Secrets to avoiding your
tax hassles
By Shiv N. Majumdar
Death and taxes are certainties. So is inflation
in India, as we have noted over the years. But a special
attention of the taxman is certainly not so. Nor will such
an eventuality in any way be pleasant or advantageous to
us. We all know that it is the salary earners who are the
primary financiers of tax revenue for the government. Therefore,
if we have to avoid the 'evil eye' of the taxman, it will
require some efforts.
Common sense does not apply to tax:
Income tax law only deals with what is provided for in the
Income-tax Act,1961. It will neither consider what is not
provided for nor ignore what has been expressly mentioned.
The concepts of free discourse and flexibility of reasoning
cannot extend beyond the scope of its express provisions.
Income tax covers items defined as income,
some of which may not be income in common parlance. It counts
income according to laid down provisions, at times with
artificial valuations and specific additions, deductions,
exemptions, rebates and relief, each of which has particular
meanings and prescribed modes of application.
Normal requirements under the Income-tax Act:
We need to obtain a Permanent Account Number ( PAN ) as
soon as our likely chargeable income in a year exceeds Rs
50,000. When applicable, not applying for a PAN is an offence.
On employment, our salary will suffer income
tax by way of Tax Deduction at Source (TDS) made by our
employers. If we wish to avail of any rebate/reliefs on
account of any prescribed investment, etc or offer any income
other than our salary in our TDS computation, we can do
so by making appropriate declaration to the employer who
is obliged to consider them in the computation of our income.
Our next duty is to file our income tax return
by the due date if our income requires us to do so. This
will include the case where no tax is deducted from your
salary, but you have other income and your aggregate taxable
income exceeds Rs 50,000. It is necessary that your return
is filed in the proper manner including all relevant documents
prescribed. If any tax is payable on inclusion of items
other than salary that tax also needs to be paid before
the filing of your return.
If the tax payable besides your TDS exceeds
Rs 5,000 you have an obligation to pay this tax within the
year in which it is earned by way of Advance Tax. Failure
to do so will
involve additional burden of interest on the quantum of
Advance tax not paid on due dates.
"TAXCARE" TO AVOID THE TAXMAN:
1. We must realise that an income of Rs 3
lacs will need better care than an income of Rs 1.2 lacs
per annum. So will it be as our earnings go up. But we forget
to factor this
in as we conduct ourselves for tax. Income Tax Law, besides
laying down applicable slab rates of tax, is also being
applied by way of categorising salaried persons into categories.
This will be clear if you look at the following:
(a) Taxable income above Rs 10 lacs, and a
smaller amount in smaller cities are being assessed at the
level of Deputy Commissioners;
(b) If your Gross Total Income is above Rs
5 lacs you are not entitled to either a standard deduction
or a rebate for your PF contribution etc;
(c)If your Salary Income is above Rs 3 lacs
and Gross Total Income is up to Rs 5 lacs, your standard
deduction is Rs 20,000 and your tax rebate is at 15%;
(d) If your Salary Income is above Rs 1 lac
and your Gross Total Income is above Rs 1.5 lacs, you are
entitled to Rs 25,000 of standard deduction and 15% tax
rebate;
(e) if your Salary Income is above Rs 1 lac
but up to Rs 1.5 lacs and your Gross Total Income is also
up to Rs 1.5 lacs, you can obtain a deduction of 33.33%
or up to Rs 30,000 and a tax rebate of 20%;
(f) If your Salary Income is up to Rs 1 lac,
you are entitled to a 33.33% standard deduction and a tax
rebate at 30%.
and, etc, etc.
So, we must deal with tax aspects with increasing
care as we earn progressively more over our working lives.
2. It is better to be proactive and to be pre-emptive. It
is very unlikely that a one-page Saral return will satisfy
the department if your Taxable Income is not low. Many salary
earners have naively, and, on pestering by cheap return
filing services, filled up returns in Saral form even where
the returned income may be above Rs 3 lacs. This may turn
out
to be a short-sighted act.
3. Income Tax Returns do not only deal with
our income. It also deals with a number of other items of
our personal information. Incorrect furnishing of information
or not
furnishing any can land us into serious trouble.
4. Income tax procedures do not only account
for our incomes ( to determine the tax payable), but also
over a period account for and explain our assets and liabilities.
While
this is clearly understood by persons in business or profession,
salary earners are found wanting in really appreciating
this in many cases. The real reason for this is the absence
of the requirement for salary earners to file a personal
balance sheet or net worth statement along with their returns.
However, any income tax proceedings will require satisfactory
explanation for the accumulation of assets over the years.
5. Liability to tax arises from income and
"tax care" would have to start from entries in
your bank account. Any exercise which ignores entries in
your bank account can
spell doom for you.
6. Salary earners very often stop at declaring
their Salary Income. They forget that it is unacceptable
that bank interest which is an item of income (although
deductible
up to Rs 9,000 in a year) can ever be zero. As we have more
years of earnings, Income From Other Sources (where bank
interest is also included) is likely to gradually increase.
7. Gift tax has been abolished. But do you
think that our machinery is so naive and flexible as to
give us the licence to transfer our assets freely as gifts
to our mothers, wives, sons, etc and reduce our future tax
dues? Income tax Officer still determines whether a transaction
is really a gift. The law is clear on this and so are the
provisions relating to inclusion of one person in the income
of another. (Commonly known as "clubbing provisions"
).
8. Our attitude to a subject many a times
predisposes us to our fate. (It is common knowledge that
a child avoids studying a subject he dislikes.) Some of
us consider the tax
machinery not worth too much attention since possibility
of acquiring co-operation may exist. This may always not
be available for various reasons. Some others, like an ostrich,
feel that the taxation authorities will not see things just
because they have decided to overlook them. Yet others may
never get respite from more important tasks to give attention
to his "Tax Care". If you are a marginal taxpayer,
it may not be in the taxman's interest to give much attention
to you. Even in such a case, none would volunteer to be
even one in a ten thousand to be selected for his attention.
If you happen to be higher in the taxman's segmentation
it will pay to be careful and spend some time and effort
to avoid unwelcome situations and unnecessary attention.
***"If you fail to prepare, you are preparing
to fail". ***
