If your only source of income is salary and your employer has already deducted tax at source, it doesn’t mean that you are compliant with tax laws and there is no need to file a return.
If your gross total income is above the basic exemption limit (which is currently R2.5 lakh for individuals other than senior citizens), you have an obligation to file a tax return though the only income that you have earned is salary and tax has been deducted on it.
The above instance is one of the many misconceptions that most people have about tax laws and it’s advisable to be aware of these as they may result in consequences. Some of the most common misconceptions are:
When a person leaves India for employment abroad, he may be treated as an NRI under the exchange control regulations. Accordingly, he believes that he is not required to disclose the income earned/ received by him outside India. However, this is not correct. Income earned abroad could be taxable in India if such an individual qualifies to be ‘resident and ordinarily resident’ in India. The determination of residential status as per the income tax laws depends on the physical stay of the individual during the relevant tax year and the past tax years.
Assets transferred to spouse/minor child
Though you could gift your spouse any sum in cash or any asset without any income-tax implications per se, this would attract clubbing provisions as per tax laws. Any income generated from such an asset would be included in your taxable income since such a transfer would be considered a transfer without adequate consideration.
Income earned by a minor child needs to be clubbed with the income of that parent who has higher income subject to a deduction of R1,500 per child (unless the minor earns such income due to any manual work or any activity involving application of his skill or talent). In case the marriage does not subsist between his parents, such income would be clubbed with the income of the parent who maintains the minor child during the tax year.
Although gift is not an income, gifts received in cash or kind exceeding R50,000 from any person other than specified relatives or under specified circumstances are fully taxable.
Further, any immovable property or any other specified property received without consideration or for inadequate consideration from a person other than from specified relatives or under specified circumstances is taxable if the stamp duty value of such property or fair market value of such asset exceeds R50,000 or the difference between the stamp duty value of such property or fair market value of such asset and consideration received exceeds R50,000.
Income on which tax is deducted at source
Another misconception relates to tax deducted on income from any other source. Say, for instance, you receive interest income on your bank deposits or rental income on which tax is deducted by the payer. You feel it’s correct to not report such income since tax has already been deducted on the same. However, it is incorrect as the tax is deducted by the payer at the specified fixed rates, which could be lower as against the applicable tax rate on your income. So, the right thing to do would be to report this income as a part of your total income and claim a credit for the tax deducted against the tax liability in respect of such income.
The above instances could result in additional tax liability. Thus, it would be advisable to consult a tax expert to ensure that there isn’t any default in complying with the provisions of the I-T Act.
By Homi Mistry
The writer is a partner with Deloitte Haskins & Sells LLP. Inputs from Pallavi Dhamecha, manager and Deepti Veera, assistant manager, Deloitte Haskins & Sells LLP