7 myths about income tax in India debunked
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7 Myths About Income Tax in India Debunked

Mon Apr 17 2023

With constantly changing rules and regulations, it's not uncommon to fall prey to myths and misconceptions surrounding income tax. In this blog, we're here to set the record straight by debunking seven common myths related to income tax in India.

We'll explore and clarify various misconceptions, such as the tax deductions available for home loans, the need for disclosing previous CTC to current employers, the complicated process of filing taxes, and more. We want to help you understand the truth about income tax and empower you to make informed decisions about your financial planning.

So, whether you're a first-time taxpayer or someone looking to brush up on their knowledge, this blog is for you. Let's dive in and debunk these seven myths about income tax in India.

 

1. Deduction U/s 24 related to interest and repayment of principal is limited to one house only

Typically, taxpayers believe that tax deduction on interest imposed on house loans and the repayment principle only applies to one house. However, rules under section 24 of the Income Tax Act are quite different - an individual can have more than one housing loan while also being eligible for potential deductions.

If a HUF or an individual owns more than one property for residential purposes, then under the Income Tax Act provisions, according to his choice, one of the properties is treated as self-occupied, and its annual value would be computed to be nil. In contrast, the other house property will be considered rented out.

If the property is let out or deemed to be let out, then there will be no such limit of deductions. While the rental value is taxable, the interest paid on the housing loan is eligible for deductions under Section 80C.

2. One need not disclose their previous CTC to their current employee

If you switch jobs in a financial year, you must reveal your last CTC with your current employer. In this way, your new employer will be able to deduct taxes on your current earnings accordingly. Also, remember that your tax liability will be imposed on the total income throughout the year.

3. Filing taxes is a complicated process

It is a common belief that filing taxes is a highly complex process. However, that is not true, provided you have done some digging on the topic and have taken advice from experts in the industry. Recently, the Indian Government has mentioned specified forms individuals can use to file their ITR. An individual can file their ITR online but must submit the acknowledgment ITR-V form manually to the tax authorities. But, if you are already eligible for a digital signature, you do not need to do so. There are many e-filing websites from where you can file your Income Tax Returns.

4. Tax deduction U/s 80C is applied on the entire amount of home loan repayment

While it is commonly perceived that the entire home loan amount is eligible for deductions U/s 80C, that is far from the truth. The amount going towards the repayment of the home loan principal is eligible for tax deductions.

However, as discussed above, you can claim deductions on the interest paid off up to Rs 200,000 under section 24.

5. Exemption U/s 54 is available on buying a house from capital gains

As per Section 54, if a taxpayer sells off one residential home to invest the money in purchasing another residential space, then the individual or HUF can claim for Exemptions. However, here are some of the conditions that are needed to be met for claiming tax exemptions u/s 54:

●       The benefit of Section 54 can only be availed by HUF or an individual.

●       The capital gained from selling one property can be used to construct or purchase only one more property.

●       The taxpayer must acquire another residential house within one year of selling the property, or if in case of construction, it shouldn't exceed more than three years to be able to claim for exemptions.

6. Tax exemption is received on actual rent paid on the rented home and is available to salaried employees who receive HRA

Tax exemption is not just allowed to salaried individuals who receive HRA as compensation from their employer. The exemption will be calculated under the prescribed limits according to the law. Here are the following details of HRA u/s 10(13A) read along with the Income Tax Rules of 2A:

●       The original amount of HRA received.

●       Rent paid minus 10% of salary.

●       40% of salary in non-metro regions and 50% in cities including - Mumbai, Delhi, Kolkata & Chennai.

7. You can get 100% tax relief on donations U/s 80G

This is not 100% correct! You can only get tax relief when you donate to specified institutions or trusts Under Section 80G. The rate of deduction will vary between 50-100% depending on the choice of trust to which you are donating.

Further, only 10% of your donated income will qualify for such deductions. Note that donations made to a political party other than in case of cash payment to the political parties are mentioned u/s 80GGB/80GGC. Also, contributions made to foreign organisations are not eligible for donations.

 

Final Thoughts

We hope that this blog has provided some value and revealed the truth behind some common myths and misconceptions about income tax in India. From the limited deduction for interest and principal repayment for one house only to the 100% tax relief on donations u/s 80G, we've covered a wide range of topics that will help you make informed decisions. 

Remember, filing your taxes doesn't have to be complicated and intimidating. By staying informed and up-to-date on the latest rules and regulations, you can ensure you're making the most of your tax benefits and avoiding potential penalties.

If you found this blog helpful, visit Taxnodes' website for more exciting and informative articles on taxes in India. We work towards providing our readers with accurate and relevant information, so you can make informed decisions and achieve your financial goals.

Rhea Tripathy

byRhea Tripathy

Meet Rhea Tripathy, a word wizard with a pen in one hand and a paintbrush in the other. By day, she slays as a content writer and by night, she indulges in her artistic passion. With a keen eye for the markets and a knack for literature, this certified trader brings her sharp mind and creative flair to everything she does. When she's not crafting clever content, you'll find her analyzing the latest market trends or getting lost in a good book.

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