The financial year is coming to a close. Most would have done the tax planning in advance and already made all the investment. If you aren’t one of those, and are scrambling to save the maximum possible tax, there’s still time. But you must act fast as the March 31 deadline is just days away.
Here are a few things to know for those making tax planning at the eleventh hour.
Calculate your total income for the year.
Don’t delay further if you haven’t already done this. Sources of income are broadly classified into five. Jot down your proceeds from each of these, or whichever are applicable to you.
The five sources are:
Salary income: Includes income from salary, pension, bonus, gratuity, fees, commission and annuity
Income from house property: Rent received from houses or other buildings where you aren’t staying
Business income: Income from business, profession, self-employment, etc.
Capital gains: Capital gain is the profit made when you sell an asset like real estate, shares or gold for an amount that is more than what you have bought it for. Capital gains are further classified into long-term and short-term gains. Of course, there can be losses as well.
Other income: Any income that doesn’t come under the previous four is calculated and taxed under this category. Income from various investments, gifts, lottery, etc., come under this head.
Now, it’s time to find out the standard and other deductions that you are entitled to make on the total income to find out the taxable amount. There are certain deductions allowed under each of the five sections. Your taxable income will be the net of the deductions.
What are the deductions:
Salary income: Up to 2.5 lakh is exempted from income tax for this fiscal year.
Rental income: 30% of the rental income can be deducted from the rent received towards expenses on the property. In case you have bought the property on loan, all the interest paid to the bank will become tax-free if you show rental income.
Business income: The standard deduction of Rs 2.5 lakh is applicable here as well. All other expense to run the business, such as on transport, salary paid to staff, rent, etc., too can be deducted from total income, provided there are receipts to back the expenses.
Capital gains: If you have made a loss on a capital investment, the loss can be set off against gains under the same category to arrive at the taxable income. The loss can also be carried forward, based on certain conditions.
Other income: Gifts received from close relatives are tax free. Real estate, gold or shares gifted to close relatives are also tax free.
Now that you have accounted for all the deductions and have the net figure, the next task is to look for the avenues available to save tax.
You would have already used up all the deductions allowed under Section 80C of the Income Tax Act. Now, consider your tax liability. Those who have already done the planning and have allocated money accordingly can relax. But if there is still a sizeable amount on which you have to pay tax, there are some more steps left for you.
Take a relook at all the avenues available to save tax. See how much deduction is allowed under each head. This should now become your checklist.
Have you availed of all the tax benefits provided under law? If you haven’t, shortlist those that you can still utilize.
Now, the action plan. Based on the checklist, do an evaluation to see what are the sections that you can benefit the most from. Now, number those and find out how much money you need to set aside under those heads.
You have to now arrange for the money to make the investment or pay premium towards medical insurance, etc. Only a few days left to do that. You must also know what is the tax benefit that you can gain from these steps. If the work required to arrange the money, including the cost of it, is less than the gain, then go ahead and make the investment to save tax.
Now that you have the money, don’t waste time. Invest it immediately. Only those investment or expenses made before March 31 will qualify for tax benefit against this fiscal year’s income.
Deadline: March 31
Don’t worry even if you have already submitted the investment declaration to the employer and tax has been deducted at source based on that. You are still entitled to get the tax benefits till March 31 on the investment made or expenses incurred under the accepted heads. Show those in the tax returns you file by end-July. The tax department will refund the excess tax paid.
Apart from these, there is a 3% education cess on the tax payable. Those with taxable income of up to 3.5 lakh will get a rebate of up to Rs 2,500.
Individuals with annual income of more than Rs 50 lakh need to pay a 10% surcharge on the tax payable. If the income is more than Rs 1 crore, the surcharge is 15%.