Recently, there were reports in the newspapers and social media about the notices issued by the Income-tax Department in respect of exemptions and deductions claimed by salaried employees beyond the exemptions and deductions shown before the employer and reflected in Form 16. Also, there were reports in respect of a wrong claim of exemption of HRA.
✅ A claim of exemptions or deductions for which you are eligible under the relevant provisions of the Income-tax Act on the fulfilment of prescribed conditions, supported by the necessary evidence, is your legal right.
❎ But claiming exemptions or deductions without fulfilling the required conditions under the relevant provisions or claiming such exemptions and deductions for an amount that is more than the eligible amount is an offence under the Income-tax Act.
Wrong or excessive claims of any deduction or exemption in the ITR result in misreporting of income. As per Section 270A(8) of the Income-tax Act, where under-reporting of income is a consequence of any misreporting of income, the penalty imposable under this section shall be equal to 200% of the amount of tax payable on under-reported income. The misrepresentation or suppression of facts is the misreporting of income for the above purpose.
It means if you have a wrong claim of any deduction or exemption in the ITR of Rs 10,00,000/- and if the tax payable is at the rate of 30%, you have to pay tax of Rs 3,00,000/- (plus applicable surcharge, cess, and interest) and 200% of Rs 3,00,000/-, i.e., Rs 6,00,000/- (plus applicable surcharge and cess) as penalty. As a result, if you had not made a wrong claim of Rs 10,00,000/-, you would have saved about Rs 7,00,000/- after paying the due taxes, but due to the wrong claim, you are losing major part of your hard-earned income. Aside from the unnecessary tension of complying with tax and penalty notices, other consequences may arise.
So, if you want wealth and peace together, claim exemptions and deductions only if you are eligible; otherwise, pay the due taxes and relax.
[ Disclaimer- The article is only for educational purposes and not be construed as tax advice . The relevant provisions of the Income-tax Act and relevant rules may be referred to for complete understanding.]
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