Modifications in NPS scheme- approved on 18.12.18

Looking to open a PPF account? Here are 7 things to consider

Source: The Economic Times

Diversifying one's savings in PPF and equities would serve the purpose of long term savings rather than relying entirely on any one of them. Diversifying one's savings in PPF and equities would serve the purpose of long term savings rather than relying entirely on any one of them.

Even after several decades, Public Provident Fund (PPF) Scheme, 1968 continues to be a favorite savings avenue for several investors. After all, the principal and the interest earned have a sovereign guarantee and the returns are tax-free. The principal invested qualifies for deduction under Section 80C of the Income Tax Act, 1961 and the interest earned is tax exempt under Section 10.

With interest rates on taxable fixed income investments coming down, PPF remains a suitable alternative for allocating debt portion of one's investment portfolio. Allocation to equities through diversified equity mutual funds is equally important, especially when the goals are at least seven years away. In 1968-69, PPF offered a 4 per cent per annum interest (inflation was -1 per cent) and today it offers 8 per cent (inflation at 5 per cent), while from 1986-2000 it offered 12 per cent (inflation varied between 3.3 and 13.7 per cent).

PPF is a 15-year scheme, which can be extended indefinitely in block of 5 years. It can be opened in a designated post office or a bank branch. It can also be opened online with few banks. One is allowed to transfer a PPF account from a post office to a bank or vice versa. A person of any age can open a PPF account. Even those with an EPF account can open a PPF account.

One can deposit a maximum of 12 times in a year, but remember to deposit before the 5th of the month to get interest for the full month, as the interest is allowed on the lowest balance at the credit of an account from the close of the 5th day and the end of the month. Many investors deposit a lump sum amount right at the beginning of the financial year. There are provisions to take loans and make partial withdrawals from the scheme as well. With the tax-saving season on, many of us are looking to open a PPF account. Here are a few things to consider before opening one.

Effective interest

PPF is a debt-oriented asset class, i.e., one's investment is not exposed to equities and hence returns are not linked to the stock market performance. The interest rate on PPF returns are set by government every quarter based on the yield (return) of government securities. Currently, it offers 8 per cent interest per annum till March 31, 2017. As the interest is tax-free, the effective pre-tax yield for someone paying tax at 10.3 per cent, 20.6 per cent and 30.9 per cent rates will be 8.91 per cent, 10.07 per cent and 11.57 per cent per annum respectively.

Deposit limit

While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. One can open a PPF account in one's own name or on behalf of a minor of whom he is the guardian. This is the combined limit of self and minor account If contributions are in excess of Rs 1.5 lakh in a year, the excess deposits will be treated as irregular and will neither carry any interest nor will this excess amount be eligible for tax benefit under Section 80C. This excess amount will be refunded to the subscriber without any interest.

PPF in the name of minor

A PPF account on behalf of a minor can be opened by either father or mother. Both the parents cannot open a separate account for the same minor. An individual may, therefore, open one PPF account on behalf of each minor of whom he is the guardian. At times, grandparents are interested in opening PPF for their grandchildren. PPF rules however, do not allow them to do so, when the parents of the minor are alive. They can open the account only if they are appointed as legal guardian after the death of the parents.

Number of accounts

An individual can open only one account in his name either in a post office or a bank and he has to declare this in the application form for opening the account. Persons having a PPF account in the bank cannot open another account in the post office and vice-versa. If two accounts are opened by the subscriber in his name by mistake, the second account will be treated as irregular account and will not carry any interest unless the two accounts are amalgamated. For this, one has to write to the Ministry of Finance (Department of Economic Affairs) and get its approval.

Premature closure of PPF account

Unlike in the past, when only loans and partial withdrawals were allowed, now even premature closure of the PPF account is possible. It will, however, be allowed only after the account has completed five financial years and on specific grounds such as treatment of serious ailment or life threatening disease of the account holder, spouse or dependent children or parents, on the production of supporting documents from the competent medical authority. If the amount is required for higher education of the account holder or the minor account holder then, on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad, premature closure of the PPF account is allowed.

Nomination

The application form of PPF (Form-A) does not carry the provisions for nominations as it is to be filled in a separate form. Make sure to fill the nomination form (Form-E) at the time of opening a PPF account to avoid any legal hassles for the nominee later on.

Attachment

The PPF account and its balance cannot be attached by a court and hence the debtors cannot access one's PPF account to claim the dues, if any. However, it does not apply to the income tax authorities and so the amount standing to the credit of subscriber in the PPF account is liable to attachment under any order of income tax authorities with respect to debt or liability incurred by the subscriber.

