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5 things you should not hide from the Income Tax Department

By Arjit Gupta
Last updated on: June 30, 2015 12:36 IST
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Because they can easily find them out by analysing your financial transactions.

People often avoid showing their sources of income or tend to show less income in their Income Tax Return to reduce their tax burden. But, they do not realise that the Income Tax Department might have knowledge about their financial transactions which can point towards accrual of sources of income at your end.

Yes, there are many financial transactions about which the department has a pre-hand knowledge even if you do not declare them in your Income Tax Returns. Therefore, you should declare all your sources of various incomes properly otherwise, it may lead to adverse consequences. This article discusses what the department knows about you.

Mutual funds purchased

Mutual fund companies are required to file an annual information return to the Income Tax Department if the units purchased by a person are of value more than Rs 2 lakh during a particular financial year. They have to furnish the customer details such as name, address, and PAN, etc., for making such investments. As a result, the IT department knows about the investments made by the person in a particular year. Therefore, you must ensure that you disclose the source of income from which mutual funds were purchased.

Cash deposits

Banks have to disclose the details of customers who have deposited cash of more than Rs 10 lakh in their savings bank accounts during a financial year. Thus, the banks report all the details of such transactions along with the PAN to the Income Tax Department. Since Rs 10 lakh is a huge amount, it is suggested that one should maintain proper books of account so that you may be in a comfortable position to explain the source and application of money deposited in the bank account to the Income Tax Department.

Property sold and purchased

If the purchased and sold property value is more than Rs 30 lakh, then the authority registering the transaction has to report the details of the transactions in its Annual Information Return which contains the name, PAN, address, and amount of transaction of the purchaser and seller of the property.

So, the purchaser should disclose the source of income from which the payment for property has been made and while the seller has to ensure that they do not forget to report capital gains on the sale of the property in their Income Tax Return.

Furthermore, in case of sale of property of more than Rs 50 lakh, the purchaser deducts TDS at the rate of 1 per cent from the payment made to the seller. After deducting the TDS, the purchaser files Form 26QB with Income Tax Department in which the purchaser informs the amount of sales considerations & TDS deducted along with the names & PAN of the parties involved in the transaction.

So, Form 26QB also serves as an important source of information to the Income Tax Department for all the transactions related to the purchase of sales and property. Therefore, you should not avoid declaring such income as the department is pre-informed about it.

Interest income

Banks deduct TDS on interest on FDs of their depositors. This TDS is deducted if the interest paid by bank is more than Rs 10,000. However, many people forget or avoid mentioning this income in their Income Tax Return. Whereas, the Income Tax Department is already aware about the income, because of the TDS return filed by the banks. They also have a record of customers (including their details) whose TDS has been deducted. Thereby, you should not forget to declare your interest income.

Understating of salary

Some taxpayers wrongly believe that they can understate the salary details in their Income Tax Return to avoid tax liability. Do not ever dare to do so as the Income Tax Department has complete information about all the details of all the salary paid to you by your employer.

At the end of each quarter, the employer files the TDS return in which the employer declares the salary paid to all the employees on a monthly basis and thus Income Tax Department captures all the salary data from the TDS return.

Furthermore, your Form 26 AS also shows the total amount of Tax Deducted at Source on different salaries by the various employers, along with all the details such as total salary, etc. Therefore, you should declare all your income properly on your Income Tax Return.

From the above mentioned points, you can easily understand that Income Tax Department keeps a hawk eye on all of your high value transactions such as sale of mutual funds, shares, property purchase, salary received, etc. So, you should not ever try to evade any income as the Income Tax Department can easily trace it out by analysing your financial transactions.

mytaxcafe.com helps people e-file their income tax returns

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Arjit Gupta