Very few people know that an insurance policy, if terminated before 3 years since purchase, makes the policyholder liable to pay tax on the tax benefits reaped from the policy under Section 80C. By not paying the tax on the policy tax benefits, it amounts to concealment of tax liability and could even invite a penalty.
Here are the common reasons where you must cross-check before handing over your income tax return (as published in ET Wealth on Feb 13, 2012):
- Ignoring income from investment in the name of spouse, kids.
- Not including interest income in your tax return.
- Selling a house bought on loan within five years.
- Not including ornaments in wealth tax.
- Receiving gifts and cash from persons other than blood relatives.
- Not paying wealth tax on second house.
- Both spouses claiming tax benefit on same expenses.
- Withdrawing PF within five years of joining a company.
- Taking benefit of basic exemption limit twice in a year.