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Salaried individuals often make two big mistakes in their Income Tax Returns: First is they claim wrong exemptions for unallowed allowances, and Second, is convert salary income into professional receipts under section 44ADA. Penalties for Income Misreporting Under-reporting income may result in a
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Salaried employees commonly make two mistakes: claiming incorrect exemptions for unallowed allowances and converting salary income into professional receipts under Section 44ADA.
Under-reporting income can result in a penalty of 50% of the tax due. Misreporting, like showing salary as professional income, can lead to a penalty of up to 200% of the tax, plus actual tax and interest.
Under the new tax regime, most allowances like HRA, Leave Travel Concession, Entertainment Allowance, Professional Fees, Professional Tax, or any Special Allowance are not permitted. Only specific basic allowances like conveyance, daily, or transport allowance for disabled persons are allowed if conditions are met.
No, it is generally not advisable for salaried employees to convert their salary into professional income to take advantage of Section 44ADA, especially if they have no actual professional expenses. This misreporting can lead to severe penalties.
Salaried individuals should always report income under the correct head 'Salary', check important documents like Form 16, and only claim actual expenses and allowances as permitted by Income Tax Law to avoid penalties.
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