ITR filing FY 2024-25: Don’t fall for THESE income tax misconceptions — most people do | Mint

As the deadline to file Income Tax Returns (ITR) for the financial year (FY) 2024-25 draws closer, many taxpayers, especially salaried individuals, freelancers, and small business owners, continue to fall prey to common myths that can lead to penalties, refund delays, or even scrutiny by the tax department.

Here is a fundamental breakdown of the most common doubts and misconceptions backed by specific sections of the Income Tax Act, 1961.

1. TDS deducted? You still need to file ITR

This is an extremely prevalent misconception. Under Section 139(1) filing of income tax return is mandatory if your total gross income before any deductions exceeds the basic exemption limit, ₹2.5 lakh for individuals below 60 years, ₹3 lakhs for senior citizens (60 to 80 years) and ₹5 lakhs for super senior citizens (80+).

Furthermore, Tax Deducted at Source (TDS) under Section 192 is merely an advance tax, it doesn’t replace the obligation to file returns. All refunds on excess TDS can be claimed only by filing the ITR. Not submitting the income tax return may also influence your ability to secure personal loans, visas or financial assistance for day to day living expenses.

2. No tax due? ITR not needed

It is important to keep in mind that, even if your income is below the exemption limit you may still be required to file your ITR under the seventh proviso to Section 139(1) in cases when:

• You have deposited over ₹1 crore in a current account.
• Have spent more than ₹2 lakhs on foreign travel or
• Have paid electricity bills exceeding ₹1 lakh in a year.

In all such cases, promptly filing your ITR helps establish a credible financial history, strengthens your financial profile, and can support applications for credit cards, visas, or other financial services.

3. Gifts are always tax-free

Under Section 56(2)(x), any gift exceeding ₹50,000 in a particular financial year is taxable under ‘Income from Other Sources’ this holds until and unless gifts are received from a relative specified in exceptions to this provision. Relatives such as parents, siblings, spouse or lineal ascendants/ descendants.

On the other hand, gifts from friends, cousins or distant relatives are not exempt and high value gifts should be clearly explained and specified in ITR even if they are exempt under certain special clauses such as marriage and inheritance.

4. Crypto losses don’t need reporting

All virtual digital assets (VDAs) such as cryptocurrencies are taxed under Section 115BBH of the Income Tax Act. Profits garnered from such digital assets are taxed at a flat 30% rate without any set off of losses. Still, it is crucial to keep in mind that losses still need to be reported under capital gains to maintain tax compliance.

Furthermore, under the Section 194S a 1% TDS needs to be deducted by the buyer during digital asset transactions. Thus creating a verifiable trail, in all such cases ignoring to report trades to the income tax department can attract notices.

5. Foreign income or PayPal earnings aren’t taxable

According to Section 5(1), a resident and ordinary resident (ROR) is liable to pay income tax on his global income. This is irrespective of where this income is earned. This includes freelance income from PayPal, Stripe or any direct foreign transfer of funds.

Elaborate disclosure of foreign bank accounts, equities, assets, foreign companies or any other source of income is mandatory under Schedule FA. Non disclosure in all such cases can result in severe penalties under serious provisions such as the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Therefore, clearly understanding these crucial tax misconceptions along with the associated legal provisions can assist you in staying compliant and avoiding costly penalties and legal ramifications. Hence, filing ITR return for financial year 2024-25 even in low income or capital loss scenarios will help you in building your financial reputation and keeping the income tax agency off your back.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Readers are advised to consult a qualified tax professional or chartered accountant for guidance specific to their financial situation and tax obligations under the Income Tax Act, 1961.