Who doesn’t love a huge refund at the time of income tax? As it turns out, a big tax refund may make you feel good but it’s actually not that good for you. A big refund also means that way more than necessary was being withheld from your paycheck. However, numerous sections and sub-sections detail the different ways an individual can avail of home x benefits each year. But with such varied details to remember, it could be impossible.
In this article, let’s discuss some of the income tax myths and bust them.
- Myth: Deduction on Home Loan repayment is applicable only for one house.
Fact: A homeowner can claim a deduction of Rs 1.5 lakh towards the compensation of a home loan principal, under Section 80C of the Income Tax Act. In addition, he/she can claim a deduction of up to Rs 2 lakh on the Home Loan interest under Section 24 of the Income Tax Act.
However, many people assume that this benefit is applicable to just one house. However, the statement is false because you can avail of this benefit for more than one home loan. You can enjoy a tax deduction on repayment of multiple home loans, but the total amount claimed as a tax deduction during a year is limited to Rs 1.5 lakh and Rs 2 lakh under Section 80C and Section 24, respectively.
- Myth: It is not necessary to pay tax on your personal income.
Fact: A common misconception about income tax is that the interest income earned from bank Savings Accounts, post office savings accounts, Fixed Deposits or Recurring deposits is not taxable. But in reality, it is because all interest income must be declared in your income tax returns. These deposits are categorized under ‘Income from other sources’ and is taxable.
However, Section 80TTA allows tax exemptions of Rs 10,000 per year, on interest income earned from bank Savings Account or post office savings account.
- Myth: All gifts are tax-free
Fact: It is common for people to receive gifts from their relatives on their wedding day. But donations are not exempt from tax. In fact, not all cash gifts are tax-exempt. All cash gifts above Rs. 50,000, you receive from non-relatives are taxable. But gifts received from non-relatives on weddings of the individual are tax-free.
- Myth: The e-filing of taxes is not mandatory.
Fact: Many people assume that the e-filing of taxes is not compulsory. This is a misconception because all taxpayers earning more than Rs 5 lakh per annum have to file their tax returns. You may also want to note that this process does not get completed unless an ITR-V (Income Tax Return-Verification) copy is sent as an acknowledgment to the Central Processing Centre (CPC).
- Myth: Deduction on house rent is not possible if you don’t get House Rent Allowance (HRA)
Fact: Even if you don’t get HRA from your employer, you can still claim a subtraction on your house rent. The following points will explain how:
- The declaration of your house rent is filed under Form 10BA.
- If you do not have the HRA provision, you can acquire an exemption under Section 10 (13A).
- You will not be the owner of any residential property being a member of a HUF (Hindu Undivided Family) or performing any office or business duty.
- You don’t own residential property whose value has to be established under Section 23(4) (a) or Section 23(2) (a).
When it comes to taxes, it is always a better idea to know the facts properly. It is essential for you to understand the regulations well to enjoy the maximum tax benefits on personal loan each year.