Being scrutinised by the IT department? Here's help

Do you know under what circumstances do you get scrutinised by the income tax department? What should you do if you are asked to attend in front of an assessing officer?

Is there any way in which you can offset your losses against the interest income earned by you? Can you claim deductions for the money spent by you on your car?

In a chat with readers on August 21, Get Ahead tax expert Mahesh Padmanabhan discussed these and other tax-related issues affecting the taxpayers.

For those of you who missed the chat, here is the transcript.

Part I: Best options for saving your tax

Smit asked, Hi Sir, I am a self employed professional of 25 years of age. My gross income for AY 2006-2007 was only Rs. 3.50 Lac. I had a net profit ratio of 70% of my gross receipts. I had claimed the refund of around Rs. 1000 out of the TDS I had to my credit. Still my case has been selected for scrutiny and I am supposed to attend before the AO on 06-11-2007. I am disappointed and disgusted about what reason could it be I am being dragged into such a scrutiny. Please advice?

Mahesh Padmanabhan answers, Scrutiny generally happens in two instances, one, when your case gets randomly selected by the IT department's computer system based on certain parameters or second, compulsory scrutiny wherein your case satisfies predefined conditions for such compulsory scrutiny. We would be unable to state the exact reason for your case selection but you need not worry but present the relevant documents before the ITO.

KKK asked, CAN I OFFSET MY INTEREST INCOME WITH INTEREST PAID FOR PERSONAL LOAN & CARRY FORWARD THE INTEREST LOSS?

Mahesh Padmanabhan answers, In case you have borrowed the money for the purpose of earning some income then you can adjust the interest paid against the interest income earned and accordingly carry forward the loss on this account further to the future 8 years.

ajay_7879@rediffmail.com asked, I have not declared tax from the last 2 years since from when i have taken a PAN card. At that time my income was not taxable. Is it okay for me to declare tax in this year?

Mahesh Padmanabhan answers, Technically you are liable to file your income tax returns in case the gross taxable income (before section 80 deduction) exceeds the threshold limits, which in your case would be Rs. 1.1 Lakh currently. You would need to check if you satisfy this criteria and accordingly take a decision.

k.raju1652 asked, Difference on HRA exemption and Home loan exemption which is better exemption to claim?

Mahesh Padmanabhan answers, The suitability of either of the two deductions would need to be taken based on the following considerations: Salary that you earn, city of residence, rent that you pay, interest payment made by you. Based on this understanding you would need to weigh the higher benefit resulting out of the two and use that option. However, in case your house is in one city and the rental accomodation in another city then you could probably use up both the deductions.

Vkumar asked, Hello Sir, please tell me what are the other options of investment apart from Rs 1 lacs investment under 80C to get more tax benefits? Can we save more tax by investing in anyother thing. I am unaware please guide me. Thanks Vivek.

Mahesh Padmanabhan answers, Apart from the section 80C deduction you could avail of the following deductions (pls note that this is just inclusive and not exclusive). Home loan interest deduction upto Rs. 1.5 Lakh in case of self-occupied property. Mediclaim premium paid u/s 80D upto Rs. 15000 (in case of non senior citizens) and Rs. 20000 (in case any family member is a senior citizen). Donations u/s 80G made to specified institutions. You could also restructure your salary to minimise the tax outgo on account of salary tax.

MLJ asked, I am a retired person from GOI and having pension of Rs. 2500/- p.m. and absorbee in PSU. At present I am working as part time consultant in PSU. Besides I have an income from MIS. Kindly advise which Income Tax Return Form I should have filled for the FY 2006-7? I have already submitted my I-Tax return for the financial yr 2006-07 in ITR-4. Some have advised me that I should have submitted the return in Form ITR-I. TDS was also deducted from income as consultant. I shall be very thankful to u. M.L. Janweja.

Mahesh Padmanabhan answers, ITR 4 is the right form.

BDS asked, Can minors file return? Also if s/he gets gifts in different occasions, will it be clubbed with the parents?

Mahesh Padmanabhan answers, Minors can file return with the parent / legal guardian acting as the representative assessee. In case the gifts received from any individual (not being a family member) exceeds Rs 50,000 in a year then such gift would be taxable in the hands of such parent whose total income is higher than the other.

Sushanto asked, My new car is on hire. Kindly advise what all benefits can I get for IT viz. Depreciation etc?

Mahesh Padmanabhan answers, The related expenses such as petrol, driver's salary, vehicle maintenance, parking & toll charges, depreciation, interest on loan borrowed for acquisition of the vehicle etc could be claimed as deduction. However, you need to note that all relevant documentation has to be kept on record so that in case of any income tax scrutiny you would have adequate supporting evidence for such expenses.