To ensure that the taxes are cut gradually, instead of paying a hefty tax at one go, taxpayers should know basic tax rules and follow some specific guidelines.
After the Tax Deducted at Source (TDS) from his salary jumped in excess of 5.6 times in the Assessment Year (AY) 2019-20 over the last AY of 2018-19, following a switch in job in 2018 with over 2 times salary hike, Sudhakar Nagar (name changed) was feeling annoyed as the total TDS amount in the current financial year was more than half of his taxable salary of the last year.
Moreover, rubbing salt on wounds, oblivious of tax effects, in the financial year 2018-19 he withdrew over Rs 2 lakh Provident Fund (PF) money that was lying with an organisation, where he worked earlier for about three years. Sudhakar is also not a proactive investor and keeps his money in savings accounts, resulting into interest of over Rs 40,000, which also he didn’t inform to his employer despite the fact that he ended up paying additional self assessment tax on interest while filing ITR earlier also.
As withdrawal of PF money contributed for less than five years becomes taxable, 10 per cent TDS was already cut before he received the money, but Sudhakar needs to pay 20 per cent more, as he is now well into the 30 per cent tax bracket along with the 30 per cent tax on interest earned on savings bank deposits over the exemption limit of Rs 10,000, resulting in total tax payment of well over Rs 5 lakh compared to the previous year’s tax payment of around Rs 80,000.
Must Watch: How To File ITR-1 for AY 2019-20 in less than 15 minutes; Explained on Income Tax Portal
To avoid payment of additional taxes at the time of ITR filing like Sudhakar, avoid the following:
- Don’t withdraw your EPF money where contribution period is less than 5 years.
- Don’t keep excess money in savings bank account.
- Don’t invest money in the schemes, where the interests/returns are fully taxable.
- Don’t hide the salary from previous company and any other additional source of income from employer, unless very confidential.
- Don’t declare false tax-saving investments if you don’t want to actually invest.
To minimise tax payment at the time of filing ITR, do the following:
- Transfer your PF money to new organisation instead of withdrawing it to avoid paying tax and to get pension.
- Invest money in schemes where interests/returns are either tax free or tax efficient.
- Disclose salary earned from previous organisation or any other sources, so that those may be taken into account at the time of tax calculation and adequate amount of tax (TDS) is deducted every month.
- Execute your plans for tax-saving investments early without waiting for the end of financial year.