Needless to say, tax is really a complex subject and people do not even bother about that. Those who are working and fall under a tax slab as per their annual income get TDS deducted by their employers on a monthly basis, whereas small business owners are often seen escaping the tax demon by hiding their actual annual income. Correspondingly, they save thousands on taxes, which is not a very good idea to save the taxes because these people are going to get a tax notice sooner or later. These transgressions can invite penalties and the person has to pay up to 300% of the unpaid amount as the tax.
Irrespective of the reason(s) why one failed to pay liable tax, he or she cannot avoid getting tax notice anytime in the future.There could be many reasons behind people getting a notice from income tax department. Below are some smart tips that can help you pay your taxes in time:
People are often seen making this mistake, which might be because of lack of knowledge or they could be doing it purposely. Anyone earnings from a recurring deposit, fixed deposit, and tax-saving bank deposits as well as infrastructure bond are taxable in every aspect. In reality, the interest income of Rs. 10, 000 (Rs 50,000 for Senior Citizens) is free, but that is only on the interest earned on one’s bank balance in the savings account. Some people believe that there is no further need to pay tax after TDS has been deducted by the bank. However, they might forget that TDS is not more than 10% of one’s income, subject to the tax slab he/she falls in.
Another big confusion is that some people think that they need to pay 10% of their income as TDS while the same is subject the tax slab they fall in. Someone earning 10 lakh a year falls in a higher tax slab and 30% is deductible as TDS.
Tip: One needs to manually calculate one’s interest income from fixed deposits, recurring deposits, and other investments, and then add that to the income.
When one switches his or her job, there are chances of falling foul of income tax laws. In such scenarios, the new employer does not consider one’s previous income while calculating tax and one get tax exemption all over again on the new income. In the other words, instead of 2.5 lakh as basic slab tax exemptionalong with 1.5 lakh as the deduction for savings/investments under section 80C, one gets basic exemption of Rs. 5 lakh and Rs. 3 lakh additional deduction. This actually results in almost no tax paying as compared to what that is payable.
Such discrepancies can never be hidden lifelong and do come out when one files income tax return sooner or later.
Tip: One should inform his or her income from the previous employer in order to get TDS deducted in accordance with that.
Anyone whose annual income falls in tax slabs should file income tax return. As per current income tax slabs, one gets the tax exemption of up to 2.5 lakh below 60 years of age, whereas anyone who is above 60 years of age gets the tax exemption of up to 3 lakh annually. On the other hand, if one’s age is above 80 years, he or she gets the tax exemption of up to 5 lakh.
All these calculations are based on one’s gross income prior to any deduction, which means that if one’s annual income is 4 lakh and he or she invests 1.5 lakh in a policy under section 80C, then one no longer has the tax liability. Likewise, one with a higher salary can get the tax exemption of up to 25, 000 for the premiums paid towards health insurance for self below 60 years of age.
However, there is still a need for filing income tax return, including the scenario when one has already paid all his/her taxes.
Tip: Do not forget to file income tax return even if there is not such liability or all taxes are paid already.
Despite all, if one receives income tax notice related to non-filing of ITR, TDS claims, documents verification etc., one does not need to worry because such issues can be resolved in not more than 24 hours. Consult a tax lawyer for more information about income tax and filing an ITR.
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(Republished with Amendments by Team Taxguru)