| Every year, Mohit Gupta promises me that the next time around, he will file his income tax returns much before the last day. Of course, when it actually comes to it, my office has to start calling Gupta from early July to remind him of his pending returns. It then gets into a last-minute rush featuring papers to be searched for, the shock of finding a higher tax to be paid and, to make matters easier, some papers missing.
Over the last 25 years that I have been in the profession, not a year has passed by when some client or the other has not rushed in at the last hour to get his tax returns filed. Gupta is not a case in isolation. They all solemnly promise that it will not happen the next year, but I am yet to witness a last day of filing when my office does not resemble a wholesale market buzzing with people with files, folders and the works waiting for their turn.
The faint of heart would baulk at filing over 250 returns on the last day, as we did this year. And, though my office staff had the schoolboy-like excitement to manage it all,
I was a little uneasy till it got over. I got unnerved at the thought of “what if we are unable to file them all?” and the problems my clients would face afterwards.
While the real personal income tax action heats up in March, I face the impact of it in July. Despite discussions on salary structures, tax optimisation and efficient tax management, I still get to interact with many people with very serious doubts. The most common question I face is: why should I file any return when my employer has already deducted TDS and issued the Form 16 to me? Such innocent questions make me sympathise with people’s inability to understand the most common aspects of their personal taxation duties.
For instance, technology, in the past two years, has emerged as a great leveller. Since the assessment year 2007-08, one can file the returns and taxes online. Terrifyingly long queues at special collection counters are now passe, though some still prefer the manual procedure out of sheer habit. With initiatives by the government and organisations, filing will be done more from home in the future.
In the first year of e-filing, I found the system was slow with issues related to digital signatures and associated costs. But many people are now finding this system convenient to file returns at the last hour. After all, the deadline is no longer 5 pm: it’s at midnight.
But more than the tax filing process, on the last day I encounter tax payers’ doubts and misconceptions. Many of them feel cheated that their assumptions about post-tax incomes were inaccurate. Some even start doubting their negotiation skills. There are others who get disenchanted with the taxation system and start assuming that my job is to create wealth out of nowhere for them. I can only optimise tax payments for an individual. Beyond this, the individual needs to increase his or her income. I will take you through some common myths and misconceptions harboured by people I came across in July this year.
1. Valuation of perquisites.
Despite the clear guidelines and explanatory notes that I share with high-income clients, they realise rather late that their actual income and what they had fought tooth and nail for during salary negotiations, are far apart.
For instance, Rajesh Kumar, an employee with a growing consulting firm in Gurgaon, negotiated a package of Rs 24 lakh with his employers. Within the package he opted for the rent-free accommodation of Rs 3.06 lakh, which was deducted from the salary package leaving his cash annual salary at Rs 20.94 lakh. This Rs 3.06 lakh was added to his cash salary as a perquisite to calculate the taxable income. On this basis, the total tax liability of Rajesh worked out to Rs 7.24 lakh. Rajesh said he could get a better accommodation for the amount charged by his company. When I suggested he change his option to receiving of HRA and rent a house, he disagreed.
When I calculated and showed his tax liability, from the HRA plus rent route, he fell off his chair. The tax saving was close to Rs 33,000 and he could move to an accommodation of his choice closer to his workplace, thus saving on conveyance and time. The switching, however, may not make much sense if the accommodation outside was more expensive than the perk’s value. Similarly, Niranjan Jha got a cash salary of Rs 22 lakh and a perk value of Rs 3 lakh for interest-free home loan. In his case, too, it would have made more sense to take the total amount as salary and rather raise a housing loan from an institution. When we got down to calculating by exercising the second option he could have saved as much as Rs 84,975 in income tax in one year and not feel obligated to his employer.
2. Multiple employments in an assessment year.
These days job-hopping is common. Even a few extra thousand rupees are tempting. For salaried employees, invariably when they change employment during a financial year, both or all the employers allow them the basic exemptions. This leads to a higher tax liability and even penalties for not paying advance tax.
This happens because of non-disclosure of details of previous income. To avoid unnecessary interest and penalty it is very important to make proper disclosures or pay advance tax. After all, why burden payment at one go, when it can be staggered through the year.
3. Interest from bank deposits.
Regardless of the balance in the savings account in a bank, some amount of interest will always accrue in the account. Since there is no basic exemption for the interest earned, one needs to pay some amount as tax on this earning from interest.
At the last minute, most assessees have to pay some amount as tax on interest income. To avoid this, one can always estimate the income on this account and ask the employer to deduct some extra tax to cover the earning or pay advance tax.
4. Repayment of home loan.
Most taxpayers believe that the deduction related to interest and repayment of principal housing loan is applicable to only one house.
It is true as far as the interest part on a self-occupied property is concerned, but for repayment of principal amount all housing loans will qualify for deduction within of course, the overall limit of Rs 1 lakh. If the other property is rented, then, of course, the entire amount of interest on loan for that property also qualifies for deduction.
5. Capital loss.
Again, most taxpayers know that they can set off the loss under the head of capital gain against the profits under the same head. But if the net result was a capital loss, many did not make it a point to disclose and carry it forward to subsequent years. If the loss is not disclosed and carried forward, next year it will not be available for setting off.
6. Mandatory disclosures.
Hardly anyone is aware of certain mandatory disclosures required to be made by assessees while filing the return. The most common are credit card payments in excess of Rs 2 lakh in a year, purchase or sale of a property worth Rs 30 lakh or more. Its also common and unintentional for taxpayers to withhold information; something that can get anyone in trouble with the IT department.
My only advice to all tax payers: do not take it as your accountant’s duty to file your returns. It is important for you to be involved with your tax filing. Make use of the accountants to make taxes work for you and understand what you are paying for and why. |
No comments:
Post a Comment