Conclusion

PPF suits those investors who do not want volatility in returns akin to equity asset class. However, for long-term goals and especially when the inflation-adjusted target amount is high, it is better to take equity exposure, preferably through equity mutual funds, including ELSS tax saving funds. Comparing them, however, is not warranted as both are different asset classes, with one currently generating around 8 per cent returns as compared to the other generating ( historical returns) around 12 per cent return. The latter, will anyhow have a higher maturity corpus (with relatively more volatility) than the former (with relatively less volatility.) Diversifying one's savings in PPF and equities would serve the purpose rather than relying entirely on any one of them.

Self Assessment Tax Explained in FAQ's

1.What is Self Assessment Tax?

Self Assessment tax means any balance tax paid by the assessee on the assessed income after taking TDS and Advance tax into account before filing the Return of income.

2.Who are all liable to pay Self Assessment Tax?

All taxable Individuals and Corporates are liable to pay Self Assessment Tax.

3.When should the Self Assessment Tax be paid?

There are no specific dates to pay Self Assessment Tax. (Non payment of Self Assessment Tax and non filing of the returns within the due date of filing i.e., 31^st July will fetch Interest u/s 234)

4.Why should Self Assessment Tax be paid?

The Tax liability is computed after taking the various deductions & exemptions into account. If the Total Tax Paid (total of TDS & Advance Tax) is less than the Total Tax Liability, it means we owe the balance tax to the government. This has to be paid as Self Assessment Tax.

5.What is the procedure for paying Self Assessment Tax?

Direct Mode of Payment:

Self Assessment Tax can be paid by filling a Tax Payment Challan, ITNS 280. Challan, at designated branches of banks empanelled with the Income Tax Department.

Online Mode of Payment :

Assessee could pay Self Assessment Tax Online through the NSDL website, or Click on this linkhttps://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

a.Then select Challan No./ITNS 280(Payment of Income Tax & Corporation Tax)

b.Select Tax Applicable as (0021 – Income Tax – Other than Companies)

c.Select Assessment Year (eg. If FY 2014-15, then AY is 2015-16)

d.Then select type of payment as (300) Self Assessment Tax, and fill rest details.

e.Online Payment is allowed only by Net Banking & not by Credit/ Debit cards.

f.Select the correct assessment year

g.Fill in the form and click “Proceed”

h.Fill in the Tax Details

i.Enter the Tax payable amount

j.Confirm & Proceed

6.What if an individual fails to pay Self Assessment Tax?

Income Tax Returns can be filed only if we have paid the Tax due to the government. Further, non payment of Tax is a criminal offence and the individual is liable to be penalized & punished under the court of law. Moreover, Interest will get added to your tax liability till the date of payment of tax.

7.How do an individual know if he/she has already paid Self Assessment Tax?

Once you have paid the Self Assessment Tax, it will reflect on your Form 26AS within 2-3 days of making the payment.

8. What would happen if a person has wrongly paid his/her Self Assessment Tax, instead of Assessment Year 2015 – 2016, they have selected 2014 – 2015?

Selection of wrong Assessment Year while paying tax will result in demand for the amount of tax to be paid for that respective year. It can be corrected through Challan Rectification Process. Please Contact us for further details.

What you must check in your TDS certificates, Form 26AS and why they should match

Source: The Economic Times

What you must check in your TDS certificates, Form26 AS & why they should match

TDS certificates should be downloaded only from TRACES

You should ensure that TDS certificates (Form 16/16A) issued to you are downloaded only from TRACES (TDS Reconciliation Analysis and Correction Enabling System of the Income tax department). Certificates downloaded from TRACES are in a specific format. A form downloaded from TRACES would bear a 7 character alphabet unique certificate number and it will also have a TDSCPS logo on the left side and a national emblem on the right side at the top. This certificate would provide the details of the income paid to you and also the tax deducted from that income by the payer and whether the same has been deposited by him with the government. See below for a sample of how a valid TDS certificate in Form 16 or Form 16A should look.

Digital signature should be verified.

In case of digitally signed certificates check that the signature is verified i.e. has a check mark across it. An unverified signature will bear a question mark over the signature instead of the check mark.

Must check details on the TDS certificate

Must check details on the TDS certificate Your name, PAN, Deductor's TAN, amount paid to you, TDS amount should be correctly reflected on the TDS certificate.

What is Form26AS and how to get it

An annual tax credit statement is generated by the income tax department for a person subjected to TDS (deductee) in Form 26AS. The statement provides details such as name of the deductee, PAN of deductee, details of deductor, the TDS amount, the amount of TDS deposited with the Government by the deductor etc. The user can download the statement from the income tax efiling website. The downloaded statement is password protected and the password to open the file is the Date of birth of the user which he would have entered when registering with the income tax efiling site. This statement is linked to your PAN and contains details of all your TDS by employers as well as others (e.g. banks etc).

