Plan your taxes to avoid interest payment

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INTEREST is required to be paid under various sections of the Income tax Act, 1961, if there is any delay in deposit of taxes or there are certain types of non-compliance.

Generally, interest is levied at the rate of one per cent per month under the act. You can avoid any unnecessary interest payment by planning your tax payments during the year.

Correct TDS on salary: If you are a salaried taxpayer you would have declared your proposed tax investments to your employer. The employer will consider this at the beginning of the year and calculate the taxes. In case investments are not declared, the employer will deduct a higher amount on a monthly basis, which could result in a tax re fund. It is wise to provide the declarations at the beginning of the year so that correct amount of tax is deducted throughout the year. Also, if you make investments earlier, you receive interest for a greater part of the year. This is typically the case with investment in PPF, bank deposits and NSC.

TDS on other income: We may be in receipt of interest income, commission and rent in addition to salary. Typically, the payers of such income are required to deduct tax before making the payment.

As the TDS percentage is generally less than the actual tax liability, you may be required to discharge the balance taxes as advance taxes.

Obtain Form 15G / Form 15H: The income tax act provides a mechanism by which an individual can avoid excessive tax deduction.

This is provided in the act, to avoid any unnecessary hassle to the tax payers in claiming a re fund later. You can submit Form 15G or Form 15H (for senior citizens) if you have income from interest on securities/bank deposits or in come from units. Based on the declaration, there will be no deduction of taxes. You can also try to obtain a `Nil' withholding certificate from the In come-tax department.

Based on this certificate, the payer of will not do any TDS on the payment made to you.

Pay advance taxes on time: As per the provisions of the act, an individual is required to pay advance tax if the estimated tax payable, after taking TDS into consideration is Rs 10,000 or more. Advance tax is payable by an individual taxpayer in three installments and TDS already paid should be taken into consideration while discharging any advance tax liability. There are interest implications in case of default in payment of any installments or lesser payment of advance tax.

 

It is wise to take stock of the income during the year and discharge the taxes in a timely manner to avoid interest implications later.

 

Happy Investing!!

 

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