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Income Tax Planning: Have extra income apart from salary? Time to Count your tax is now

THE second installment of advance tax for individuals has to be paid by December 15. This is an opportunity to ensure easy completion of the tax process on time.

However, a lot of people think that they are not impacted by the advance tax requirements, and hence, do not pay attention to this area. But in reality, there are reasons why individuals need to look at specific aspects of advance tax.


Salaried individuals: Under most circumstances salaried people are not concerned with advance tax because the required tax on their income is deducted by their employer at the time of paying the salary.

There is a factor here that needs attention, which is that the tax is deducted only with respect to their salary income.

In cases where an individual has given details of other income to their employer, it will also be taken into consideration for deduction of additional tax.

Usually individuals do not give details about their additional income to their employer.

This will result in a position where there will be other income on which tax will have to be paid. If this additional tax amount exceeds Rs 10,000, then the payment of advance tax becomes essential.

This is the reason why even the salaried should check their extra income, which includes interest earned, professional income earned or other onetime receipts, and calculate whether they have to pay any tax on this additional income.
Shortfall: People also believe that if there is some amount of tax that is deducted on their earned income then the process is complete. But this is not the case every time because the rate for the deduction of tax is often lower than what has to be paid.

So, for example, if the rate of deduction on interest earned is 10 per cent, the individual might have to actually pay income tax at 30 per cent on this figure.

This will again give rise to the need to pay advance tax as the difference between the two rates will still attract tax.

There are a lot of areas where such shortfalls may arise between the tax that has to be paid and the figure that is deducted at source when the salary is received.

This can also result in a position where the tax that needs to be paid keeps on increasing and this can be tackled through the advance tax payment route.


No last moment rush: In all areas of planning that involves money it is always better to start early and then complete the process over a period of time.

The same is true with respect to tax payment. There are various options over the year to pay part of the total tax liability in instalments and individuals should make use of the available opportunities.

If this is not done, the burden of entire payment will come right at the end of the financial year in March.

The month of March is usually a very stressful month as there are a lot of payments lined up including completing the necessary tax investments.

In such a situation, paying the entire tax amount in a single shot might add to the financial stress.

On the other hand, breaking up the payment over the year is easier to manage.

Apart from this, there is also a penalty in the form of interest that has to be paid if the schedule related to the advance tax payment is not met and due to this reason some attention to this area will be beneficial. The downside of ignoring advance tax is high and it can be easily avoided.

 

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