Why you could be paying more tax

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According to a study conducted by TaxSpanner, the following are the top 5 reasons why you could be paying more tax than your peers:
1. Ignoring HRA exemption
Hari and Nari live with their parents. Both work in the same office. They also get the same salary. However Hari pays more income tax than Nari. Why is that?
It’s because, Hari pays household expenses to his parents on a monthly basis and Nari simply makes this payment as rent to his parents who (being older) fall in a low-income-tax-slab.
This way, Nari claims HRA exemption and outsmarts Hari in terms of tax planning.
Moral of the story: Claim your HRA exemption to save tax.
Did you know?
Only 41% of salaried employees claim HRA exemption.
2. Not claiming medical insurance premium deduction
Hari and Nari earn the same salary. Nari not only gets a health security cover for himself, but also ends up saving more money than Hari. How?
It’s simple; all Nari does is that he buys himself a mediclaim policy. This way, he lets his insurer bear the medical expenses and claims the premium paid for the policy as deduction.
Moral of the story: Get your medical expenses covered by taking the benefit of the medical insurance premium deduction and save tax too.
Did you know?
About 74% employees have not claimed deduction under Section 80D
3. Failing to capitalize on Home-loan tax benefits
Hari and Nari came to the city, dreaming to make it big one day. Hari tries to save every rupee of his salary, hoping that someday he’ll be able to buy his dream home. However, property prices in the metro keep him from owning one.
Nari on the other hand makes his dream come true. How?
After making a decent amount of money, he takes a loan and buys a house in his hometown. But that’s not all; he also gets a regular rental income out of it and claims home-loan tax benefits.
This way, Nari pays less tax than Hari.
Moral of the Story: Capitalize on home loan benefits to save tax.
Did you know?
About 81% of employees do not own a house despite of their average salary being Rs. 5 lakhs p.a.
4. Incurring capital loss on sale of assets
Hari and Nari get their kids admitted to a school. However, huge sums were demanded as donations, which neither of them had planned for.
Hari calls his broker and sells most of the shares that he had bought recently. Hence, he incurs a loss on this deal and has to pay tax for selling the shares before one year.
Nari, on the other hand, realizes that the requirement was just one-time. Therefore, he takes a loan instead of selling his assets. And in the coming months, he easily repays the loan with no additional tax to pay.
Moral of the story: Save tax by applying for a loan instead of selling your assets.
Did you know?
Of all the taxpayers who reported Capital Gain/Loss, about 23% incurred losses on the sale of assets.
5. Not reporting income from other sources
Hari makes the mistake of not reporting his income from bank interest. He assumes that there’s no need to declare his income, as the bank had already deducted TDS on it.
However, Hari falls in the 20% income tax slab and the bank had deducted TDS at 10%. The Income Tax Department discovers this on scrutiny and sends him a notice. Hari is slapped with a penalty of 300% of the tax evaded. Thus, he has to pay tax apart from TDS.
On the other hand, Nari makes it a point to report his income from all sources, including bank interest, dividends, prize winnings, etc. while filing his tax returns.
Nari doesn’t have to pay a penalty.
Moral of the story: Never skip any sort of income earned from other sources while filing your IT return.
Did you know?
Almost 96% of employees, who are liable to pay more than 10% of their taxable income as tax, do not report income under the head “Other Sources”.
With these facts in place, it’s time to analyse the tax paying trends witnessed in India