As Benjamin Franklin once said, “In this world, nothing is certain except death and taxes.” Although income tax cannot be avoided (provided you earn more than the minimum taxable income), there is no reason for you to pay more towards your taxes than you actually should. Unfortunately, a large number of taxpayers in India end up paying a lot more than they are supposed to. The most common reason for this includes ignorance or lack of proper knowledge of tax rules. If you are diligent when it comes to planning your taxes and become more aware of the provisions that allow you to claim deductions, you will end up saving a lot of money that would otherwise be spent on taxes. Here are some of the most common challenges faced by taxpayers and how they can be avoided:
Identification of Income and Proper Capturing
First and foremost, it is essential to identify your income and capture it correctly. What this means is that you will have review your bank statements, go through the credits made into your bank accounts, and analyse your taxable income. Exempt income must be reported as doing so will help you lower unexpected tax demands from the authorities. Form 26AS must be downloaded from the website of the Income Tax Department and it will reflect your related incomes as well as your tax withholdings against your PAN. The tax authorities will contact you in case they find any discrepancies. In case you have made any financial investments, the income arising therefrom must be tracked. Unreported incomes can be easily tracked by the tax authorities thanks to enhanced data mining, and if you fail to report a certain income or misreport anything, you will receive a notice from the authorities.
Accurate Computation of Income
Tax laws are subject to change almost every year, making it crucial for taxpayers to ensure that they are up-to-date with the latest norms and regulations. For example, salaried people must know that they can claim a standard deduction to the extent of Rs.40,000 per year instead of the previously available allowances of Rs.1,600 per month for conveyance and Rs.15,000 per year for medical reimbursements which have now been done away with. Taxpayers must know of these changes as they will help them calculate their income accurately.
Declarations to Employers
A number of deductions and exemptions are left to the consideration of the employer so that they can compute your taxable salary. However, your employer will be able to calculate your taxable salary accurately only if you furnish the relevant documents to your employer. Failure to declare the documents or failure to submit your investment proofs within the specified timeframe would mean that your tax withholding will be higher. Declaring the wrong information, on the other hand, or missing out on crucial elements at the time of submitting proofs will mean that your tax outflow will be higher in case the rent you pay per year is over Rs.1 lakh per financial year.
In order to save tax and refrain from paying more to the government than necessary, it is essential to identify the tax deductions that are available in order to make claims in your tax returns. Section 80C of the Income Tax Act offers tax deductions to the extent of Rs.1.5 lakh, and there are other deductions too that can be claimed to increase your tax savings. For instance, preventive health check-ups can be claimed as deductions to the extent of Rs.5,000. The interest component of an education loan can also help you save tax. Investment in National Pension System, on the other hand, offers a deduction of up to Rs.50,000. Being aware of all the deductions can come in handy at the time of filing your tax returns.
Timely Filing and Advance Tax Payment
Advance tax will have to be paid by taxpayers in quarterly instalments in case sufficient taxes are not withheld and more than Rs.10,000 is due in taxes. Interest will be triggered in case of such a default. Failure to file your returns by the specified timeframe could also see you charged with a fee between Rs.1,000 and Rs.10,000.
These are simple things that most people tend to take for granted. Taking a little extra care will not only help you meet your financial objectives for a particular financial year, but it will also ensure that you do not overpay.