Skip to main content

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.

 

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Mutual Fund Review: L&T MIP

        This fund won't deliver chart-topping returns. However, over the long run it will not disappoint and end up beating the category average The fund has seen numerous changes at the helm. When Katare took over in October 2007, he made dramatic alterations to the portfolio. On the equity side, he increased the number of stocks to 11 (November) from 2 (September). On the debt side, he added Certificates of Deposit (CDs), while earlier Treasury Bills (T-Bills) and cash accounted for 88 per cent (September 2007) of the portfolio. In November 2007 he exited T-Bills for good. The results impressed. In the last quarter of 2007, it delivered 12.83 per cent (category average: 6.12%). In 2008, the first quarter performance was nothing short of impressive, a return of 9.93 per cent (category average: -3.97%). While other players increased their portfolio maturity, Katare maintained a low maturity profile. While the average maturity of the category was 2.81 years that quarter, th...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

Reconfigure investments to reap benefits in DTC

    Investing for tax benefits under the new Direct Taxes Code ( DTC ) will be different in several ways from what taxpayers are familiar with right now. This will require some reconfiguration in the nature of investments for the investor and they need to be ready to tackle the changes that will come about once the new DTC is implemented from financial year 2012-13.One area of interest for most taxpayers is the manner in which they can extract the maximum tax benefit. Here is a look at the situation and also how it changes from the existing position. Basic deduction: At present, there is a deduction of Rs 1 lakh that is available for an individual when they make investments under specified areas such as provident fund, public provident fund, national savings certificates, equity linked savings scheme and insurance premium, among others. This benefit is available under Section 80C of the Income Tax Act. This has been replaced by a new Section 68 under the DTC where there is a deduct...

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now