The link to download Form 26AS from TRACES can be found after logging into your account on the income tax efiling site.

https://incometaxindiaefiling.gov.in/eFiling/UserLogin/LoginHome.html?nextPage=taxCred

It can also be downloaded via your net banking account provided that your bank provides the efiling login facility. The list of banks providing this facility is available at: http://contents.tdscpc.gov.in/en/netbanking.html

Cross check the TDS certificate figures with Form 26AS

You can verify whether your TDS as shown in the TDS certificate received from the deductor has actually been received by the government or not by comparing with the Form 26AS. It is the duty of a taxpayer to verify whether the deductor has deducted tax on each transaction on which it was supposed to be deducted. He must also check that the TDS mentioned in form 16/16A is reflecting in Form 26AS. In case the TDS shown in your TDS certificate is not reflecting in your Form 26AS it would imply that although the deductor has deducted the tax on your behalf but the TDS has not been deposited / has not reached the income tax department. In case of any discrepancy between the TDS certificates and Form 26AS inform your deductor and ask for the reasons for this discrepancy and get it corrected. A possible reason behind the mismatch can be because your PAN has been incorrectly entered in the records of the deductor. In case the deductor has not deducted the tax on your behalf, then it is your responsibility to remind the deductor to deduct tax on your behalf and deposit the same with government.

Your form 26AS will also reflect any advance/regular/ self assessment tax that you pay.

Following details would also be available in your Form 26AS in case applicable:

Details of tax deducted on your behalf by deductors

Details of tax collected on your behalf by collectors

Details of tax deducted on sale of Immovable Property

Refund received during the financial year by you

Details of your transactions in Mutual Fund, Shares and Bonds, etc. (as reported by AIR filer)

TDS Defaults related to processing of Statements

A person deducting tax on account of buying an immovable property needs to submit TDS certificate to the seller in Form 16B. Link to download Form 16B (Tutorial) http://contents.tdscpc.gov.in/en/downloadfrom16betutorial.html

According to practicing chartered accountants, the income tax department normally cross checks the taxes claimed as TDS or as paid by you in your return with those showing in Form 26AS. "Therefore, in case certain taxes claimed as deducted or paid by you in your return are not reflected in the Form 26AS then you may get a notice from the tax department when it processes your return" says Chartered Accountant Anil Kapur, Partner, AVAN & Associates.

Why you need TDS certificates when Form 26AS provides all information

One can gather all information related to TDS in Form 26AS which is sufficient to file one's return. This might make you doubt the importance of TDS certificates but the rationale behind introducing Form 26AS is to enable the taxpayer to cross check the details mentioned in his/her TDS certificates with those mentioned in Form 26AS and create transparency. TDS certificates are important because these certificates and the Form 26AS are a cross check for each other in case there is a mismatch you can try to get the relevant document corrected. Without the TDS certificate you would not get to know if there was a mismatch.

Further, if your return sails through the IT department's eprocessing system without a hitch then your TDS certificates may not be required to be shown/submitted but in case your return gets picked up for scrutiny then you are likely to need your TDS certificates to show to the IT department. Also, in case a TDS is not reflecting in the Form 26AS then again you would need the certificate to prove that tax was actually deducted. "In case of salaried persons, Form 26AS in itself is not sufficient to file the return since it does not show the breakup of your income and details of deductions claimed under section 80C to 80U which are available in Form 16" Kapur adds.

Why you must provide PAN to the deductor

It is the duty of the assessee/deductee to provide his PAN to the deductor or else the deductor will deduct his tax at a higher rate (generally 20%). Also, if PAN is not provided the TDS will not reflect in your Form 26AS which is linked to your PAN. This is because the deductor will not know which PAN to assign the TDS to while uploading data in the income tax site.

Tax Reckoner for Investments in Mutual Fund Schemes: FY 2016-2017

Source: HDFC Mutual Fund

No penalty for changing income head

Source: Business Standard

The Income Tax Act states clearly that if a taxpayer does not disclose part or whole of his income, or provides inaccurate details of his income in his returns, he can be penalised. The penalty can be a minimum of 100 per cent to from a maximum of 300 per cent of the tax unpaid. These have been changed in the latest Budget. Penalty will now be levied at 50 per cent in case of under-reporting of income or 200 per cent in case of misreporting. But what happens if a taxpayer's income classification changes during the course of assessment? Can a tax officer levy a penalty even in such cases?

