ITR Filing FY 2024-25: Don’t Fall For These Common Income Tax Myths
With the deadline to file Income Tax Returns (ITR) for the financial year 2024-25 fast approaching, many individuals, especially salaried employees, freelancers, and small business owners are still navigating through misinformation that can result in penalties, delayed refunds, or even notices from the Income Tax Department.
Understanding some of the most common myths, backed by legal provisions under the Income Tax Act, 1961, can help taxpayers avoid these pitfalls.
TDS Deduction Doesn’t Eliminate The Need To File Returns
A widespread belief is that if Tax Deducted at Source (TDS) has already been deducted, there is no need to file an ITR. However, as per Section 139(1), filing returns is compulsory if total gross income before deductions exceeds Rs 2.5 lakh (for individuals under 60), Rs 3 lakh (senior citizens aged 60–80), and Rs 5 lakh (for those over 80).
TDS, governed by Section 192, is merely a mechanism for advance tax collection. It does not substitute the legal requirement to file a return. Filing is also essential for claiming refunds on excess TDS and for facilitating processes like loan approvals or visa applications.
No Tax Liability? You Still May Need To File
Another misconception is that no tax liability means no need to file. However, under the seventh proviso to Section 139(1), ITR filing becomes mandatory if certain financial thresholds are crossed, even if income is below the exemption limit. This includes, depositing over Rs 1 crore in a current account, spending more than Rs 2 lakh on foreign travel, paying electricity bills above Rs 1 lakh in a year. Filing in such cases can enhance your financial credibility and support access to services like credit cards and travel visas.
Gifts Can Be Taxable
Contrary to popular belief, gifts aren’t always tax-free. According to Section 56(2)(x), if the aggregate value of gifts received in a financial year exceeds Rs 50,000, it is taxable under "Income from Other Sources"—unless received from close relatives such as parents, spouse, siblings, or lineal ascendants/descendants.
Gifts from friends or extended family may be taxable and should be clearly disclosed in your return, particularly those received under exceptions like weddings or inheritance.
Crypto Transactions Must Be Reported
Virtual Digital Assets (VDAs), including cryptocurrencies, are now closely regulated under Section 115BBH, which mandates a flat 30 per cent tax on gains without allowing set-off of losses. Yet, these losses still need to be declared under capital gains for compliance purposes.
Additionally, Section 194S requires a 1 per cent TDS to be deducted by the buyer on digital asset transactions. Failure to report such trades can create discrepancies and trigger scrutiny from the tax authorities.
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Foreign Income Is Not Always Exempt
For residents classified as Resident and Ordinary Resident (ROR) under Section 5(1), global income is taxable, regardless of where it is earned. This includes freelance earnings through platforms like PayPal, Stripe, or direct international transfers. Disclosure of foreign assets, bank accounts, or investments under Schedule FA is mandatory. Failure to comply may invite severe penalties under laws such as the Black Money Act (2015), which deals with undisclosed foreign income and assets.
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