There are lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan
Ashwini Kumar Sharma | Last Published: Mon, Jan 08 2018. 08 20 AM IST | LiveMint.com
There are various income tax sections under which you can claim deductions for expenses and investment incurred by you during the relevant financial years. Such deductions help you to bring down the taxable income for the respective fiscal and consequently reduce your tax liability.
However, in many cases, a lock-in period is specified—under the section of the Act as well as the instrument against which you may have claimed a deduction. If you fail to observe the lock-in period, the deductions that you availed can be revoked.
Let’s read more about the lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan principal amount.
The deduction on home loan
If you take home loan for purchase or construction of a house, the capital repayment and interest paid on the home loan qualify for deduction under separate income tax sections. While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of Rs1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of Rs2 lakh a year. There is an additional deduction of Rs50,000 for interest payment on home loans under section 80EE for the first-time homebuyers.
While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or 80EE, the section 80C(5) (relating to repayment of principal) of the Act stipulates that if you sell your house within 5 years from purchase or date of possession, the deduction claimed on principal repayment during previous years gets revoked. In this case, all the deductions claimed for home loan principal repayment under section 80C during the previous years too have to be clubbed together and added to income of the year of sale, and be taxed accordingly.
Let us assume you had bought a house in May 2014 with a home loan, and had claimed about Rs4 lakh under section 80C over the last 3 financial years—FY2014-15 to FY2016-17. If you sell the house now, the entire Rs4 lakh claimed earlier as deduction under section 80C will get added to your income for FY2017-18 and you will have to pay tax on the total income as per the income tax slab applicable to you.
Apart from home loan principal amount, the stamp duty and registration fee paid for registration of property also qualify for deduction under section 80C in the year of purchase. If you had claimed stamp duty and registration fee as deduction, you need to observe the 5-year lock-in in these cases too.
If the property is sold before 5 years, the deductions claimed against stamp duty and registration fee will get revoked and get added to the income of the year of sale and tax accordingly.
So, before you decide to sell your house, keep the lock-in criteria in mind. Else, your tax liability may increase considerably in the year of sale.
Taxpayers who missed the earlier ITR (income tax return) deadline of July 31 can now file their tax returns by August 5.
Business | NDTV Profit Team | Updated: August 02, 2017 09:57 IST
The government has extended the deadline for filing of income tax return (ITR). Taxpayers who missed the earlier deadline of July 31 can now file their tax returns by August 5. Can you claim HRA (house rent allowance) if the landlord is not providing you his or her PAN? If the annual rent paid by the employee exceeds Rs. 1 lakh per annum, it is mandatory for the employee to report the landlord’s PAN to the employer. The tax law also says that in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address should be filed by the employee.
Tax experts say that an employee can still claim tax benefits under HRA in his or her tax return. “The requirement for furnishing PAN of landlord is only to one’s employer only. However, once a person is to file his/her income tax return, there is no requirement to furnish the PAN of landlord,” says Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP.
Even if the company may not allow HRA exemption to the employee, due to non-availability of PAN or declaration by the landlord about not having PAN, still the employee has the option to claim so while filing his or her income tax return, he says.
Mr Sehgal however says that it could attract scrutiny from tax authorities. “The tax authorities can examine the cases to verify the genuineness of the claim made by the employee,” he says. “It is expected that HRA claims will be closely scrutinised henceforth considering the consistent introduction of measures during past few years. In fact, the chances are greater if the claim doesn’t appear in Form 16 but claimed in the return.”
To substantiate the claim, the employee needs to keep a record of the rent agreement/lease deed, rent receipts, intimation to the society for the occupancy etc., says Mr Sehgal. Also, it is advisable to ensure that the payments are made through bank as cash transactions may not be considered genuine, he adds.
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
Written by Surajit Dasgupta | Last Updated: March 28, 2017 09:01 (IST) | NDTV Profit
Interest paid above Rs. 2 lakh on rented properties can be carried forward for 8 years from April 1.
