Managing Your Taxes

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[<p>The government needs a regular stream of revenue over the financial year; personal income tax is one of the sources of revenue. Accordingly taxpayers are required to discharge their tax obligations over the period in which income is earned.&nbsp; Generally, income in the nature of salary, interest etc. is subject to tax deduction at source (TDS).&nbsp; The tax payer is required to pay taxes in advance during the financial year on the estimated amount of income expected to be earned during the financial year as well. However, where the tax liability of the individual (after considering the taxes withheld) is less than Rs 10,000 the taxes could be remitted as self assessment tax, before filing the tax return.&nbsp; The obligation to pay taxes in advance is triggered only where the estimated amount of tax is expected to exceed Rs 10,000 after the adjustment of TDS.<br>&nbsp;<br>The tax payer, therefore, has an obligation to remit the taxes payable — to the extent it has not been met through TDS — by way of advance tax by the 15th of March. <br>&nbsp;<br>&nbsp;A shortfall in payment of taxes attracts interest.&nbsp; Interest liability will arise, both on account of deferment in payment of taxes, as well as on the delay in payment of taxes beyond the financial year.&nbsp; On the flip side, where the tax paid exceeds the actual taxes due, a refund will arise in the tax return.&nbsp; Since the processing of refunds by the tax departments could take its own time, tax payers need to plan their tax payments in an optimal manner.&nbsp; Taxpayers could experience a short fall in payment of taxes due to various reasons.</p> <ul> <li>There could be a shortfall in TDS on salary income.&nbsp; This will typically arise where the employee has changed his employment during the year, and both the employers provide the benefit of lower rates of tax in the initial income slabs in computing the taxes.&nbsp; On aggregating the income and computing the taxes, there will be a balance tax due. A short deduction could also arise where the benefit of deduction for specified investments is provided by both the employers, or the employer provides the relief based on declaration from the employee, and ultimately the investment is not made within the financial year.</li> <li>The rates at which taxes are withheld on interest income, house property rentals etc. is generally lower than the personal marginal rate at which the individual is subject to tax.&nbsp; For instance, the rate at which taxes are deducted on interest is at 10 per cent, whereas a tax payer could be subject to tax at the rate of 30.90 per cent depending on his income level.&nbsp; </li> </ul> <p>Tax payers could consider meeting the above tax obligations in different ways:The Income Tax Act enables employers to include income declared by employees relating to an earlier employment, or income under other sources, and compute the tax withholdings accordingly.&nbsp; Salaried employees could provide information relating to the remuneration from previous employment to their employer for computing TDS.&nbsp; This will address the concern on short deduction of taxes.&nbsp; The employee could declare house property income, interest income, capital gains etc to the employer as well.&nbsp;&nbsp; With respect to losses, if any incurred by the employee, the employer is authorised to consider losses arising from house property alone.&nbsp;&nbsp; For instance, the employer is not authorised to consider capital losses.&nbsp; However, if the employee has a net capital gain (after setting off the losses), the employer could consider the net number in computing TDS.<br>&nbsp;<br><img src="/businessworld/system/files/images/Feb_12/Due-Dates_tax_493x211.jpg" style="vertical-align: middle; margin: 5px;" height="111" width="493"><br><br>The above process will help the tax payer in reducing interest liability.&nbsp; Once the income is declared to the employer, and appropriate taxes are withheld, the employee will not have an interest liability even if the declaration to the employer is made during the later part of the financial year.&nbsp; On the other hand, under the advance tax mode, there will be an interest liability for deferment in payment of earlier installment of taxes.&nbsp; Since taxes are withheld from the salary on a monthly basis, employees could plan their cash flows as well.<br>&nbsp;<br>Tax payers could have concerns in sharing their personal income details with their employer and may prefer to pay the differential taxes in the form of advance tax. Tax payers having business income / capitals gains will also need to plan for advance tax payments. Arriving at a reasonable estimate of the revenues from business and the possible deductions for the entire year could be a challenge.&nbsp; Furthermore, in arriving at the taxable capital gain, the tax payer needs to consider possible set offs on account of capital losses which could arise during the later part of the financial year as well.&nbsp; An estimation of possible taxes that will be deducted at source on such incomes will need to be made as well.<br>&nbsp;<br>Meeting timelines is crucial, as interest is levied for deferment beyond the due date.&nbsp; For instance, even where the tax payer misses the timeline of 15 September, and remits the taxes within the same month, interest liability could be as high as 1 per cent per month till the subsequent due date of 15 December.&nbsp; Effectively the tax payer pays a 3 per cent interest on the shortfall, even for a minimal delay.&nbsp;&nbsp; With respect to capital gains, interest liability does not arise where taxes are paid up through the remaining installments of advance tax.&nbsp; For instance, when a tax payer has a capital gain income arising in the month of November, 60 per cent of the taxes due on such income needs to be paid by 15 December, and the balance by 15 of March. There will be no interest liability for non-payment of taxes in September.<br>&nbsp;<br>Interest liability is also triggered from the 1 of April of the subsequent financial year to the month of payment of taxes, when at least 90 per cent of the total taxes due are not paid by way of TDS or advance taxes. The estimation of taxes therefore needs to meet an accuracy level of 90 per cent.<br>&nbsp;<br>Needless to state, a certain amount of care and planning in the payment of taxes will go a long way in reducing the interest costs to the tax payer.<br><br><em>Saraswathi Kasturirangan is senior manager at Deloitte Haskins &amp; Sells</em></p>