The tax season arrives every year, and all taxpayers are required to file their taxes by the end of July/August. While tax awareness has led to many people to file their taxes on time, some many individuals/companies do not file their tax returns on time owning to certain myths or simply because they are unaware of tax-related information.
Income Tax Myths
- Paying tax on interest is not mandatory
- I am not making any profit from my income, so I don’t need to file a tax return
- Home Loan repayment deduction is applicable for one house only
- E-filing is not safe, hence should not be used at all
- There can be no deduction on house rent if you don’t get HRA
- All the gifts received by me on my wedding are exempted from tax
- My CA is delaying my refund
- I have changed my residence. I cannot file my income tax returns from my new place
In this article, we debunked a few such myths and answered some of the most common questions related to income taxes:
- Myth: Paying tax on interest is not mandatory
Truth: Many people are of the notion that the interest amount that they earn from their bank’s savings accounts, fixed or recurring deposits, post office savings accounts, etc. is not taxable. However, that is not true as all types of interest income must be declared when you file your income tax returns. This data needs to be listed under relevant sections as well.
However, that being said, there are also certain provisions, for instance, Section 80TTA, which permit tax exemptions on interest income earned from post office savings account or bank savings account of INR 10,000 per annum. Besides, some banks have various policies that can help you save tax as well.
- Myth: I am not making any profit from my income, so I don’t need to file a tax return
Truth: Irrespective of whether you are making any profit or not, the Indian income tax act requires everyone, whether you are an individual, LLP, firm, or a company, to file income tax returns if the total gross income exceeds INR 2.5 lacs. However, you are also allowed to file income tax returns even if your gross income does not exceed 2.5 lacs per annum.
If you run a company, you are required to file a return of its income—irrespective of profit or loss—every financial year. Companies must report the losses that they have incurred in the initial years to lower tax burden for the future years when they make a profit. This can be utilized only if the loss income tax returns are filed within the due date of filing returns.
- Myth: Home Loan repayment deduction is applicable for one house only
Truth: Under Section 80C of the Income Tax Act, a homeowner can claim a deduction of INR 1.5 lakh towards the compensation of the principal amount of a home loan. Along with that, under Section 24 of the Income Tax Act, the homeowner can also claim a deduction of up to INR 2 lakh on the home loan interest.
However, many homeowners are of the notion that this benefit applies to just one house only. This is not true at all. As a house owner, you can avail this exciting benefit for more than one housing loan as well. Moreover, while a homeowner can enjoy a tax deduction on repayment of multiple home loans, under Section 80C and Section 24 of the Income Tax Act, respectively, the total amount that can be claimed as a tax deduction during a financial year is limited to Rs 1.5 lakh and Rs 2 lakh, respectively.
- Question: What happens when you file a return?
Upon filing your return, the information provided by you is verified by the Income Tax Department. Nowadays, this process is entirely automated, and intelligent software systems scan the returns for discrepancies. A small percentage of returns are randomly selected for scrutiny as well. If all the information and particulars provided by you are satisfactory, the return is processed, and the refund is initiated, if any. However, in case of any discrepancies, you are required to clarify the questions and doubts of the income tax officer, and usually, a notice is sent to you, asking you to correct or explain the information provided by you.
- Myth: E-filing is not safe, hence should not be used at all
Truth: The fact is that e-filing is more reliable than paper filing. Remember, even if you physically submit your income tax return, your return will be ultimately processed online by the department. However, why is e-filing safer? It is because your return is directly going to the secured server of the income tax department, so there is no chance of any fraud or loss of documents. If you choose to submit your documents physically, you have to send the documents to a designated address, which increased the chances of loss or delay. When you e-file your returns, you can be assured of greater accuracy than the physical submission of forms.
- Myth: There can be no deduction on house rent if you don’t get HRA
Truth: Even if your company does not pay you the House Rent Allowance (HRA), there is no reason why you cannot claim a deduction on your payments of house rent. Your house rent declaration is filed under Form 10BA. Thus, if you are not the owner of any residential property being a member of a HUF (Hindu Undivided Family), are not running any office or performing business duty, are not the owner of any residential property whose value has to be ascertained under Section 23(4) (a) or Section 23(2) (a), then you can obtain an exemption under Section 10 (13A) even if you do not have the HRA provision. However, you will be required to submit the relevant documents, like rent receipts.
- Question: Is it illegal to not file a tax return?
The Supreme Court has held in the past that non-filing of the tax return is liable for prosecution. However, there are exceptions; like, individuals who fall into non-taxable income tax bracket (without including deductions and rebates) can choose not to file their returns. However, if an individual who has a tax liability fails to file their return, even after being issued notices, then they can be prosecuted.
Thus, you must always file your income tax returns to explain your genuine sources of income, even if your gross income is non-taxable. In fact, you might need to show your return statements in the following instances, so you must file your returns. You will need to show your tax return statements if you need to apply for a bank loan, if you want a VISA in the embassy, etc. If you do not file your income tax returns timely, you might need to pay the penalty, interests, etc., later. Thus, the answer to the question, “Can you go to jail for not filing a tax return?” is technically, yes.
- Myth: All the gifts received by me on my wedding are exempted from tax
Truth: While most gifts received at the wedding are exempt from taxes, but expensive gifts (including jewellery, high amounts of money, shares and securities, immovable property, etc.) are not exempted from tax. Bear in mind that not all cash gifts are tax-free as well. Any cash gift received from non-relatives that are beyond Rs 50,000 is taxable. However, other gifts received from non-relatives on the occasion of the marriage are tax-free.
- Myth: My CA is delaying my refund
Truth: All refunds are processed by the Income Tax Department only. No private professionals have the authority to initiate, withhold or release income tax refunds. Thus, do not blame your CA for a late refund. Some possible reasons why refunds get delayed are: error in bank account details, rising number of taxpayers, error in the tax paid details, change in mailing address, technical problems at the department, etc.
- Question: Can I refuse to pay taxes?
Refusal to pay taxes or tax resistance has a long history. However, there are no such provisions in India, legal or financial. Thus, if you are earning enough income to pay taxes, you are legally required to file your returns and pay the required amount. If you do not do so, you may be prosecuted by the Income Tax Department and be forced to pay the required amount plus the applicable penalties as well. You can, however, file an appeal against the same if you think that the computation of your taxes is incorrect.
- Myth: I have changed my residence. I cannot file my income tax returns from my new place
Truth: The truth is that you can submit your tax returns from anywhere in India. It doesn’t matter if you have shifted to a new location. Do remember that the income tax department has your complete records according to your PAN number, which remains the same, even if you shift your residence. Thus, even if you have recently moved to a new place, you must file your income tax returns on time.
- Question: How many years can I go without filing taxes?
If you are an individual with income sources and taxable income, you are required by law to pay taxes each year. The longer you go without paying taxes, the more likely you are to be noticed by the Income Tax Department. For two or three years, you can file pending taxes by paying the applicable charges and penalties. However, the answer to “What happens if I haven’t filed taxes in 10 years?” or “What happens if I haven’t filed taxes in 5 years?” is that you will be notified by the Income Tax Department to pay taxes. The longer you conceal your income, the more aggressive the recovery process is.
We have tried to debunk a few of the common myths that do the rounds in the market and stop people from filing their tax returns within the due date. Remember, not paying taxes on time can attract penalties and other charges. So, always submit your income tax returns on time and be a responsible citizen of the country by contributing to the country’s development and progress.
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