There are some mistakes merely of calculations errors that will cause result in a tax demand and there may be some common mistakes highlighted hereunder that may fetch you a notice from tax department.
Not reporting of interest income from fixed deposit, recurring deposit, tax saving bank deposit and infrastructure bond which is fully taxable are the common mistakes by taxpayers
Therefore calculate how much interest you will get on your fixed deposit, recurring deposit and other fixed income investment and add that to your income.
If you have informed your new employer about the income from previous job so that tds to be cut accordingly and in case of job changed and have not informed your new employer, club the income in your return and pay tax accordingly.
A lot of taxpayer especially senior citizen are not filing tax returns that may cause tax notice. Therefore don't miss filing your return even if your tax is zero or you have paid all taxes.
If buyer of house availed housing loan and turns seller within 5 years of house purchased, the tax benefits availed u/s 80C for the principal repayment will get reversed. However the interest on loan u/s 24 will not be rolled back.
Therefore, wait for at least 5 years before selling your house.
If you have ended a life insurance policy within three years of purchases, any tax deductions availed u/s 80C will be reversed. This is the common mistakes done as not many tax payers are aware of this rule.
Therefore, wait for at least 3 years before ending a life insurance policy.
Misuse of form 15G and 15H is a serious offence. A false declaration not only attracts penalty but also prosecutions.
According to tax rules - in case of investment in the name of minor children the earning are to be treated as the income of the parent, however an exemption of Rs. 1500 a year per child upto a maximum of two children are allowed.
Therefore, the parents wants to invest more in the name of their children can opts for tax free options like PPF, Sukanya Samridhi Scheme, Tax free bonds.
A taxpayers is required to mention tax free income in the return. The tax free income includes interest earned on PPF, tax free bond, life insurance policy, capital gain from stock / equity fund and gift from specified relatives.
The dividend income has to be reported in the tax return even though it is tax free. This year's budget proposed a tax on dividend income if it exceeds Rs. 10.00 lac.
The Expenses or cash withdrawals exceeds certain limits and beyond your reported income, the income tax department may send a notice or may pick up your case for scrutiny.
Similarly for investments of an individual crosses certain limits the banks, mutual funds, brokerages are supposed to inform the tax department
Therefore, avoid spending / investments beyond your means and keep proper records of other incomes or receipts. Also Avoid cash transactions as far as possible and in case any amount in cash deposited in bank account keep records of its sources.
If you are buying a house worth more than Rs. 50.00 Lac, you have to deduct 1% TDS from the payment to the seller (in case the seller is NRI the TDS will be @30%). The buyer is required to deposit the TDS with the Govt. on behalf of the seller using form 26QB.
Therefore, make it clear to the seller that you will be deducting 1% TDS from the payment and also ensure to mention correct PAN details of the seller in the form
If you get a notice from the tax department do not panic, most of the notices are of tax demands or for non filing of tax return. Scrutiny or reassessment notices are of reason to worry. In these matters, it will be better to take the help of qualified professionals / chartered accountant to deal the matter accordingly.