Five common mistaken notions
Kartik Varma and Dhruv Agarwala
January 23, 2008 Print Email
Dhruv Agarwala, co-founder, iTrustMy employer has deducted tax at source and so I don’t have to worry about filing tax returns. Just because taxes have been paid on your behalf does not mean that filing a tax return is not required. If your combined annual income from all sources is above the amount that is exempt from income tax you are required to file your returns.
Your employer gives you a statement called Form 16 at the end of the financial year that shows the tax that has been deducted. You will need to put the deduction amount shown on the Form 16 on your tax return form.
Interest I earn from my savings account is exempt from tax. After the removal of Section 80L of the Income Tax Act, interest income from any source including savings account, is subject to tax. As per existing rules, as long as the combined interest income that you earn, on any savings accounts or fixed deposits, at a single bank branch, is less than Rs 10,000 there will be no tax deducted at source.
Related Stories
>Smart ways to manage your tax
>The ABC of tax
>'Timely refund is our priority'
>Tax-planning strategies
>Filling up the tax return form
>Help at hand to file taxes
>When the taxman cometh
>Aam aadmi's wish list
If you want to better manage your cash flow and do not want tax to be deducted at source you could consider spreading your deposits across multiple bank branches, even if they are of the same bank.
I have to pay taxes on interest received from my fixed deposits only on maturity. Your tax liability on interest income from your fixed deposit is calculated on an accrual basis. Let’s say that you have made a fixed deposit for three years and have elected not to receive any regular interest payouts and instead have decided to receive a lump sum payout on maturity.
That does not mean that you are not liable to pay income tax annually on the interest that is credited to your fixed deposit account every year, even though you do not have access to that interest income.
Kartik Varma, co-founder, iTrustI received cash as a gift from a friend. I do not have to pay tax. You are right as long as the amount is less than Rs 50,000 during the financial year. Any cash gifts, without any upper limit, received from specified relatives are exempt from income tax. However, if you receive a cash gift from a friend, which exceeds Rs 50,000 in one financial year, you have to pay income tax on the excess amount.
However, cash gifts of any amount and from anyone received during your marriage, child birth and other specified events are totally free from income tax.
If I invest in my wife’s or child’s name, the income earned will be their income and therefore tax free. If you transfer money to your wife or child (who is below 18), and invest the money in their names, the income generated from such investments will be clubbed with your income and will be accordingly taxed.
However, there is one way you can save taxes. If you have a child who is over 18 years of age and you transfer money to him and invest that money in his name, the income from such investments will not be clubbed with your income but instead be treated as the income of your child and will be taxed at his marginal tax rate. This is a good way of saving taxes if your child does not have any other source of income
Answered by
Yoga
at
1:12 PM on July 13, 2008
