March of any year is the month when one feels as if he is being subject to extortion – not in its literal meaning but in the form of tax deduction at source or advance tax or forced to invest in tax saving investments. There could be moments when you feel that you have paid too much of taxes or too much of tax has been deducted from your salary. So to avoid such situation one should start planning their taxes from the beginning of the year itself so that you don’t end by paying more taxes.
When the employer deducts tax at source, more particularly, during last two months, as he would like to avoid defaults on his part, to save on interest and penalties, he shall consider all your investments which give you tax deductions or savings. While deducting tax at source, he shall consider investments such as in insurance premium, provident fund contributions, national saving certificates, investment in pension plans, ULIPs, Mediclaim etc. Not only this, he shall also consider certain amounts spent by you on specified items and on your health such as tuition fee of children (80C), repayment of principal amount of home loan (80C), medical expenses (80D, 80DD), expenses on specified illnesses (80DDB) upto Rs. 40,000 and Rs. 60,000 for senior citizens (Rs 1,00,000 wef A.y 2019-20) and for super senior citizen Rs 80,000 from A.y 2016-17 to 2018-19 ( Rs 1,00,000 from A.y 2019-20 , any amount of interest paid on educational loan (80E) etc. Donations mad to specified eligible funds etc are also eligible for allowance (100% or 50% depending upon type of donation. Employer is also supposed to consider your house rent receipts but may ask for landlord’s PAN number also.
You can plan you taxes including TDS by integrating your tax planning and investment planning. The investments you make should also have a tax saving objective. If choosing between two options with similar returns and safety features, tax saving would play an important role. In such situations, investments like housing, provident funds, insurance, equity linked saving options etc. could provide some solace. An small investor (and tax payer) is one who manages his finances in such a way that the TDS is just equal to the tax he is supposed to pay for a particular year. You need to balance your needs based on need for liquidity in hand, investment returns and tax savings.
However, if tax has been deducted as you could not invest or inform the deductor in time, you may not worry much as it is now mandatory for tax payers to quote then bank account number and details in the return itself which makes refunds faster, safer and hassle free.
(Republished With Amendments)