To address the anomaly of interest deduction in respect of let-out property vs self-occupied property, the government has changed income tax rules, which will come into effect from next financial year April 1, 2017 (assessment year 2018-19). In this regard, the government has cut down tax benefits borrowers enjoyed on properties let out on rent. According to current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get Rs. 2 lakh deduction on interest repayment on home loan.
However, on rented properties, effective from April 1, interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, according to the current rule, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.
Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.
TNN | Updated: Oct 31, 2016, 04.50 AM IST | Times of India
MUMBAI: In a recent order, the income tax appellate tribunal’s Mumbai bench has held that to claim an interest deduction against a home loan, a taxpayer is not required to submit a completion certificate from any government authority as proof of having obtained possession within the stipulated time period; in this case, three years from the end of the financial year during which the loan was taken. A certificate from the housing society is sufficient evidence, ruled the ITAT, a body that resolves income tax disputes.
The order will come as a major relief to home buyers facing litigation over deductibility of interest on home loans.
Under the Income-Tax (I-T) Act’s Section 24, interest paid on home loans is allowed as a deduction, subject to a yearly cap. Over the years, this cap been enhanced to Rs 2 lakh from Rs 1.5 lakh.
However, to claim deduction, possession of the residential property must be obtained or its construction completed in five years from end of the financial year during which the loan was taken.
The Finance Act, 2016, has increased this period to five years from the earlier three. When interest on a home loan is allowed as a deduction, it reduces the total taxable income, resulting in a lower I-T outgo.
In this case before the ITAT, relating to the financial year 2006-07, Sudhakar Mody bought a flat from Marathon Realty by availing of an IDBI Bank home loan. He claimed a deduction of interest of Rs 1.5 lakh, which was then the maximum amount allowed as a deduction each year. However, the I-T officer asked Mody to furnish a completion certificate from a government authority. As this was not furnished, the interest deduction claim was denied. This act of the I-T officer was upheld by the commissioner of I-T (appeals).
The tax tribunal observed that the flat was ready by October, 2006, and that a soft possession had been given to the flat owner. Further, Mody had obtained the flat’s final possession on March 24, 2007-before the end of the financial year on March 31. As evidence of the possession, Mody had furnished to the commissioner of I-T (appeals) a certificate from the housing society.
It is illegal to occupy a flat without an Occupancy Certificate by the local authority and moreover also be prosecuted
The ITAT held the taxpayer had obtained possession of the flat within the stipulated time period. The ITAT further stated: “The proviso to Section 24 of the I-T Act nowhere states that the taxpayer should furnish a completion certificate from the appropriate government authorities.”
The certificate from the housing society was held by ITAT as sufficient proof of the flat’s possession. In its order dated October 19, the ITAT concluded that the taxpayer was entitled to his claim for deduction of interest against a home loan of Rs 1.5 lakh.
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee – whether it is owned by you or taken on rent. Conditions for claiming are…
By: Housing.com/news | Retrieved on 27th July 2016 from Moneycontrol.com
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee whether it is owned by you or taken on rent.
Conditions for claiming tax benefits on house rent allowance The tax benefit on house rent allowance (HRA) is only available to a person, who receives HRA from his employer and is not available to a self-employed person. To avail of this benefit, the employee should have incurred the expenditure on rent, with respect to a residential house property occupied by him/her. The benefit of HRA is not available on rent paid for a residential house that is occupied by any other person, irrespective of whether he is dependent on the assessee or not. It is also not available, in cases where the accommodation is either partly or fully owned by the assessee himself.
So, if an employee lets out the property to his employer and the employer in turn, allots the same to the employee and recovers some rent on this account, the HRA benefit cannot be claimed. Likewise, if the employee is a joint owner of a property and pays some rent to the other joint owner/s of the property, the HRA benefits on such payment cannot be claimed.
According to rule 2A of the income tax rules, the benefits of HRA shall be restricted to the lowest of the following three amounts:
(a) HRA actually received.
(b) Excess of rent paid over 10% of basic salary.
(c) 50% of basic salary in case the employees is in any of the four metro cities, or 40% in case he resides in any other place.
