There are still more than three months to go before the tax year ends. But the salaried will in all probability be required to furnish details, either in this month or in January, of actual investments made during the year to their employer. It is advisable therefore that the salaried get going on their investments and gather the investment proof they will be required to submit to the employer. A delay in the submission of proof may result in the employer deducting excess income tax for which a refund claim will have to be later filed.
Even though it is the eventual responsibility of the individual to furnish the tax payable and file returns, the employer facilitates the process by deducting the tax from the salary payable and depositing it with the government. Therefore, to avoid the inconvenience of paying tax on the last day of the financial year and to prevent the employer from cutting excess tax it is important to be as accurate as possible while submitting proofs of investment made during the year.
Late payment of tax can result in penalty and excess payment means a long wait for refund. Here are a few things that you can do prevent such a situation.
Estimate interest income: The convenience of Section 80L wherein interest income up to Rs 12,000 was exempt is no longer available. Tax has to be paid on the interest income earned. It is advisable to go through bank statements to estimate the amount of interest income you would earn during the year.
Also taxable is income from other instruments such as National Savings Certificate, Kisan Vikas Patra etc. Estimate the cumulative amount of interest income you are likely to earn from these sources. Submit these details to the employer so that this income can be taken into account and tax paid on it.
Advance tax: Not all tax is payable on the last day of the financial year. Be aware of the income other than salary on which advance tax has to be paid. Individuals are required to pay advance tax in three installments at a specified percentage viz. 30%, 60% and 100% of the total tax liability by September 15, December 15 and March 15, respectively. Account for transaction time: It is possible that you have not yet made the investments you said you would make.
It is better to start as quickly as possible instead of waiting for the last day of investment declaration. Cheque clearances, actual receipt of policies, certificates and statement of interest-principal break-up on housing loans takes time. Of course investments can be made in the first three months of 2007 too, but by then the employer may have deducted tax assuming that you have not made the investments. Arrange for rent receipts if you intend to claim relief on account of HRA.
Past patterns: It is quite possible that the next premium or installment is payable in January, February or March of every year. In that case it is better to furnish proof of past payments so that the employer accounts for deductions on this count while calculating your tax liability. In any case, keep your employer well informed about the forthcoming investments. But remember, not making them may mean a hefty tax deduction in March 2007.