Income tax planning is a critical part of any salaried individual's financial planning. It can be a complex task, laden with various nuances that require scrupulous attention. This article aims to shed light on some of the common income tax mistakes that salaried employees often make. These mistakes can not only lead to undesired financial implications but also fall foul of the law. It is, therefore, crucial to know what they are and how to avoid them.
Income tax rules and regulations are put in place to ensure a fair and consistent approach to taxation. Hence, they impart a legal obligation on every earning individual to comply with them. Non-compliance, whether intentional or accidental, can lead to legal penalties. Besides, poor tax planning can also lead to unnecessary financial losses. Therefore, understanding common income tax mistakes can help salaried employees protect their financial health and stay legally compliant.
This article is primarily intended for salaried individuals who are responsible for filing their own income tax returns. It is also beneficial for HR professionals who manage employee tax matters and financial advisors who work with salaried employees.
The term 'Income Tax' means the tax levied on the total income earned by an individual in a financial year. The 'Assessees' are the individuals who are liable to pay the tax. 'Tax Deducted at Source (TDS)' is the amount deducted by employers from the salaried individuals' payslips every month. 'Income Tax Return (ITR)' is a form filled by taxpayers to declare their income and tax liabilities.
Filing an income tax return requires several important pieces of information and documents. These include PAN card, Form 16 issued by the employer, bank statements, details of any other income, details of tax-saving investments, TDS certificates, housing loan details, and tax payment challans, if any.
The first step is to gather all the required documents and information. Following this, calculate your total income from all sources. Then check the tax deducted by your employer by referring to your Form 16. Next, calculate your tax liability using the tax slabs applicable to you. Subtract the TDS from the tax liability to see if any extra tax payment is needed. If yes, pay it. Finally, use the online tax filing portals of the Income Tax Department to file your tax return.
Bear in mind that the last date for filing your income tax returns is 31st July of the assessment year, unless extended by the Government. The penalty for late filing ranges from Rs 5,000 to Rs 10,000. Exemptions and deductions are available under various sections of the Income Tax Act, the most popular being Section 80C, where one can claim deductions up to Rs 1.5 lakh per annum.
One of the common mistakes is the incorrect declaration of income, especially sources other than salary. Many employees miss out on declaring earnings like rent, interest income etc. Another major error is not understanding tax-saving investment options and failing to make the most of tax exemptions and deductions. Similarly, delayed or non-filing of tax returns is also a grave mistake. The failure to verify returns once filed is another issue. It is important to ensure that your return is verified, either electronically or physically, within 120 days of filing it.
Q: How can I verify my income tax return?
A: You can verify it electronically using Aadhaar OTP, net banking, Electronic Verification Code (EVC) or demat account. Alternatively, you can also send a physical copy of the ITR-V (acknowledgement) by post to the Income Tax CPC, Bangalore.
Q: What if I miss the deadline for tax filing?
A: You can still file a belated return. But, you may have to pay a penalty, depending on when you file the belated return.
Q: Can I revise my return if I make a mistake in it?
A: Yes, you can revise your income tax return any number of times before the end of the relevant assessment year or before your return is processed, whichever is earlier.
Avoiding common income tax mistakes is crucial for maintaining financial integrity and legal compliance. Being aware and adhering to income tax regulations can result in considerable savings and peace of mind. It is advisable to consult a tax professional or use online tax filing platforms, which make it simpler and hassle-free.
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