Netting taxes on your annual income
Salaried individuals have several issues that they need to clear before they file their returns. The issues are not very complex but they need proper understanding of the position. There is not much to do in terms of planning various payments because the taxation of much these amounts is already decided. A few areas that need careful attention are highlighted here.
Payments made in April
Several companies and employers have a system whereby the salary for the month is paid in the next month. This will result in a situation where the salary for the month of March will be paid in April. In such a position, the question arises whether the amount will be taxed in the previous financial year or be taxed in the financial year in which the amount is received.
The mode of taxation of this figure does not leave scope for any confusion because the law says that the amount has to be taxed on due basis if this is earlier. In this case, the amount becomes due in March so it will have to be taxed in that month irrespective of what happens in terms of receipt.
There can be a bonus received by an individual but this might refer to a previous year period that falls before the current financial year for which the taxation process is being done.
This can cause confusion for the individual because if the amount is to be considered for the period when they are due then how does one estimate the bonus. The rate and the amount of bonus cannot be known beforehand and in this case there is a different way in which this will be considered. The amount will be taxed only when it is received even though it might pertain to a period that is outside the current financial year.
Provident fund deduction
There is often some amount of confusion about the impact that the provident fund deduction will have on the individual. In this case the amount is deducted from the salary earned.
When the individual has earned the salary then it is already taxed and hence the first part of the process is already over.
The next part is about deduction for the provident fund as this is eligible for the deduction under section 80C. So all that an individual has to do is to consider the amount in the deduction figure for the year in his tax saving figure.
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