Income tax returns (ITR) filing: Pay cut in offing unless you do this one thing quickly
Income tax returns (ITR) filing: If your total income in a financial year is below the taxable limit, you can fill up Form 15G or 15H to avoid TDS. One can use forms 15G and 15H, as applicable, to avoid tax on interest income from bank deposits too.
Income tax returns (ITR) filing: The new financial year has just started and your employer may have been asking you to make all the relevant investment declarations that relate to tax-savings and expenses. If you haven't done that yet and are not planning to any time soon, you must make a note of your negligence and ensure it does not happen again. Reason behind the urgency is simple - it's your money that is at stake. If you fail to make important declarations, the employer will start deducting taxes at source (TDS), and your in-hand salary will take a dip.
What is TDS
An employer is supposed to deduct tax from your salary if it crosses a threshold and pay it to the government known as Tax Deducted at Source (TDS). To avoid TDS or reduce excess TDS being cut, all taxpayers must plan their taxes at the beginning of the year and make all important disclosures.
The percentage of TDS for salaried employees depends on income tax slab rate - each type of income has its own percentage of tax which is calculated when the amount meets certain limit. Since TDS is collected at source without calculating investment that is eligible for tax deductions, it becomes very important for employee to submit and declare his or her investment proof to file a return or claim TDS refund.
What happens when you don't pay TDS
In case, you fail to file TDS return in the scheduled time period, you will be liable to pay penalty of Rs 200 per day until the procedure is not completed. If you exceed more than a year time limit for filing TDS return or provided incorrect details of PAN, TDS amount, you will have to pay fine ranging between Rs 10,000 to Rs 1 lakh.
How to avoid TDS
If your total income in a financial year is below the taxable limit, you can fill up Form 15G or 15H to avoid TDS. One can use forms 15G and 15H, as applicable, to avoid tax on interest income from bank deposits too. If your income falls under the tax slabs, you must plan your investments to reduce taxable income.
Proof of investment in Section 80C, house rent allowance (HRA) exemption, home loan principal and interest repayment, investments for NPS and health insurance tax benefit are some of investment proof that you would need to avoid excess TDS.
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Once your investment declarations are with the employer, they will take into account those investments to compute the TDS. Since investments reduce your total taxable income for the full year, TDS will also get reduced. In the beginning, usually employer just asks you to make declarations without documented proof. However, proof will be required closer to the end of the financial year, in the absence of which you will be back to square one.