Penalty despite full disclosure
In a recent case that came up in the Bombay High Court, the taxpayer had disclosed all the income particulars while filing returns. However, during the course of assessment the tax officer changed the classification of a certain income. This led to an increase in the total taxable income.

The taxpayer had declared his total income at Rs 9.69 lakh. In his return, he also showed Rs 1.62 crore as long-term capital gain on sale of shares and claimed exemption under Section 10(38) of the Act. This section provides that any long-term capital gain on sale of equity shares held for a period of more than 12 months shall be exempt from tax.

During the course of assessment, the taxpayer filed a revised return of income wherein the amount of Rs 1.62 crore was offered as taxable income. While concluding the assessment proceedings, the tax officer also initiated penalty proceedings for claiming incorrect exemption. He imposed a penalty of Rs 55.79 lakh on the taxpayer for having concealed particulars of income and for furnishing inaccurate particulars thereof.

The case escalates
The taxpayer filed an appeal against the penalty order at the first appellate level. He pleaded that the penalty ought to be deleted on the ground that the amount of Rs 1.62 crore had been declared as capital gain in the original return of income. The first appellate authority accepted the taxpayer's claim and deleted the penalty.

It observed that sufficient evidence to conclude that the said amount can be attributed to long-term capital gain was produced before it during the course of proceedings. The taxpayer had produced broker notes, copy of balance sheet, copy of demat account, evidence of payment for shares, etc in support of his claim.

Not happy with the result, the tax officer filed an appeal with the second appellate authority. At this level too, the authority ordered the deletion of penalty by the tax officer and observed that the taxpayer had disclosed the income of Rs 1.62 crore in his returns but had claimed the same to be exempt. It also observed that if during the course of assessment proceedings, the tax officer changes the head of income that should not attract a penalty. The order also noted that the taxpayer had agreed to offer the amount of Rs 1.62 crore as business income instead of long-term capital gain during the course of survey proceedings only to buy peace.

The tax department further filed an appeal against this order with the Bombay High Court. The tax officer argued that a change in head of income during assessment proceedings should attract a penalty if it has an impact on tax payable.

The officer said that the entire income of Rs 1.62 crore was claimed as exempt income. Only after the assessment the taxpayer agreed to file it as business income, thereby attracting tax at the applicable slab rate. Relying on a Supreme Court decision, the tax officer pressed that the taxpayer's defence of offering income for taxation to buy peace and avoid litigation was not sound.

DON’T GET CAUGHT ON THE WRONG FOOT

The first mantra to avoid a penalty is to make full disclosure of your income Maintain proper documentation that can back the disclosures you have made Sometimes, during the course of assessment, the head under which an income is placed can be reclassified by tax officials If a tax officer imposes a penalty on such reclassified income, the order is unlikely to be upheld by tribunals and courts With the recent Budget introducing penalties for under-reporting and misreporting, taxpayers need to be even more watchful, as the rules are more complex now

Landmark ruling in favour of taxpayer
The high court, while dismissing the tax officer's argument, held that the taxpayer was under the bonafide belief that income from long-term capital gain is exempt from tax and had accordingly disclosed the said amount as tax-free income in his return of income. The court observed that all the lower appellate authorities had consistently concluded that the taxpayer had not concealed his income or filed inaccurate particulars attributable to capital gain in his return of income. It, therefore, found no reason to interfere with their decisions. The high court hence dismissed the case.

This decision serves an excellent precedent for cases of penalty levied on taxpayers even when they have provided complete disclosure of facts in their return of income and backed it with proper documents and basis for opinion. In the case, the noteworthy fact is that the taxpayer was absolved from paying penalty even though the said income was recharacterised from tax-free to taxable.

Penalty provisions are widely contested as tax officers have been found to levy penalty on additions made to income on the basis of change of opinion or re-classification of heads of income. With the change introduced by Budget 2016, penalty provisions have only become more complex. Taxpayers need to keep track of their income sources and ensure proper disclosure in returns.

In fact, recently the Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) dismissed a penalty levied by income-tax officials for 'concealment of income' in the hands of a salaried employee.

The employee had enlisted the service of an online tax-return filing portal. While filing the returns, the portal committed a punching error, which resulted in under-reporting of salary income in the taxpayer's I-T return. Tax official took the view that this was an attempt to conceal income and imposed a penalty on the taxpayer.

The ITAT examined the fact of the case and dismissed the penalty on the ground that the assessee had no malafide intent to evade tax or claim refunds dubiously.

How to avoid Notice from Income Tax department

Source: Economic Times

They may not figure in the Panama Papers ,nor have wads of cash stuffed under their bedsand 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 computerized 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, Cofounder 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. Delhi based 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 taxfree. 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.

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.