Wrong Calculation of Exemption of House Rent Allowance (HRA)

So, Many times claim exemption of whole amount House Rent Allowance (HRA) Received even if Some portion of HRA is Taxable. Asseessee must take exemption of minimum of - 

Actual HRA Received

40% Of Salary or Incase of Metro Cities 50% of Salary

Excess of Rent Paid over 10% Salary

Note: - Here Salary means Basic plus Dearness Allowance (DA) if part of Retirement Benefit.

Balance Amount of House Rent Allowance (HRA) will be Taxable in Hands of Assessee at Applicable Rate, should be in Income of Assessee. 


Improper Rent Receipt

Any Salaried Employees Claiming House Rent Allowance (HRA) Exemption based on Rent Paid to Lend Lord. Employees have to get Receipt of such Rent paid, Receipt must contains following Details Name of Land Lord (Owner of Property), Address of Property,Amount of Rent Paid, mode of Payment and Signed alongwith Revenue stamp etc.


Worngly Claims Exemption of Medical Allowances

In Income No Exemption is provided for Medical Allowances Received, but Exemption of Reimbursement of Expense Medical Treatment by Employee is Exempted subject to Maximum of Rs. 15000. Most of Salaried Employees Claiming Exemption of Medical Allowances which is incorrect Practice by Asseessee, it may create hurdles in Future to asseessee and make Liable to pay Penalty and Interest.


Value of Prequisites to be Included in Taxable Income of Assessee

Prequisites means any Benefit or facility provided by Employer to Employee in lieu Employment either totally free of cost or Charge Some Monday for it. 

Any Prequisites Received by Employe form Employer shall be included in Taxable Income of Employee except where Prequisite given to Employee for Office purpose. Any Amount paid by Employee for Prequisites Received by him or her shall be deducted from the value of Prequisites. Generally cost incurred by Employer on Facility or benefis provided shall be considered as Value of Prequisites, along with it Certain standard formulas are also provided in Income Tax Act to Calculate Value of Prequisites.


No Coordination between Data as Per Form 16 and Data as Income Tax Return filed 

Form 16 (Part A contains Details about Employee and Part B contains Income Details  of Employee along with Details of Tax Deduction) is providUnau Employer to Employee after completion of Financial Year. Form 16 Download from TDS Traces site based on Data/Information provided/Entered by Employer while Filing TDS Return based on Information provided by Employee.

Sometimes Employees during filing of Income Tax Return either escape some Income or Claims False Duductiom. In such a case Data as per Form 16 did not match with Data as Per Income Tax Return then Income department may issue intimation under Sec 143(1) of Income Tax Act enquiring Assessee regarding Data Mismatch. Assessee have to respond timely proper explanation of Difference between two data, if assessee fails to explain such differences properly then liable to pay Penalty or Interest or both depending upon circumstances.


Wrong Claim of Deduction of Principal Payment or Interest on Housing Loan

Interest on Housing Loan will be allowed as Deduction under sec 24(ii) of Income Tax subject to Maximum of Rs. 200000 in case of Loan against Rented House Property and Rs. 30000 incase of self Occupied Housing Property. If asseessee fails to complete House Contribution or Fails to purchase house within 3 years from the End of Financial year in which loan was taken then in such a case Deduction of Interest on Housing Loan Maximum of Rs.30000 is allowed even in case of Rented Housing Property. Deduction under sec 24(ii) allowed for Interest on Loan against Housing Property only not for loan against any Property. Deduction of Interest on Housing Loan can exceed Income Chargeable under head Income from House Property.

Deduction of Principal payment of Housing Loan shall be allowed as Deduction under Sec 80C of Income Tax Act subject to Maximum Deduction allowed under Sec 80C along with other Deduction. such Deduction shall be allowed if Purchase or Construction of Housing Property is Done within 3 Years from the End of Financial year in Which Loan was Taken.

Common mistakes done by Asseessee in case of Claiming Deduction for Principal and Interest Payment on Housing Loan is -

Claiming Deduction of Interest Payment or Principal Payment without Fulfillment of Conditions or Provisions described in Income Tax which may attract high penalty or Interest  to asseessee.

Sometimes asseessee may Claim Deduction under sec 80C of Income Tax Act for Both Principal Payment and Interest Payment which results lower Deduction benefit to Assessee. As There is maximum Deduction cap of Rs. 150000 along with other Deductions under sec 80C of Income Tax Act.

Note: - Assessee can Deduction of Principal payment or Interest payment on Housing Loan only if such house Property is Registered in his or her name and Loan Taken in his or her Name.