The law does not stipulate that HRA benefit cannot be claimed, if the tax payer owns a house and is already claiming tax benefits with respect to a housing loan.
Conditions for claiming tax benefits on home loans The main condition, for the allowance of the deduction on the principal and interest components of a home loan, under Section 80 C and Section 24(b), is that the person should be the owner of the house property. Tax benefits under Section 80 C, are only available for home loans taken from specified persons, for a residential house. Interest benefits are available on residential and commercial properties and on money borrowed from banks or from anyone else. Moreover, the interest on money borrowed for a let-out property is fully deductible. For a self-occupied house property, the benefit on interest is restricted to Rs two lakhs per year.
Claiming HRA as well as home loan benefits The laws allows a tax payer to have more than one house property. However, he has to opt for only one such property as self-occupied and offer notional rent, on the other properties for tax. By the same legal provision, it can be inferred that in addition to the rented house occupied by the tax payer, he can have one more house property as self-occupied. If the house property owned by the tax payer is in a city other than his place of work, there would not be any problem. However, if the property is in the city where the rented property is situated, it may be logically difficult to establish that the tax payer is occupying both the houses.
(The author is a taxation and home finance expert, with 30 years’ experience)
Source : http://goo.gl/shtKCC
By Chandralekha Mukerji, ET Bureau | 16 May, 2016, 10.39AM IST | Economic Times
They may not figure in the Panama Papers , nor have wads of cash stuffed under their beds and investments in benami properties. But there are other reasons why small taxpayers can get into trouble with the tax authorities. “My mother is a senior citizen and has paid all her taxes. But she still got a notice for not filing her return for 2014-15,” says Mumbai-based marketing manager Arun Kapoor. Delhi-based finance professional Varun Sahay has received a notice for not deducting TDS when he bought a flat last year. “I had no idea that I was supposed to deduct 1% of the value of the house and deposit the amount with the government on behalf of the seller,” he says.
Once rare, such cases are now quite common. In recent months, the tax department has stepped up efforts to ensure tax compliance. New rules have been introduced to plug tax leaks and officials are cracking down on evasion. Tax records are being put under the scanner and notices are being sent to individuals if the computer-aided selection system notices a discrepancy. Thousands of taxpayers have already received tax notice ..
This week’s cover story looks at 10 common mistakes that can fetch you a notice from the tax department. Some of these mistakes are merely calculation errors that will result in a tax demand. But some others are serious transgressions that can invite penalties of up to 300% of the unpaid tax. We tell you where taxpayers are going wrong and the correct position on the matter. We also offer smart tips to help you avoid falling foul of the tax rules. We hope you will find this information useful. Individuals who manage their taxes on their own will find it particularly helpful.
1. Not reporting interest income
This is a common mistake. Interest income from fixed deposits , recurring deposits and even tax saving bank deposits and infrastructure bonds is fully taxable. Yet, 59% of the respondents to an online survey conducted by ET Wealth believed that interest income of up to Rs 10,000 a year is tax free. Actually, the tax exemption of Rs 10,000 a year under Sec 80TTA applies only to the interest earned on the balance in a savings bank account.
Another 6% of the respondents believed that no tax is payable if their bank has deducted TDS. These taxpayers don’t realise that TDS is only 10% of the income. If they fall in a higher tax slab, their liability would be higher. In our survey, almost 50% of the respondents who got this wrong have an annual income of over Rs 10 lakh. They pay 10% TDS even though they are supposed to shell out 30%.
Interest income often goes unreported in tax returns. In recent years, new rules have been introduced to plug this leak. Till two years ago, TDS kicked in when the interest from deposits made in one bank branch exceeded Rs 10,000 in a financial year. Investors used to split their deposits across bank branches to avoid TDS. Now TDS applies if the combined income from deposits in all branches of a bank exceeds the threshold. What’s more, TDS also applies to recurring deposits now.
In future, as banks start sharing data, TDS could be applied to deposits made across other banks as well. “The mechanism to track deposits across other banks already exists. If banks share the names and PANs of fixed deposit investors, lakhs of individuals could come in the tax net,” says M.K. Agrawal, Senior Partner, Mahesh K Agarwal & Co.
