Taxes are an inevitable part of life, yet they often remain shrouded in mystery and misunderstanding. But we often get confused about taxes because of myths about them.

In this article, we’ll clarify five common myths about taxes. Here are some myths:

Myth 1: You Don't Need to Pay Taxes If you Earn Below the Taxable Income Limit

Reality: While it's true that there is a taxable income threshold below which you may not be required to pay taxes, this doesn't mean you can ignore filing your taxes altogether. In India, even individuals with income below the taxable limit are required to file their income tax returns if they meet certain criteria, such as having foreign assets or if they wish to claim a refund.

Statistics: According to the Indian Income Tax Department, a significant number of individuals who are not liable to pay taxes still file their returns voluntarily to comply with the law and avoid any future complications.

Also read: 17 Easy ways to reduce your Taxable Income

Myth 2: You’ll Lose Money If you Invest in Tax-Saving Plans

Reality: Many people shy away from tax-saving plans, fearing they'll tie up their money in unprofitable ventures. However, tax-saving investments like Equity Linked Savings Schemes (ELSS) and Unit Linked Insurance Plans (ULIPs) offer dual benefits of tax savings and potential returns. By investing smartly, you can grow your wealth while reducing your tax burden.

Example: Consider investing in a ULIP, which not only provides life cover but also offers the opportunity to invest in equity or debt funds based on your risk appetite. Over time, your investment has the potential to grow, providing both financial security and tax benefits

Myth 3: Tax Planning Is Only for the Wealthy

Reality: Tax planning is not exclusive to the wealthy; it's essential for everyone, regardless of income level. Effective tax planning involves optimizing available deductions, exemptions, and credits to minimize your tax liability legally. Ignoring tax planning can result in missed opportunities to save money and optimize your finances.

Perspective: Many tax-saving investments, such as Employee Provident Fund (EPF) contributions or Health Insurance premiums, are accessible to individuals across various income brackets.

Myth 4: You'll Get Audited If you Claim Too Many Deductions

Reality: Claiming legitimate deductions and exemptions that you're entitled to under the law will not automatically trigger an audit. The Income Tax Department encourages taxpayers to avail of all applicable tax benefits. However, it's crucial to maintain proper documentation and evidence to substantiate your claims in case of scrutiny.

Myth 5: Tax Evasion Is a Risk-Free Strategy to Save Money

Reality: Tax evasion, or deliberately underreporting income or inflating deductions to pay less tax, is illegal and punishable by law. Engaging in tax evasion can lead to severe consequences, including hefty fines, penalties, and even imprisonment.

Perspective: Instead of resorting to tax evasion, consider legitimate tax-saving strategies such as tax-efficient investments, charitable donations, and retirement planning.

Myth 6: You Don't Need to Pay Taxes If you Work Freelance or Part-Time

Reality: Freelancers and part-time workers are not exempt from paying taxes. In fact, they may have additional tax obligations, such as making quarterly estimated tax payments or keeping detailed records of their income and expenses. Ignoring these responsibilities can lead to penalties and legal consequences down the road.

Statistic: According to recent data, the number of freelancers in India is on the rise, highlighting the importance of understanding and fulfilling tax obligations in this growing segment of the workforce.

Myth 7: You Can't Claim Tax Deductions If you Don't Have Receipts

Reality: While maintaining receipts and documentation is essential for substantiating your tax claims, it's not the only way to prove your expenses. In many cases, bank statements, invoices, and digital records can serve as valid evidence of your deductions. Additionally, certain expenses, such as charitable donations or medical bills, can be claimed without requiring receipts, provided you meet the specified criteria.

Example: Suppose you made a donation to a recognized charitable organization through an online payment portal. Even if you didn't receive a physical receipt, you can use your bank statement or cancelled checks as proof of the transaction when claiming the deduction.

Conclusion

Understanding the truth behind common tax myths is essential for making informed financial decisions and avoiding legal troubles. Tax planning doesn't have to be rocket science. With the right guidance and understanding, anyone can navigate the tax landscape effectively. Whether it's maximizing deductions or choosing the right platform, there are plenty of resources available to simplify the process and optimize your tax savings.

Using Prosperr.io will not only reduce your tax burden but also guide you in making smart financial choices that match your long-term goals.

[ Disclaimer- The article is only for educational purposes, covering limited aspects of relevant provisions of the Income-tax Act. The relevant provisions of the Income-tax Act may be referred to, for complete understanding.]