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For most Generation Y professionals, tax is something they would rather not be involved with. These bright youngsters can tackle the toughest corporate challenge but fumble when it comes to their own tax planning. It needn't be like that. Tax planning may appear complicated but once you get the hang of it, it can be empowering and rewarding. Just spend a little time to understand what it is all about and the knowledge will benefit you for the rest of your life. Here are some basics of tax planning.
Do you have to pay tax?
That depends on how much you earn and under what heads. Some salary components such as the basic salary, dearness allowance, special allowance and bonuses are taxable. Others such as house rent allowance, conveyance and other reimbursements are exempt subject to rules.
But apart from the income from your employer, you may also earn interest on fixed deposits, bonds and on the balance in your savings bank account. If you invest in stocks or funds, there may be dividend income and capital gains as well. If you own property, there may be rental income coming in.
If the income you earned in a financial year (1 April to 31 March) exceeds the basic exemption limit of 1.8 lakh ( 1.9 lakh for females), you have to pay tax on it.
Tax deduction at source
Your employer calculates the tax payable and deducts it from your salary. But since tax is payable on the combined total income, the TDS by your employer may not suffice unless your income from other sources has been factored in. If you changed jobs during the year, you must report the income from the previous employer as well. If you don't do that, you will end up availing the basic exemption twice, which will lead to a big tax outstanding at the end of the year.
Before your employer deducts tax, you are asked if you have made any tax saving investments or are eligible for any other deduction or exemption. You can invest up to 1 lakh in any option under Sec 80C. Some of these are automatic-your contribution to the PF, for instance. The other options are PPF, NSCs, tax saving FDs, ELSS mutual funds, life insurance policies and pension plans. There are other deductions too. Medical insurance policies for yourself or your parents are eligible for deduction under Sec 80D. If you submitted documentary proof of all these investments to your employer within the stipulated time, the TDS will be low.
Do you have to file your return?
The CBDT has exempted taxpayers with an income of less than 5 lakh from filing their tax return. However, you can avail of this exemption only if you have income from salary and bank interest. Also, this interest should not exceed 10,000 in a year and you should have paid the tax due on it. You should also not have any tax refund due.
If you have paid more tax than due, the only way you can get it back is by filing your return. Don't look at filing your tax return as a painful exercise. Instead, think of it as sending a bill to the Income Tax Department demanding a refund of the amount you overpaid in taxes during the previous year. The sooner you do it, the better it is for you because the faster your tax refund reaches you.
Understanding your Form 16
Your employer must have given you a Form 16, which is a certificate of the TDS from your salary. For most salaried individuals, the Form 16 has nearly all the details they need to put in their tax return form. But if they have other investments as well, the details need to be filled in the tax return form.
A refund is not the only reason to file your tax return. Your return is a declaration of your income and will come handy when you are seeking a loan, buying property, going abroad or even taking a large insurance cover. Banks want to see your income details before they extend a loan. Many countries want to know if you are financially stable before they issue you a visa. Insur ance companies want to know if the cover you want is commensurate with your income. The income tax return is your single sheet answer to all these queries.
Not filing your return can have serious reper cussions. You can be slapped with a penalty of up to 5,000 even though all your taxes are paid Besides, it will unnecessarily raise suspicion and the income tax department may scrutinise your finances further.
How to file your return
You can file your return online or offline, by your self or with the help of a tax professional. It is advisable to take the help of a tax professional at least for the first time. A chartered account ant will be able to guide you on how to fill up the form and choose the ITR form that is applicable to your case. Once you get the hang of it, you can start filing your return by yourself. Online fil ing is very simple and doesn't require too much effort. There are websites that guide you at every step of the process. They even choose the cor rect ITR form for you based on your income so there is zero chances of you going wrong. For as little as 200-250, some portals even cross check your return before it is filed to ensure it is error free. It is a small fee to pay for peace of mind.
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