Smart tip: Calculate how much interest you will get on your FDs, RDs and other fixed income investments and add that to your income.
2. Ignoring income of old job
Every time an individual switches jobs , he is in danger of falling foul of the tax laws. This is because the new employer doesn’t take into account the income earned from the previous job and offers tax exemption and deduction to the employee all over again. Instead of Rs 2.5 lakh basic exemption and Rs 1.5 lakh deduction for tax saving investments under Section 80C, he gets Rs 5 lakh basic exemption and Rs 3 lakh deduction. Obviously, he will be paying much less tax than he ought to.
But this discrepancy won’t remain hidden for long and would eventually be discovered when the taxpayer files his return. The incomes in the two Form 16s would be added but he would get basic exemption and deduction only once. This also means a large tax payment at the time of filing returns because the duplicate benefits would be rolled back. The last date for paying the tax is 15 March. After this, if the unpaid tax exceeds Rs 10,000, there is a penal interest of 1% per month of delay. “The employee will have to pay the balance tax along with interest at the rate of 1% per month for delay,” says Vaibhav Sankla, Director, H&R Block.
This is a common problem faced by people who switch jobs without keeping an eye on their taxes. They are saddled with a huge tax liability when they sit down to file their tax returns in June-July.
Don’t think you can get away by not mentioning the income from the previous employer in your return. If some tax has been deducted on the income from the first employer, it will be reflected in your Form 26AS. So if you don’t report that income, the discrepancy will immediately get picked up by the computerised scrutiny system and you will get a tax notice.
Smart tip: Inform your new employer about income from previous job so that the TDS is cut accordingly.
3. Not filing tax returns
A lot of taxpayers, especially senior citizens such as Kapoor’s mother, have received notices for not filing their tax returns. Anybody with an income above the basic exemption is liable to file his tax return. The basic exemption is Rs 2.5 lakh per year for people below 60, Rs 3 lakh for senior citizens above 60 and Rs 5 lakh for very senior citizens above 80. The rest of us , including NRIs, have to comply.
Keep in mind that this is the gross income before any deductions and tax breaks. If your annual income is Rs 4.2 lakh and you invest Rs 1.5 lakh under Sec 80C, your tax will come down to zero. But you are still liable to file your tax return. Similarly, even if all your taxes are paid, you still need to file the return.
For a lot of people, confusion stems from a rule introduced four years ago, where salaried individuals with an income of up to Rs 5 lakh a year were exempted from filing returns. However, that rule has long been withdrawn. “Although the regulation was applicable only to that particular financial year, many people tend to still follow it,” says Archit Gupta, Founder and CEO of Cleartax.in.
Not filing returns is not a very serious offence if all your taxes are paid. You will only get a notice asking you to do the needful. The tax laws allow a taxpayer to file delayed returns even after the due date has passed. But if you have unpaid taxes, be ready to pay interest as well as a penalty of up to Rs 5,000.
Smart tip: Don’t miss filing your return even if your tax is zero or all your taxes are paid. File online to avoid mistakes.
4. Tax sops on house sold before 5 years
The government offers generous tax benefits to those who buy houses on loans. But if the buyer turns into a seller too early, some of these benefits are rolled back. If you sell the house within five years, the tax benefits availed of under Sec 80C for the principal repayment will get reversed.
This could mean a heavy tax liability if you have claimed deduction for the principal repayment of the home loan under Sec 80C. You won’t be able to keep this under wraps because the buyer may seek tax benefits on the same property. However, the deduction for the interest on the home loan under Sec 24 will not be rolled back.
Similarly, if you have ended a life insurance policy within three years of purchase, any tax deduction availed on the policy will be reversed. Not many taxpayers are aware of this rule about insurance policies. “No taxpayer is so honest as to report this in his ITR and pay additional tax for the previous years,” says a chartered accountant.
Smart tip: Wait for at least five years before selling a house or three years before ending a life insurance policy.
