How to file ITR for FY23-24: Claim deductions, exemptions carefully while filing income tax return or you may end up in jail “Taxpayers feel they are not getting anything in return for the tax paid. They use this belief as a justification for evading tax,” says Kaushik of TaxSpanner.com. Be careful while fining income tax return for the financial year 2024-25 or assessment year 2024-25
Honesty may be the best policy, but not when it comes to taxes. An online survey conducted by ET Wealth last week shows that an overwhelming majority of taxpayers are willing to be a little dishonest to reduce their tax burden. They are open to some dubious tactic or the other, including submitting fake bills, concealing income or buying stuff without invoices to escape GST. “Given the opportunity, everybody wants to lower his tax outgo,” says Sudhir Kaushik, CEO of tax filing portal TaxSpanner.com.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} To be sure, submitting fake fuel bills or inflating conveyance expenses is a common practice in India Inc. “The bar has been set so low that fake fuel or conveyance bills are considered kosher,” says Nishant Khemani, Managing Partner of the Delhi-based Saturn Consulting Group. The tax department too does not delve too deep because the tax leak is too small at the individual level. “The cost incurred to recover the leakage in tax is sometimes more than the amount sought to be recovered,” says Kuldip Kumar, Partner, Mainstay Tax Advisors.
However, the tax department is not so forgiving when it comes to bigger exemptions. Three months ago, the department unearthed a major evasion by nearly 10,000 individuals who had claimed house rent allowance (HRA) exemption even though they weren’t living on rent. The fraud was detected because if the exemption claimed is more than Rs.1 lakh, the taxpayer must submit the landlord’s PAN. The rent payment then duly gets reflected in the landlord’s Annual Information Statement (AIS). “The reconciliation of the rent payment against the PAN of the landlord has reduced the HRA leakage, but not completely removed it,” says Kaushik.
In this case, the department found that one person’s PAN was misused and submitted by several people to claim HRA exemption. This person had supposedly received rent of around Rs.1 crore during the year, which was obviously not correct. His ‘tenants’ are now facing the music. “With increased use of technology and automation processes to link taxpayers’ information by the tax authorities, those resorting to fake claims are at a greater risk of getting noticed,” warns Kuldip Kumar.
The penalty for such wilful transgressions can be up to 300% of the tax sought to be evaded. If the amount exceeds Rs. 25 lakh, the taxpayer can even end up behind bars. So taxpayers need to be careful when they claim exemption in the ITR.
What do you think of taxation in India?
What will you do if your spouse or relative plans to evade tax?
Note1:Figures are percentage of respondents in an online survey conducted last week by ET Wealth. We received 502 responses from across age groups and income profiles. Percentages have been rounded off.
Note2:“Taxpayers feel they are not getting anything in return for the tax paid. They use this as a justification for evading tax.”
Is tax evasion justified?
Why do normal law-abiding citizens tread this dangerous path that can put them on the wrong side of the law? “Taxpayers feel they are not getting anything in return for the tax paid. They use this belief as a justification for evading tax,” says Kaushik of TaxSpanner. com. Two out of three respondents in our survey believed honest people pay more tax, while one out of five respondents felt that the tax authorities were lenient with dishonest people. This was buttressed by the announcement in the Interim Budget of a total waiver of all tax demand notices up to Rs.1 lakh per assessee.
Will you submit fake bills to claim tax-free allowances?
The perceived leniency of the tax department helps unscrupulous tax preparers do hectic business during the tax filing season. They lure taxpayers with promises of hefty refunds in exchange for a cut that ranges from 10-20% of the refund amount. The return is filed by claiming higher deductions and exemptions than the taxpayer is eligible for. “Taxpayers should be on their guard against people who promise refunds by falsifying information in the tax return,” warns Kaushik. You might get a refund, but when the fraud gets detected, be ready for a tax demand and possibly a penalty. Curiously, only one out of five respondents to the survey said that he/she would forcefully dissuade a spouse or a relative from evading tax.
Some expSome experts believe the widespread misuse of tax deductions and exemptions is what led to the introduction of the new tax regime. In 2018, the exemption for medical and transport allowances was replaced with a flat standard deduction. “The government wants to curb tax evasion. Under the new tax regime, there are no tax deductions but wider slabs and lower tax rates, which suit many taxpayers,” says chartered accountant Karan Batra.
Will you let someone buy an item and pass on the GST benefit to you?
If the AIS misses some income received, what will you do?
What will you do if offered a generous tax refund in exchange for a fee?
HRA exemption can cut tax significantly. What will you do?
