Are you aware of someone who is guilty of evading taxes? Well most people will answer in the affirmative as the Income Tax Act has spawned more criminals than any other legislation in the country. Do not believe in the notion that every tax offender is a shady looking character with wads of unaccounted money stashed somewhere unknown. Even honest and law abiding citizens maybe wittingly or unwittingly guilty of underpaying taxes. It is a malaise that has become more pervasive than the common cold. From school teachers to bankers from doctors to lawyers, millions of Indians maybe liable to pay penalty or even face prosecution for underpaying taxes. Generally it has been seen that the offence is perpetrated unwittingly by an innocent taxpayers who is ignorant about his wrong doings. This is because he or she has limited understanding of the haze of tax laws in the country. The best way to steer clear of trouble is to pay your taxes honestly. But this is possible if only one is aware what he or she is doing wrong. There are a very few common tax traps that a taxpayer must avoid falling into. They are mentioned below. Include Ornaments in Wealth Tax Well sometimes it does sting to be too rich, especially when one has to pay taxes for being wealthy. One is liable to pay wealth tax if the market value of certain assets read ornaments , luxury cars watches, arts and artefacts) goes beyond Rs 30 lakh. Even though wealth amassed by Indians has skyrocketed in the past few decades the quantum of rise in wealth tax collections has been a drip. Consequently the punishment meted out for evading wealth tax is quite stiff which ranges from 100% to 500% of the tax that is being avoided. So this should send warning signals for all those who are pawning their gold to raise loans as they have to furnish a suitable explanation about the actual source of the gold. So even if one has inherited it or got it as a wedding gift, one is liable to file a wealth tax return if its value exceeds 30 lakh. Ignoring Income From Investments From Spouse and Kids It is a very general practice to invest in the name of one’s spouse or children. But side by side one should also be aware of income tax provision on such incomes accrued. Although money received from spouse is tax free, but if that money in turn is invested the income from that investment is considered taxable. In case of investment in the name of kids, the earnings from such investments are deemed as income of parents and taxed accordingly. To avoid this one should ideally invest in tax free options like the PPF, tax free bonds or equity investment which is tax exempted after one year. Failing to include your interest income in your tax return. A very common mistake that people generally commit. A 4% return on your savings which goes upto 6% in some cases may appear very lucrative from the outset , but it is generally not known that such returns are considered as additional income and thereby taxable. This goes beyond bank interest, but interest on infrastructure bonds , NSCs or for that matter even fixed deposits fall under the same bracket. So one must not ignore declaring such incomes when filing tax returns.

---

Like it on Facebook, Tweet it or share this article on other bookmarking websites.