5. Misusing forms 15G, 15H to avoid TDS
As mentioned earlier, many investors try to avoid TDS by splitting their investments across different banks. Many others submit Form 15G or 15H so that their bank does not deduct TDS. These forms are declarations that the individual’s income for the year is below the taxable limit and therefore no TDS should be deducted from the interest.
However, misuse of these forms is a serious offence. “A false declaration not only attracts penalty but also prosecution. The taxpayer can be sentenced to jail for terms ranging from three months to two years,” says Sudhir Kaushik, Co-founder and CFO, Taxspanner.com. This doesn’t stop people from blindly filling the forms to escape TDS.
You need to meet two basic conditions to file form 15G. One, your taxable income for the year should not exceed the basic exemption of Rs 2.5 lakh. Two, the total interest received during the financial year should not exceed the basic exemption slab of Rs 2.5 lakh. “The total interest income includes interest from other sources as well, including PPF, NSCs and not just interest income from deposits,” says Sankla of H&R Block. Form 15H, which is for senior taxpayers above 60, imposes only the first condition. The final tax on the total annual income should be nil. So, senior citizens whose taxable income is below the Rs 3 lakh limit are eligible to file Form 15H. For very senior citizens above 80, this limit is Rs 5 lakh.
Though this is a standard practice, and investors take it lightly, don’t assume that the Form 15G and 15H will not get noticed by the taxman. “If TDS is not deducted because the person has filed Form 15G or 15H, it is separately shown in part A1 of the Form 26AS,” cautions Gupta of Cleartax.in.
Smart tip: File Forms 15G only if you fulfill both the conditions. TDS is an interim tax and you can claim a refund if you have paid more than due.
6. Not deducting TDS when buying property
Given that real estate investments involve a lot of unaccounted money, the government has extended the scope of TDS to property transactions as well. If you buy a house worth more than Rs 50 lakh, you have to deduct 1% TDS from the payment to the seller. In case the seller is an NRI , the TDS will be higher at 30%. This amount should be deposited with the government on behalf of the seller using Form 26QB. Delhibased Sahay had no idea of this rule when he bought a property in Noida last year. He now has to respond to a tax notice, and could even be slapped with a penalty of up to Rs 1 lakh.
The rule is applicable even if you pay in instalments. In such cases, the TDS needs to be deducted from each payment and the money deposited with the government within seven days.
While TDS deduction happens automatically when you buy a new property from a builder, in case of transactions between individuals, it is often ignored. Like Sahay, most buyers are unaware of the rule. Even if they are aware, they are not sure how to calculate the tax. “The TDS has to be calculated on the total sale price and not just the amount exceeding Rs 50 lakh. Many make this calculation error,” says Gupta. The total sale price is the amount payable and as registered in the sale agreement. It does not include stamp duty and brokerage.
Also, only the sale price has to be taken into consideration, not the circle rate of the property. If a property is valued at Rs 60 lakh based on the circle rate, but gets sold for less than Rs 50 lakh, the buyer need not deduct TDS.
Smart tip: Make it clear to the seller that you will be deducting 1% TDS from the payment. Make sure you have his correct PAN details.
7. Not reporting foreign assets
We usually don’t want to be alarmist but this is one area where taxpayers need to tread with caution. They can no longer afford to be unsure about their foreign income and assets. “There is a lot of exchange of information between countries and we will see an exponential rise in the number of notices being sent to taxpayers on this account,” says Tapati Ghose, Partner, Deloitte Haskins & Sells LLP.
Mis-reporting overseas assets will not be taken lightly by the government. You could be prosecuted under the Black Money Act and the penalty can be as high as Rs 10 lakh for even small errors. Experts say taxpayers who have worked abroad often go wrong when reporting their foreign assets. “The employee stock options is often acquired at no cost or be sold out during the year and therefore get missed when you take an account of your assets. Capital assets like jewellery often skips the mind as they do not generate any income. In fact, they may have been bought only as ornaments,” says Ghose.
