In case you want to avail some income tax exemptions, you have to fulfill some conditions. If you fail to do so, you might not be entitled to avail the exemptions and these exemptions can make you liable to a penalty for tax evasion. The Income Tax department will issue you a notice for tax evasion. The penalty can also be a heavy one.
Even if you take the defense that you were not aware that the exemption is no more applicable, it will not be allowed. Ignorance of law cannot be an excuse for tax evasion.
It becomes the duty of the assessee to report the non-applicability of exemption in his income tax return and pay the taxes which are applicable to him.
Following are the some cases where these exemptions cannot be availed.
1. Selling out a home purchased on loan within five years of purchasing it: If you avail a home loan for purchasing a home, you can claim an exemption on the principal repaid under Section 80C of the Income Tax Act. You can get an exemption up to Rs 1, 00, 00/- under this head. But in case you sell the house within five years of purchasing it, you cannot avail this exemption in the year you purchased it. In that year, the principal amount will get attached with your income and you will be taxed accordingly.
2. Surrendering a life insurance policy within two years: Premium paid towards life insurance policy is also exempted from income tax under Section 80C. You can get an exemption up to a maximum of Rs 1, 00, 00/- If you buy a policy and do not like it, you may not continue with the policy. If you surrender the same within two years, you cannot avail the exemption on its premium.
3. Withdrawing provident fund amount before completing five years: According to the Income Tax Act, 1961, if an employee is in continuous service for five years or more and if he withdraws any amount from provident fund, it will not be taxable. If the amount contributed to provident fund (PF) is withdrawn before five years, it will be taxable.
4. Delayed construction of house based on home loan :If you availed a home loan for building a house and the construction has not been completed within three years from the taking of the loan, then the maximum amount of deduction for interest will be up to Rs 30,000/-
5. Cash donation made for an amount above Rs 10,000:
Section 80G of Income Tax Act, 1961 states that if an assessee donates any amount to Charitable Trusts or Institutions, he shall be allowed an exemption up to Rs 10,000. If the donation exceeds Rs 10,000, then the said exemption cannot be allowed.