Five common myths about taxes debunked

The Income Tax Act can be tough to comprehend by the layman. Numerous sections and sub-sections detail the different ways an individual can avail of tax benefits each year. But with such varied details to remember, it could be baffling. It isn’t hence surprising that there exist several myths about taxes.

In this article, let’s discuss some of those very myths and bust them.

Tax myths debunked:

• 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 wrongly assume that this benefit is applicable for just one house. This is not true because you can avail of this benefit for more than one Housing Loan. You can enjoy tax deduction on repayment of multiple Home Loans, but the total amount claimed as tax deduction during a year is limited to Rs 1.5 lakh and Rs 2 lakh under Section 80C and Section 24, respectively.
  
  Apply for a Home Loan here now!

• Myth: It is not necessary to pay tax on income.
  
  Fact: A common misconception around personal income tax is that the interest income earned from bank Savings Accounts, post office savings accounts, Fixed Deposits or Recurring Deposits is not taxable. In reality, this is not the case. This is because all interest income must be declared in your income tax returns. It is categorized under ‘Income from other sources’ and is taxable.
  
  However, there are certain provisions like Section 80TTA, which allow tax exemptions of Rs 10,000 per year, on interest income earned from bank Savings Account or post office savings account. HDFC Bank offers many tax-saving products such as Tax-Saving Fixed Deposits  that can earn interest as well as save tax.

• Myth: All gifts are tax-exempt.
  
  Fact: It is common for people to receive gifts from their relatives on their wedding day. But donations (including monetary contributions, jewelry, immovable property, shares and securities) are not exempt from tax. In fact, not all cash gifts are tax-free. Any cash gifts above Rs 50,000, you receive from non-relatives is taxable. But gifts received from non-relatives on the occasion of the marriage of the individual is tax-free.

• Myth: e-filing is not mandatory.
  
  Fact: Many people assume that e-filing of taxes is not compulsory in India. This is a fallacy because all taxpayers earning more than Rs 5 lakh per annum have to file their tax returns. You may want to note that this process is not complete unless an ITR-V (Income Tax Return-Verification) copy is sent as an acknowledgement to the Central Processing Centre (CPC) in Bangalore.

• Myth: Deduction on house rent is not possible if you don’t get HRA.
  
  Fact: Even if you don’t get House Rent Allowance (HRA) from your employer, you can still claim a deduction on your house rent payments. The following points will explain how:

• Your house rent declaration is filed under Form 10BA.
• If you do not have the HRA provision, you can obtain an exemption under Section 10 (13A).
• You are not 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 any residential property whose value has to be ascertained under Section 23(4)(a) or Section 23(2)(a).

Myths only belong to folklore. When it comes to taxes, it is always a better idea to know the facts properly. It is essential you understand the regulations well to enjoy the maximum tax benefits each year.

Read more about HRA benefit on payment of house rent.

Under Section 80C of the Income Tax Act, 1961 you can save tax by investing in Tax saving FD. Calculate using FD calculator.

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.