Not just salary and perks, freelancers who receive money from foreign clients need to report this income under the foreign assets schedule. “This should also include gifts, which are deemed to be income,” says Ghose. Also, all foreign bank accounts—whether operational or not and even with a tiny balance—need to be reported. You even have to report bank accounts where you are merely a signing authority.
Smart tip: Start collecting details of your foreign assets much before the last date for filing returns.
8. Disregarding clubbing provisions
It’s quite common for taxpayers to invest in the name of non-working spouses or minor children. But though gifts made to a spouse or a minor child do not attract tax, if that money is invested the income it generates is clubbed with the income of the giver and taxed accordingly. So, if you bought a house in your wife’s name, any income from that house, whether as capital gains when you sell it or as rent, will be treated as your income.
Similarly, if a husband has invested in fixed deposits in the name of his wife, the interest will be taxed as his income. “It doesn’t matter whether your spouse’s income is below the basic exemption. the income from the investment will get clubbed to your income,” says ghose of deloitte.
The rules are slightly different in case of investments in the name of minor children (below 18 years). The earnings are treated as the income of the parent who earns more. However, the taxman has softened the tax blow by extending an exemption of Rs 1,500 a year per child up to a maximum of two children.
Parents who want to invest in the name of their children can go for tax-free options such as the Sukanya Samriddhi Yojana, PPF or tax-free bonds. Though the income will get clubbed, there will be no tax implication. Mutual funds also help bypass the clubbing provision because the tax liability is deferred indefinitely. If the child withdraws after 18, that income is his, not the parent’s.
Smart tip: Invest in tax-free options in spouse’s name. Invest the income in FDs or RDs. Income is clubbed but the income from income is not.
9. Not reporting tax-free income
This may not be a serious offence but a taxpayer is required to mention tax-free income in his return. Tax-free income includes interest earned on PPF, tax-free bonds, life insurance policies, capital gains from stocks and equity-oriented funds and gifts from specified relatives. “Even if you are not liable to pay any tax on these incomes, all your interest income, including savings bank interest, has to be reported in the ITR,” says Gupta of Cleartax.in. The taxpayer can then claim exemption for the same. While you may not receive a notice for not mentioning tax-free income, it will certainly create an inconsistency in your return.
Similarly, dividend income has to be reported in the ITR even though it is tax-free. This year’s Budget has proposed a tax on dividend income if it exceeds Rs 10 lakh. The new rule will impact HNIs who use dividend stripping strategies to earn tax-free income.
Smart tip: Mention all tax-free income in your ITR but claim exemption for it under various sections.
10. Spending, investing beyond means
We all know that reckless spending is not good for our financial health . But few people realise that spending too much can also lead to a tax notice. If your expenses or cash withdrawals exceed certain limits, your credit card company and your bank are supposed to report that to the tax department.
If these expenses are much beyond your reported income, the income tax department may send you a notice or pick up your case for scrutiny. “If cash transactions, including ATM withdrawals, exceed Rs 50 lakh in a year, a bank is supposed to report it,” says Minal Agarwal, Chartered Accountant and Partner, Mahesh K Agarwal & Company.
Similarly, if investments by an individual cross certain thresholds, mutual funds, banks and brokerages are supposed to inform the tax department. If you invest more than Rs 1 lakh in stocks, your broker will squeal on you. Invest over Rs 2 lakh in a mutual fund and your name gets into a list of high-value investors.
Buy bonds worth over Rs 5 lakh and you get noticed. Even the purchase of gold, which was till now a safe haven for unaccounted money, will require your PAN card details. If these purchases and investments don’t match your reported income, be ready for a tax notice. “The government is gradually getting to know all aspects of the individual’s financial life,” says Agarwal.
Smart tip: Avoid cash transactions as far as possible. If depositing cash in bank account, keep record of source of cash.
Got a notice? Take help from a tax expert
The first thing to do when you get a notice from the tax department is not to panic. Many notices are simply tax demands or for non-filing that can be dealt without a fuss. Only a scrutiny or reassessment notice is reason for worry. In such matters it is best to take the help of a qualified professional who knows how to respond to the notice. “Engaging a specialist would push up the compliance cost but it would ensure that the matter is skillfully handled. A chartered accountant would be better equipped to handle the situation and provide apt responses,” says a tax expert.
