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What is black money?
Your wife has saved Rs 1 lakh from household expenses over the past few years. She invests that money in a post office savings or a chit fund and earns a decent interest income annually. If the interest income is not declared while filing income tax returns by you or your wife, it is black money. The tax department can penalise you for this. There are several such instances when households end up creating and not declaring their income or assets because they do not realise these items are taxable.
What amounts to black money?
Accumulation of black money can also take place when a taxpayer does not declare things unknowingly. Transactions done outside the banking system or income not disclosed to the tax authority qualifies as black money.
These days, it’s very common to receive expensive gifts from friends and family, especially those living abroad. Not declaring these can land you in trouble. According to Tax law, if a person receives a gift valued above Rs 50,000, he or she needs to pay tax on it. The value of such items is clubbed with one’s income and taxed according to the slab.
Any Exceptions?
Presents received on wedding is exempted from tax. While they need to be declared, you don’t need to pay tax. However, if you were to sell these gifts and earn income, there would be a tax on it.
Professionals, be careful
Those offering professional services, such as doctors and lawyers, need to be extra careful. If a gift is paid as part of remuneration for their services, it needs to be clubbed with income, irrespective of the value. If the tax department takes a view that there has been under-reporting, the penalty can be the amount of tax one is liable for or three times this value.
Things to remember
The most common income that people don’t mention while filing tax are returns on fixed deposits (FD) and interest earned in the a savings bank account. Tax payers tend to believe because the bank has deducted tax at source (TDS) for FDs, their liability is over. What they don’t realise is that banks only deduct a TDS of 10% at source.
Similarly, the interest earned on savings bank account goes unreported. Many are also not aware that a second property attracts tax, even if it is not on rent. This means even if your second house is unoccupied and there’s no rental income from it, the person still needs to find the prevalent rent in the area, take it as a notional income and pay tax on it. If the house is in the name of a spouse who is not earning, the notional rent is clubbed with the husband’s income.