Example: -

A Housing Property Registered in the name of Mrs A and Loan against such Property is taken jointly by Mr. A and Mrs. A. In this case Mrs. A can claim Deduction of 1/2 of Principal Paid under sec 80C of Income Tax Act and 1/2 of Interest payment under sec 25(ii) of Income Tax Act and Mr. A can not claim any Deduction either under sec 80C of Income Tax Act or Sec 24(ii) of Income Tax Act.


Non Disclosure of Income Exempted under Sec 10(38)

As per sec 10(38) of Income Tax Act Long Term Capital Gain arising from sale of securities on which Security Transaction Tax (STT) paid is Exempted from Capital Gain Tax. However  any amount of Long Term Capital Gain arising from Securities on which Security Transaction Tax (STT) is paid in excess of Rs. 1 Lakh is Taxable under at the Rate 10% without Indexation benefit.

Certain times Assessee fails to disclose Income which is Exempted under Sec 10(38) of Income Tax Act although No Tax liability asries on Exempted Income but Disclosure of such Income Required. Non Disclosure of such Income Results Income Remains unaccounted, any Income which is not accounted in Income Tax Record treated as black Money. Income Tax Department also requires such to cross check among different Assessee.


Not Utilising properly Benefit of  Indexation

While Calculating Long Term Capital Gain Cost of Acquisition shall be Taken after Taking Benefits of Indexation. Indexed cost of Acquisition always more than cost of Acquisition without Indexation. Therefore in Income Tax two different Rates are provided for Calculation of Tax on long Term Capital Gain. Long Term Capital Gain (other than Long term Capital Gain which is covered under sec 10(38) of Income Tax Act) which be Taxed at Rate of 20% if Assessee calims Benefit of Indexation and will be Taxed at the Rate of 10% if asseessee doesn't claim Benefit of Indexation. Assessee have option to take benefit of Indexation or not. Assessee should choose that option which will reduce his or her Tax liability.

In most of case seem that asseessee take Benefit of Indexation without comparing Tax Liability if benefit of Indexation is not taken. This type of mistakes increase Tax Liability of Asseessee.


Non Submission of Financial Statements in Case of Income from Profits and Gains from Business and Profession

As Per Sec 44AA of Income Tax Act incase of Specified Professional Assessee require to maintain Books of Accounts whose Gross Receipts Exceed Rs. 150000 in all preceding 3 Financial Years and in case of other assessee (other than Specified Professional) Required to Maintain Books of Accounts if whose turnover or Gross Receipt Exceed Rs. 10 Lakh and Profit exceed Rs. 150000.

Every Assessee who are required to maintain books of Accounts as per Provisions of Sec 44AA Income Tax Act Required to file their Balance Sheet and Profit and Loss Account along with ITR. 

Any Individual or Hindu Undivided Family (HUF) who decalres their Income under Presumptive Income Method then they are not required to maintain file Books of Accounts and need not file also.

Every asseessee who are not required to file their Books of Accounts have to provide certain details which required in No Account case such as Sundry Debtors and Sundry Creditors Balance as on 31st March of Relevant Financial Year, Cash and Stock as On 31st March of Relevant Financial Year. Gross Receipts, Gross Profit, Expenses and Net Profit.

Common Mistakes Done by Assessee here are as follows:-

Non Filing of Balance Sheet or Profit and Loss Account or Both whenever required to file.

In case of No Account Case Relevant Information such as Sundry Creditors, Sundry Debtors, Stock in Hand, Cash Balance, Gross Receipts, Expenses, Gross Profit and Net Profit are not provide in ITR.

Profit Declared by Asseessee under Presumptive Income Method is less than Profit Required to Declared under Presumptive Income Method.

In case of Asseee who wants to declare Income under sec 44AD Required to provide details of Sundry Creditors, Sundry Debtors, closing Stock and Cash in Hand as on 31st March of Relevant Financial Year.

Any asseessee who is declaring their Income under Presumptive Scheme not required to File Books of Accounts but asseessee who declares any other Income such Salary, Income from House Property, Capital Gain Tax required to file Books of Accounts along with IIncome Tax Return.This is required because ITR 4(Sugam) is Pre defined form for ITR under Presumptive Scheme, If Assessee include any other Income other Than Income Define under SEC44AD and Income From Interest on Saving Accounts and Interest from Fixed Deposit Required to file From ITR 3. If any Asseessee is required to file Form ITR3 then he or she is required to file Balance Sheet and Profit and Loss Account otherwise His or her Income Tax Return becomes Defective, he or she will receive notice of Defective Return under sec 139(9) of Income Tax Act.

