Are taxes always a
worrisome task in March every year? Perhaps you are not sure of the total income,
you have not updated yourself with the current tax slabs and allowances, you do
not have the record of deductions and savings … the list is endless. The way to
avoid the end-point hassles is, of course, to start assessing yourself from the
beginning. You can start by entering each month’s salary and deductions into a
spreadsheet, and in my case this has stabilized as a complete tax calculation
application with separate pages for salary, interest incomes, house property,
capital gains (which is now empty because I have abandoned shares!), and a
master worksheet bringing it all together. I save the newspaper of end-February
which usually has the tax proposals, and the issue in end-March which has the
finance bill as voted in Parliament (these are of course available on the
website of the income-tax department nowadays, but having the paper version
saves a little time). You can note down the changes in slabs and rates,
deductions, and any other significant stuff (like concessions for senior
citizens!), and start computing the tax likability from the start. By the third
quarter, I start seriously paying up the anticipated cumulative tax dues in
installments. This way, at the end of the year, there’s little calculation to
do, and no standing in queues with other harried late stirrers!
Just a caution: make
sure to check the calculations by hand (a manual check of the spreadsheet, if
you are using one), as sometimes old data and formulas could be left behind and
cause unexpected mistakes- like claiming too much deductions or using old slabs
or rates of tax!
Why don’t most people
do this in practice? One factor, I feel, is the general (and quite
understandable) resistance to parting with any of our hard-earned moolah to the
government. So the last three months’ salary is often entirely consumed by
taxes, since the accounts department usually gets the provisional tax return
from you in December. Actually there are also rules about how much of the
anticipated tax you need to pay by each quarter (I think about half has to be
paid up by the third quarter), called advance tax. If you haven’t kept up with
these installments, the income tax authorities may even charge you interest on
the quarter-to-quarter shortfalls (even after you’ve paid up the whole amount
in March!).
I’m finding a strange
problem nowadays because of all the interest income coming from the fixed
deposits from the retirement payments. The problem is that the banks deduct
some 10 to 13% as TDS (Tax Deducted at Source), but generally won’t give you
the correct figures until after the end of the financial year (usually only by
the end of June in the next financial year!). In the meantime, you have to pay
up the balance 20% of the tax on your interest income, by 31st March
of this financial year. It’s difficult to get the correct figures of income
since the banks are so busy toward the end of the year. In practical terms, what
I do is to make an approximate estimate of interest accrued by multiplying the
principal amounts into the interest rate for the appropriate number of months
the deposit has been in force during the 12-month period, and I just pay it up
before the year-end (I may have to encash a deposit or two to get the required
funds). Incidentally, that’s another little ploy I have of keeping things
flexible: I split my deposits into manageable amounts. I also have a system of
making each deposit for a slightly different amount: say you want five deposit
certificates, you make them for respectively 10000, 11000, 12000 and so on;
this is a way of numbering them serially without assigning numbers. This avoids
confusion about how many deposits are still there and how many have been closed,
and also keeps the bank accountants from terminal despair!
Should you file income
tax returns even if you are below the taxable limits? I personally feel you
should, because it always helps to have your accounts audited and certified by
the tax authorities every year (in case you need a tax dues certificate, for
any reason). Secondly, it gives a good training ground for you to build up
familiarity with the main rules, the process of preparing and filing the
returns, and so on, when there are no high stakes involved. Then when you do
start getting into the taxable range, you will not have a stressful learning
curve. As the psychologists say, we feel the pain of loosing money more than
the joy of getting an equal amount: that’s why if we learn later on that we
have missed some exemption or other loophole in the rules, it makes us feel
really bad. It’s wise to learn all this when we are not even in the tax net, so
that we are prepared for better times when the taxman will come a-calling!
One last suggestion
here: how do we find the money to pay our taxes? One sure thing is that if we
postpone payments, they become more and more difficult. That’s why the income
tax rules require the employer to deduct taxes at source. But as mentioned
above, the TDS rates are usually only 10%, whereas you may land up in a higher
tax slab toward the later part of the year, and then be forced to pay up your
entire salary as taxes during the last two or three months. When I had multiple
demands on my salary, I used a method that helped me budget my money without
too much pain. I made columns for these different ‘heads’ of payment in my chequebook (there's usually a few ruled pages for entering transaction details stitched into each chequebook), such as school fees, loan repayments, household, savings, selfish
pursuits, and of course taxes, and so on, and split up each month’s salary
income among these heads. Money
withdrawals or cheques issued were also entered under the appropriate heads,
and balance available also calculated head-wise. Of course sometimes one or the
other head would go into the red (since sudden demands always arise), and then
one has to make larger ‘appropriations’ for those heads in the next month’s
salary. You will notice that this works for those getting regular salary; it
beats me how business people manage their personal expenses, and increases my
admiration for them!
As a measure of
abundant disclosure, let me say I have just paid up large sums as advance tax
after closing a couple of my fixed deposits!
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