Its Tax Time

It is that time of year where we start thinking of taxes or should I say that the companies you work for make you think about Income Tax

Yeah, we can hear the collective internal groan from you. Paying taxes is not our favorite thing in the world but it is something we must do for our benefit (apart from not being penalized for not filing) and the country’s benefit.

We know that Income Tax payment is both boring(painful) and difficult with a lot of financial terms. With this article we are trying to break that scary Income Tax to make sure you can declare and file on your own.

Now you might be thinking – the Government says that it is with the tax collected that they “spend” on development schemes, but how is paying taxes beneficial to me?

At the beginning of the financial year, you would have declared your financial details to your company based on which companies deduct money each month splitting the tax payable into 12 months. This is called Tax Deducted at Source or TDS. Companies then pay the money deducted along with any excess payable at the end of the year to the Government on employee’s behalf.

Paying income tax is important as sometimes banks ask for IT returns as income proof or pay slip with complete details of TDS and other deductions done each month. IT returns is also important if you want to negotiate with a bank to get higher loan amount as higher the salary and disposable income, the more you can negotiate for loan amount. Another important point is when you apply for Visa to go abroad embassies also ask for IT returns. 

Now that you know that there is an upside to paying taxes, now you must be thinking about the declaration process at your company. What to declare, how much am I eligible for and most important how do I do it.

IT 2017-2018

The first thing you need to do is know what slab you fall under

Income tax slab for men and women below 60 years

Income Tax Slab Rate for Senior Citizens (Age 60 years or more but less than 80 years)

Income Tax Slab Rate for Senior Citizens (Age 80 years or more)

Based on your slab you will know how much deduction you are eligible for.

By subtraction the initial deduction you get your taxable income. To make it simple, let us consider an example. If your Salary is Rs.5 lakhs per annum which includes your salary and from other sources like rent with your age is 25 years then your taxable income is Rs.5,00,000 – Rs2,50,000 = Rs.2,50,000. Which means your tax be 5% of Rs.2,50,00 = Rs.12,500

Now don’t think this is the amount you will have to pay you can still reduce it with investments, home loans you pay, medical expenses etc.

Deductions

Now we come to your favorite part, it’s our favorite part too. Let’s see all the options available to you.

Section 24

If you bought a house or constructed a new one by taking a home loan, then this is important for you. The Government allows up to Rs.2,00,000 deduction on the interest paid on the loan. This section instills the childhood proverb that “sharing is good”. This is because if you had taken a joint loan with your spouse or parents then you can get more deduction. i.e. an addition Rs.2,00,000 per individual.

Section 80C

Section 80C is where you can claim deductions for Home loan principle payment, PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual funds, National Savings Certificate, Senior Citizens Saving Scheme etc. The maximum one can claim under this section is Rs.1,50,000.

Section 80EE

If you are a first-time home buyer, then you need to know this. The Government allows an additional Rs.50,000 as deduction apart from the Rs.2,00,000 under section 24 and Rs.1,50,000 under section 80C.

To be eligible you need to satisfy the following conditions

•          This deduction would be allowed only if the value of the property purchased is less than Rs. 50 Lakhs and the value of loan taken is less than Rs. 35 Lakhs.
•        The loan should have been sanctioned between 1st April 2016 and 31st March 2017.
•        The benefit of this deduction would be available   till the     entire time the repayment of the loan   continues.
•        This Deduction would be available from Financial   Year     2016-17 onwards.

       Provident fund

Do you remember that cut you see in your salary slip each month, that is your Provident Fund which will consist of 2 parts – 1 your contribution and the other the company’s contribution, will be deducted each month from your salary. For this you will get 100% deduction for your contribution.

Conclusion

At the end of the day you need to put a little bit of effort to know your finances, make useful investments which will help you in save money and save taxes. Make all the right choices now and take advantage of all the deductions and tax saving options available. Be the smart one!