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THE fiscal year-end is around the corner
and many choose to make tax-related
investment decisions around this time.
Despite this being a regular, annual ritual, several
tax payers have some misconceptions,
some of which are listed
Misconception No. 1
Filing tax returns is a complex and cumbersome
process. I need a Chartered Accountant to help me
file my tax returns.
Contrary to popular belief, preparing and filing
tax returns is actually quite simple. If you
have a digital signature you can accomplish
the entire process sitting at home on your
computer thanks to the e-filing facility on
www.incometaxindiaefiling.gov.in. Alternatively,
you can submit the returns online,
print a one-page receipt, sign it and drop it off
at the income tax office within fifteen days of
submitting the returns. No documents are
required to be submitted with the receipt.
However, if you want help, there are several
third party service providers who offer tax
preparation and filing services for a fee as low
as Rs 200. Misconception No. 2
The interest I pay on a home loan is deductible from
my income from house property up to a maximum
of Rs 1,50,000 per year.
This is true if you have taken a home loan for a
single house and it is self-occupied. However,
if you take a home loan on a second house, the
entire interest paid on the loan can be claimed
as a deduction from your income on house
property. If you expect that the property
would appreciate in value over time, you
could take advantage of the above rule. Thus a
smart investment strategy would be to take a
home loan on a second house, rent out the
house and claim interest paid on the loan as a
deduction from rental income, thus reducing
your borrowing costs significantly.
Misconception No. 3
I receive tax exemption on the actual rent I pay for
my rented home.
This is not entirely accurate. Section 13 A of
the Income Tax Act states that the maximum
amount that is exempt from tax is the lower of
the following amounts: (i) the House Rent Allowance
given by the employer, (ii) 50% of
your basic salary if you live in a metro, (iii) or,
actual rent paid minus 10%
of your basic salary.
If actual rent paid is lower
than 10% of your basic
salary, you receive no
exemption. Also, you cannot
claim any exemption
under this section if you live
in your own house or if you
are not paying any rent.
Misconception No. 4
Section 80C benefits are available only on making
an investment or saving or paying a premium on
insurance.
You can claim a deduction for the school or
university tuition fees you pay for your children
(maximum of two) provided
they are enrolled in a full-time
course at any institute in India. In
addition you can claim a deduction
for the repayment of principal
on any home loan that you may
have taken. Both these deductions
have to, of course, be within the
overall annual Section 80C cap of Rs1 lakh.
Misconception No. 5
If I avail of tax-free medical reimbursement from
my employer up to Rs15,000, I cannot claim deduction
on health insurance premium paid.
Tax-free medical reimbursement by your employer
up to an amount of Rs 15,000 per year
for your family’s medical expenditure is separate
from the Rs 15,000 deduction available
under Section 80D for the premium paid on
health insurance.
Both these exemptions are covered under
different sections of the Income Tax Act. The
former covers cost of your daily medical needs
and outpatient treatment (OPD), while the
latter protects you from expenditure for hospitalisation.
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