore or are unaware of this provision of the I-TAct 1961. There are others who receive the rent in the name of their parent who does not own any property. However, this incorrect reporting can easily be identified by the tax department because all the properties are being linked to PAN and Aadhaar. You should avoid under-reporting of your income to avoid penalty.

Agricultural income

It is common knowledge that agricultural income is not taxable. But very few people know that it is added to your taxable income to calculate the tax rate applicable on your income. Again with the digitization of land revenue records tax department may compare your return as to whether you have reported the agricultural income in your return or not.

Capital Gain on Equity Trading and Redemption of Mutual Fund Units

Now all your financial accounts are linked to Aadhaar and PAN, so the department can easily compare the gains made by you through trading in equity or MFs with that reported in your return and any underreporting or misreporting can land you in trouble.

Clubbing of Income

If you transfer any asset or sum to your spouse as a gift, then any income derived by them on such sum or property should be added to your taxable income. Since last few years, the tax department is comparing the tax profile of the individuals and the investment made in their name. If these investments are found disproportionate to the tax profile of the person then tax department may send notice to him asking for an explanation. If during such investigation it is established that a particular income is to be clubbed in your hands and you have not paid the due taxes on it by adding such income to your taxable income it can land you in deep trouble.

Changing the ownership percentage in case of joint property

Under the tax laws, if you own the property in joint name with someone else, then you should report rental income and deduction for housing loan interest and principal repayment in the ratio of your ownership only. And the ratio once determined shall be consistently followed year on year. Unfortunately, only a few taxpayers claim these deductions as per their discretion. As the tax department has now started doing a lot of data analysis, it is very likely that the tax department will catch even these type of taxpayers.

A good Income tax return filing intermediary has all the knowledge and expertise to file your returns accurately so that you do make a mistake in your tax return unknowingly. If you are looking for an intermediary to get your Income tax return filed accurately and hassle-free, then you can avail the online Income tax return filing service offered by H&R Block India.

  • HIRE AN EXPERT TO E-FILE YOUR RETURN

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Niteesh Singh
Niteesh Singh
Niteesh works as a Tax Researcher at H&R Block India. He makes taxes easy to understand for people. He creates content for the website, marketing activities and social media. He carries experience in creating a wide variety of content like blogs, press releases, research papers, etc.

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