The farce of donations
Apart from falsifying information in the tax return, unscrupulous people have devised myriad ways to get around the tax tangle. Donations to charitable organisations, for instance, is a widely used tax avoidance tool. Here’s how it works. The taxpayer gives a donation to a charitable organisation and claims tax deduction for 50% of the amount donated. The charity, which has a lot of unaccounted cash, returns cash to the taxpayer after a 3-4% commission.
You are offered full amount in cash if you donate by cheque. What do you do?
This tax leakage due to donations to NGOs and charities under Section 80GGB has been going on for years. In recent times, small political outfits have sprung up, making things even better for the tax evader. “Donations to a political outfit are eligible for 100% deduction. The entire sum comes back to the donor in cash after deducting 7-8% commission. Small businessmen and salaried people are using these to escape tax in a big way,” says Khemani. This form of evasion hurts the exchequer twice as much: the taxpayer gets away with tax deduction, while the donee organisation manages to launder its black money.
Clubbing of income
Brokerage houses like to tom-tom the sharp rise in the number of women investors in the past five years. They say the increase in demat accounts of women indicates growing confidence, rise in financial awareness and proactiveness among women in managing their finances. While this is true to some extent, the reality behind the growth in demat accounts is rooted in the change in tax rules for gains from equity investments in 2018. After long-term capital gains from stocks were made taxable, there was a surge in demat and trading accounts for women.
How do you avoid tax on interest income?
You can’t escape the tax net by investing in the names of your spouse, though. While there is no tax implication when you give money to your spouse, if that money is invested, the income is treated as your income under Section 64 and taxed accordingly. But this provision is largely ignored by taxpayers when they file their returns. Be sure to club such income when you file your return to avoid getting a notice. “If you want to escape tax due to clubbing of income, give the money as a loan to your spouse, not as a gift,” says Amit Maheshwari, Partner, AKM Global. In case of a minor child, the earning is treated as the income of the parent who earns more.
GST misuse is rampant
Another way the exchequer loses money is when businessmen buy gadgets and other stuff on behalf of friends and relatives and claim the GST benefit. For instance, if you buy an air conditioner that costs Rs.50,000, it will attract a GST of Rs.9,000. If a businessman friend or relative who is GST-registered buys it for you, he can claim credit for that Rs.9,000 and pass it on to you. “Purchasing items on behalf of family and friends to claim GST benefit is quite common. However, it is very difficult to detect the legal breach because it is a legitimate transaction. The transgression will be detected only if there is a scrutiny of the taxpayer,” says Khemani.
How do you avoid or minimise tax on gains from stocks and equity funds?
The government also loses GST when purchases are done without an invoice. With most items attracting 18% GST, buying without an invoice gives the customer an instant discount. While 21% respondents to our survey were ready to pocket the GST benefit from a friend or relative, 7% had no problems buying an item without an invoice to avoid paying GST.
Note:“Donations to political outfits are eligible for 100% deduction. The donor gets the entire sum back in cash after 7-8% commission.”
NISHANT KHEMANI
MANAGING PARTNER,SATURN CONSULTING
GROUP
Note: “The elephant in the room is the cash component in real estate deals. Nobody is willing to plug that major tax leak.”
KULDIP KUMAR
PARTNER, MAINSTAY
TAX ADVISORS
Note: “Taxpayers who want to escape the tax due to clubbing of income should give money to their spouse as a loan, not as a gift.”
AMIT MAHESHWARI
PARTNER, AKM GLOBAL
Penalties for misreporting tax and other mistakes
Genuine slip-ups are usually excused by the tax department, but wilful transgressions invite heavy penalties.
Penalty
Late filing of tax return
If tax return not filed by due date, penalty is up to Rs.5,000
Late payment charges
If tax liability is more than Rs.10,000, late payment interest of 1% will be charged every month.
Providing incorrect PAN
Penalty of Rs.10,000.
Not deducting TDS on property purchase
If TDS not deducted on purchase of property worth Rs.50 lakh or more, penalty is 1% for every month of delay.
Not depositing TDS
If TDS has been deducted but not deposited with government, penalty is higher at 1.5% per month from the date of deduction.
Concealing income
Penalty is between 100% and 300% of tax evaded. If evaded amount exceeds Rs.25 lakh, taxpayer can also be jailed for up to six months.
Accounts not audited
If the taxpayer is required to get his accounts audited, but fails to do so, the penalty will be the highest of the three: 0.5% of total sales, or of gross receipts, or Rs.1.5 lakh.
Cash transactions
If a single cash transaction is more than Rs.2 lakh, penalty will be 100% of the amount received in cash.
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This story originally appeared on: India Times - Author:Faqs of Insurances
