In times where cost of living is on a rise, many of us consciously save and invest our hard earned money with an expectation of wealth creation to meet our financial goals. But in this prudent act care should be taken to ensure that you aren't indulging in doing something illicit (sometimes unknowingly) which attracts the attention of the Income Tax department.

Many a time households do not declare their income or assets not realising that they are taxable. For instance the interest income earned on savings bank account and investments in post office schemes, fixed deposits is often not declared while filing the income-tax return. Some believe that since the tax is deducted at source (TDS), they have done with the liability and thus do not need to disclose. But what they fail to recognise is that banks deduct TDS at the rate of 10%, while the final tax liability on interest income is as per the marginal rate of taxation or to simply put, one's tax slab. Some even make investment in the name of their children and spouse to dodge tax. But there are instance where the clubbing provisions of the Income Tax Act, 1961 may apply. So, if the investments are made in the name of spouse or children, the earnings therefrom would be clubbed with the income of the bread earner and taxed as per his tax slab.

In case of interest earned from savings bank account, it often goes unreported; especially in cases where the interest income during a financial year exceeds Rs 10,000 – the maximum allowed for a deduction under Section 80TTA of the Income Tax Act.

For professionals such as doctors and lawyers sometimes the remuneration earned is in kind as gifts. This should be ideally declared and clubbed with the income irrespective of the value; because if the tax department feels that there is underreporting, they could levy a heavy penalty.

Also in times where receiving gifts from friends and other relatives is not uncommon, care should be taken to declare the same, especially when the value of the gifts received exceeds Rs 50,000. This is because as per the current tax law any sum any gift received in excess of Rs.50,000 in form of cash, demand draft, cheque or specified assets by an individual or Hindu undivided family (HUF) is taxable under the income tax head ‘income from other sources'. Moreover, if the value exceeds Rs 50,000, the whole amount is taxed. However a point to be noted here is that gifts received at the time of marriage are exempt from tax, and so is any amount received under a Will or inheritance. Likewise any sum of money or property received in contemplation of death is also exempt. Similarly, any gift received from a local authority, fund, foundation, university or other education institution, hospital, trust or charitable institution is also exempt.

Today, with easy access to housing finance and appreciation in property rates, many are lured to real estate as an attractive investment avenue. This has led many to have a second house. But sometime inadvertently or calculatedly the taxation angle is ignored. It is vital to note that the second house although it is not let out (whereby there is no rental income) it will be considered as a Deemed to be Let Out Property (DLOP) and will be subject to tax at the annual value of the property calculated on a notional basis using the standard rent calculated as per the municipal laws. If you have bought the house in the name of your spouse who is not earning, the clubbing provision will apply whereby the notional rent would be clubbed with the income of the bread earner.

It is worth mentioning that not disclosing income or assets tantamount to creation of black money which should be clearly avoided. It is vital for you as an assessee to be on the right side of the law. PersonalFNbelieves one must not ignore the constitutional duty of paying tax. Of course you can use the provisions of the tax laws to save taxes by planning your transactions well, but ensure that you discharge this legal responsibility rightly and consider it as a moral responsibility too.

To know how to plan your taxes prudently, download our Tax Planning Guide (2015 edition). It's free!

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