Salaried people file ITR every year. In such a situation, they also make many types of investments to save tax, but some people also adopt wrong methods to save tax. In such a situation, if the Income Tax Department catches them in investigation, then they may have to face trouble.
Who is there in today's world who does not want to keep a little more of his hard-earned money? Taxpayers in India are often engaged in saving tax. Although, under the Income Tax Act, you can do tax savings in a legitimate way with many investments, deductions and exemptions. But sometimes we use shortcuts to save tax, which can backfire. If you try to save tax in the wrong way, then a legal notice can be sent by the Income Tax Department.
You can get tax exemption in India by adopting 80C investment, HRA exemption, NPS deduction and other methods. But some people often adopt these 5 common ways to save tax, without realizing that they are breaking the law.
Claiming fake HRA (House Rent Allowance) without paying rent
Usually the most common and wrong way of saving tax is that people claim HRA by showing rent receipts, even if they live in their own house and do not pay rent. Others get fake rent agreements made or show paying rent to a relative. If you want, you can claim HRA even while living in your parents' house, but only if you have proof of paying rent through bank transfer and cheque. In such cases, the Income Tax Appellate Tribunal (ITAT) rejects the HRA exemption when the taxpayer does not have receipts of actual rent payments.
False claim of home loan interest or principal deductions
Under Section 24(B) and Section 80C of the Income Tax Act, deductions are allowed on home loan interest and principal payments. However, some people claim deductions by showing fake EMIs or on loans that do not exist in reality. Suppose you have bought a shop or office under the guise of a home loan, then claiming deduction on that loan is illegal. Some people show loans taken from family and friends as home loans.
If the taxpayer is caught during verification, his PAN and bank records are checked. The Income Tax Department may ask you for the home loan agreement, repayment schedule and bank statement showing EMI debit.
Showing medical or education expenses without bills
Under Income Tax sections 80D, 80DD and 80E, the government allows deduction claims for expenses incurred on medical insurance, treatment of certain diseases and education loans. But many times people submit fake bills for medicines, health checkups, tuition fees. They are not afraid that if they are caught during the scrutiny of the ITR file, they may have to pay a penalty of up to 200% of the amount of tax evaded, as per Section 270A of the Income Tax Act.
Tax-free gifts from relatives considered black money
The government keeps money received as gifts from close relatives like parents, siblings or spouse tax-free under certain conditions. But, some people misuse it to hide their own black money or by receiving someone else's money as a gift from a relative. They think that they can be tax-free under Section 56(2) of Income Tax. But, if you do not have a gift deed, bank trail, then IT can immediately notice you.
Hiding information about freelance or side income
In today's technology era, many employed people also do freelance work or earn money through social media platforms. But, they also try to hide this income from tax. They feel that it is not necessary to disclose about Rs 50,000, but if you earn more than the basic exemption limit from any source, then you should declare it. Let us tell you that IT now takes data from digital platforms, Amazon and social media platforms. In such a situation, in case of non-disclosure, there can be both fine and prosecution under section 271 and 276C.
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