If asseessee fails to provide such Details while of Income Tax Return will Receive Notice of Defective Return under sec 139(9) of Income Tax. Any Notice Received by Assessee of defective Return shall Required to rectify such defects within 15 days from the Date of Receipt of such Notice. If asseessee fails to rectify his or her defective return within 15 days from date of Receipt of Notice then His or her return become invalid and it is treated as no Income return is filed by such asseessee for that Asseessment Year.


Gross Receipts or Turnover Declared by Asseessee is less than Gross Receipts as Per 26AS

Sometimes asseessee may Declare turnover less than Gross Receipts as Per 26AS , in such case it is treated as asseessee concealed curtain Income unless Assessee had not proven that Declaration of Lower Turnover not due to his or her fault. It is better to asseessee that before filling Income Tax Return Check 26AS to avoid litigation or penalty and Interest.


Non Declaration of Trade Name

While filling Income Tax Return is very Important to Enter Trade Name in Required Column. If asseessee fails to declare/enter trade filling Income Tax Return in such a Financial Institution or Banks may or may not grant loan against your Return. Now a days every banks or Financial Institution Required that any Business whose Return is filed even in case of Income Tax Return under Presumptive Income Method shall metion Trade name while Filing Income Tax Return, as they Require Trade Name in ITR Form generated on filing on Tax Return.


Wrong Declaration of Nature of Business

Sometimes asseessee doesn't take care about Nature of Business but in case of scrutiny asseessee may face penal Provisions. It is better to declare true nature of Business while Filing Income Tax Return.


Non - Disclosure of Interest on Saving Accounts

Interest on Saving Accounts is Taxable subject to Maximum exemption of Rs. 10000 and should be included in Total Income of Assessee. As per Provsions of Income Tax Act any Interest Received by Asseessee shall be first Included in his or her Total income after that Asseessee can claim Deduction under Sec 80TTA of Income Tax Act of Interest on Saving Accounts Received subject to Maximum of Rs. 10000 (From Financial Year 2018-19 Assessee can claim Deduction of Interest on Saving Accounts or Fixed Deposit subject to Maximum of Rs.50000).


Improper Treatment of Interest on Fixed Deposit

So many times Interest on Fixed Deposit is skipped unintentionally by Asseessee while filing his or her Income Tax Return. Interest on Fixed Deposit is liable to tax and should be included in the Total Income of Assessee. From Financial Year 2018-19  onwards Assessee can Claim Deduction of Interest on Saving Accounts and Fixed Deposit subject to Maximum of Rs. 50000 under sec 80TTB of Income Tax Act.


Interest on Income Tax Refund not Included in Total Income of Assessee

Most of case asseessee doesn't include Interest on Income Tax Refunds while filing his or her Income Tax Return. If asseessee doesn't include Interest on Income Refund there are rare chance that asseessee doesn't receive Demand Notice of Tax Interest against such Income. Although Interest on Income Tax Refund is of smaller amount but it results Difference between Income as Per Your Income Tax Return and Income Calculate by System under sec 143(1) of Income Tax Act. 


Wrong Deduction of School Fees of Children's of Assessee

 As Per Sec 80C of Income Tax Act Assessee can claim Deduction in respect of School fees paid for his or her children from Gross Total Income of Assessee. Amount paid against Turion fees portion shall be allowed as Deduction. It is clearly mentioned in sec 80C of Income Tax Act Assessee can claim Deduction of school fees paid by him of His own Children it means Assessee can neither claim Deduction of His or Grand Children or Children's of Relative even in case Such children are dependent on soleny on him or her. Either of Spouse can claim Deduction on payment of School Fees but Both of spouse can not claim Deduction against school fees of same child not even in partly basis (i.e breaking of total Allowable Deduction)

In most of cases it seen that asseessee is claiming Deduction of Total fees paid by him or her of their children (i.e any payment made to school for education of their child or Transportation fees). In that asseessee will be liable to penalty and Interest on Tax envision on scrutiny of Assessee. Some asseessee Claiming partially Deduction in their hand and partially in hands of spouse which is not as per Law.


Incorrect Bank Account Detail provided Filing Income Tax Return

In some cases asseessee provide incorrect bank Account Details. Due Incorrect Bank Account Details Refund can not be issued to such asseessee. Sometime on Income Tax Portal no Option of Refund Reissue Against such Refund in such asseessee have manually Raise Refund Request by send Chancelled Cheque to Centralised Processing Centre (CPC) Bangalore.


Non- Disclosure of Cash Deposited during Demonetisation Period (For Assessment Year 2017-18)

Every Assessee who had Deposited Cash in Excess of Rs. 2 Lakh during Demonetisation Period (For Period 9th November to 30Th December) Required to Disclose amount cash Deposited along with Blank Account Details. If any Asseessee Fails to Disclose Amount of Cash Deposited during Demonetisation Period then he or she may Scrutiny.