Common Mistakes That Could Attract 200% Income Tax Penalty

Any concealment of income or under-reporting of income to evade tax can cost you dearly. The tracking mechanism of the income tax department has improved significantly in recent years. Now, you have to report your permanent account number (PAN) for all major transactions. Financial institutions with which you deal with like your bank, mutual fund company or credit card company feed the tax department with information regarding your transactions. The penalty in case of concealment and under-reporting of income can be as high as 200 per cent.

"If you under-report income or don't report some of your income, you may receive notice from the tax department questioning the reason behind it. A penalty will be charged as per the tax laws," says Preeti Khurana, chief editor of Cleartax portal.

According to tax experts, these are some of the income people generally don't declare to the tax authorities.

1) Gains or return on investment made in the name of spouse or minor child: Many people invest in the name their child or non-working spouse. Gifting money to certain relatives including spouse and minor child is exempt from tax. But if that is invested, the return from the investment has to be clubbed with the income of the person giving the gift (the giftor).

Suppose you have bought a property in the name of your wife and if she had not paid any money towards the purchase of the house, the rental income will be clubbed with your income and will be taxed as per your slab.

2) Interest income: Interest earned on investments such as fixed deposits, bonds etc are taxable and you have to report it in your tax return. The exemption available is only in case of interest earned on savings account. Interest earned up to Rs 10,000 is exempt from income tax but even in this case you have to show the income in your income tax return and claim the exemption.

3) Not reporting income from other sources: Suppose you worked as a freelancer for some part of the year and took up a job after that. Your employer will deduct TDS from your salary but you have to also report the income you as a freelancer in your tax return.

4) Received gifts: If you have received gifts in terms of cash and movable or immovable property worth more than Rs 50,000 other than from your relatives, it is taxable in your hands. Gifts received on the occasion of marriage are exempted from this rule.

5) Not reporting foreign assets and income: This is considered a serious offence and could attract higher penalty. Suppose you work in a multinational company whose shares are listed abroad. If you have received shares under employee compensation scheme, you will have to report it in your tax return.