A new online tool launched by tax filing portal Cleartax.in will be useful here. If you have got a tax notice, the portal will help you resolve the case free of cost. All you have to do is quote your PAN number and upload the PDF file of the tax notice. The tax experts of Cleartax will examine the case and send you an e-mail within 1-2 hours explaining the steps you need to take.
If the notice relates to common issues such as TDS claims, non-filing of tax returns or verification of documents, the issue will be resolved within a day’s time. “More complex issues will have to be examined in detail and handled personally,” says Archit Gupta, Founder and CEO, ClearTax.in. If you need the further support from the site, you may have to shell out an advisory fee ranging from Rs 800 to Rs 1,600 depending on the complexity of the case.
Of late, the I-T department have been tightening their scrutiny and sending notices to taxpayers for a plethora of reasons. Apart from due taxes and penalties, the fines for not responding to these tax notices can be as as high as Rs 10,000.
Source : http://goo.gl/gkIq4Q
You can carry forward losses and revise the returns umpteen times in case of mistakes
Tinesh Bhasin | Mumbai | April 14, 2016 | Last Updated at 00:25 IST | Business Standard
With the income tax department allowing ample time for filing returns, many taxpayers take it easy. For the income earned in the past financial year (FY16), a taxpayer can file returns up to March 2018. However, sticking to the first deadline of July 31 has its benefits.
Say, you make a mistake while filing returns — it can be a wrong computation or incorrect bank account details. If you file returns on time, the income tax (I-T) department will allow you to revise it as many times as you wish until the end of the assessment year. In case of belated filing, the taxpayer loses this advantage. “Not being able to revise returns can lead to problems. For example, in case of wrong computation, the department can send a notice. Incorrect bank account details can delay refunds,” says Vikram Ramchand, founder, Makemyreturns.com.
Missing the first deadline also means that the taxpayer cannot carry forward certain losses. The Income Tax Act allows individuals to carry forward losses under the ‘capital gains’ head and also business losses for professionals and businesspersons. These can be adjusted against the future gains for up to eight years. Due to the correction in stock market in the last financial year, many investors would have suffered a loss in their equity trade. Filing returns on time can help them utilise these losses in the coming years.
“The only loss that’s allowed to be carry forward for latecomers is the loss from house property,” says Ramchand. This is the deduction that a person gets on the interest portion of a home loan under Section 24. Though the deduction can be claimed in the subsequent year, the total limit for deduction will remain Rs 2 lakh for first-time home buyers. In case of a house property that’s not self-occupied, the entire interest can be claimed as deduction.
For those filing belated returns, they will also need to shell out a penalty. There will be a one per cent penalty every month under Section 234A on the liability if the return is not filed on time, according to Kuldip Kumar, partner and leader (personal tax) at PwC India. Professionals and businesspersons will also need to pay one per cent penal interest per month under Section 234B, if 90 per cent of the tax is not paid by March 31. If you don’t file returns at all, there are provisions in the I-T Act that say if the tax due is more than Rs 3,000, the taxpayer can be prosecuted and jailed.
Ramchand says that in his experience, he has also seen that those who file returns on time get faster refunds and their filing is processed quickly, too. Last year, many taxpayers who filed before the deadline got refunds within a fortnight, according to Ramchand. However, in case of belated filing, the processing and returns are both delayed – it can easily take six to eight months.
Also, those filing belated returns usually see that their refund amount is adjusted against some pending tax demand of the past, according to tax experts. Although this is not a rule, tax experts say such cases of adjustments are higher for those filing belated returns.
PwC’s Kumar points out that in the recent Union Budget, the period of filing returns has been reduced from two years to one year. Taxpayers will need to file returns before the end of the relevant assessment year. This will apply from the next assessment year. Tax experts, therefore, say one should start filing returns on time to avoid hassles later.