Common Income Tax Myths

Common Income Tax Myths

Many individuals often face a dilemma while filing their income tax returns. Some are quite unaware of the process, the relevant income tax exemptions, and assume things which may not be entirely true.

Following are six common myths about income tax and the reality behind them.

  1. Income tax is levied only on the salary component

Income tax is a form of direct taxes imposed by the government. According to the Income Tax Act, 1961, it is necessary to consider the income received from several categories besides income from salary. These include income from profession/business, property/house, capital gains, and income from other sources such as lotteries and dividend.

  1. E-filing tax is not necessary

Many people are under a pre-conceived notion that e-filing is not mandatory in India. However, this is not true. Individuals with an annual income of more than INR 5 lakh and above have to compulsorily e-file their tax returns. Besides, those who wish to claim a refund and those filling Income Tax Return Forms 2, 4, 4S, 5, 6, and 7 need to e-file taxes. It is also necessary to send a copy of your ITR-V acknowledgment to the Central Processing Center (CPC) in Bengaluru in order to complete the e-filing process.

  1. All gifts are tax-free

Quite contrary to the popular belief that all gifts are tax-free, only those received from specified sources are exempt from tax. Gifts received from relatives, local authority, charitable organizations, or through inheritance fall under the tax-free bracket. Cash gifts received in excess of INR 50,000 from non-relatives are taxable as per the current income tax rates.

  1. There are various slabs for Non-Resident Indians (NRIs)

This is not true. While resident Indians have varied income tax slabs based on gender and age, NRIs have a single applicable slab.

  1. Section 80C only allows exemptions on investments

Section 80C of the Income Tax Act allows for investments such as Public Provident Fund (PPF), Unit Linked Insurance Plan (ULIP), five-year fixed deposits, Employee Provident Fund (EPF), Equity-Linked Saving Scheme (ELSS), and National Savings Certificate (NSC) among others. However, this section extends to numerous other income tax exemptions besides the aforementioned ones. These include deduction on principal repayment of home loan, stamp duty and registration fees on purchase of a new home, as well as children’s tuition fees.

  1. Mentioning a single bank account should suffice

Though it is required to furnish details of one bank account while seeking a refund, it is necessary to enter details of all your existing bank accounts. The only exception to this rule is if your bank account is inoperative for three years or more. Besides, it is necessary to make sure that the entered details are right, else your refund may not be processed.

Having misconceptions about income tax-related aspects such as refunds, income tax rates, deductions, exemptions, and e-filing may cost you dearly. Therefore, it is necessary to have a proper understanding to dispel any kind of pre-conceived misconceptions and have a smooth tax-filing experience.

 

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