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Managing you income tax burdens

Now is that time of the year, when you need to declare your investments for the year 2001-2002. If you have missed out on investments for the previous year and a large sum is going out in taxes from your monthly salary, take heed for the coming year. If you submit your plan before June 30 you will see your tax liability for the coming months moving down.Check it out.

Declare your investments and invest in PPF
Pay your taxes in time after claiming Rebate
File your annual Return of Income
Income Tax Rates - Individuals & HUFs

Declare your investments and invest in PPF
Remember that you can now invest up to a maximum of Rs.80,000 and you will be eligible for getting a tax rebate. In addition to investments to the tune of Rs.60,000 in the Public Provident Fund, National Saving Certificates, life insurance schemes or units of Unit Trust of India, you can invest an additional Rs.20,000 in infrastructure bonds.  According to Section 88 of the Income Tax Act, at a 20% rebate rate, you will get a tax rebate of Rs.16,000 on these investments. But, according to the the latest announcements in this Budget of 2002-03, everybody is not eligible to claim a rebate of 20%. Now, the tax benefit u/s 88 will be available as per the income slab as follows:

Investments in PPF have an unique benefit: According to Section 10 of the Income Tax Act, the interest on this income is totally exempt from tax. At a rate of 9.0 % per annum, compounded annually, PPF gives a good return on investments. Compared with bank deposits, which are not offering more than 8.5% even for long-term investments, a PPF investment makes sense, specially since the interest is totally exempt from tax.

In other investment options like fixed deposits, the interest income is exempted only up to Rs.9,000 per annum under section 80L.

The drawback with a PPF scheme, however, is that it has a minimum lock-in period of 15 years.

A partial withdrawal is permissible only from the 7th year, from the end of the year in which the initial subscription was made. Simply speaking, this means that you can make a partial withdrawal, from the seventh year onwards. An amount not exceeding 50 per cent of the amount that stands to your credit at the end of the fourth year, immediately preceeding the year of withdrawal, is the maximum amount that can be withdrawn.

Despite this, PPF seems the most attractive option due to its tax concessions, in case you are not in need of liquidity. A simple way to work out how much you can invest in a PPF account is to calculate what level of monthly cash inflow you are comfortable with. If you wish to go in for a shorter term investment you can opt for a National Saving Certificate, which has a six-year maturity period. But whatever amount you are sure you will not need, take it away, under the PPF scheme, while declaring your investments for the coming year.

Pay your taxes in time after claiming Rebate
On reducing the aggregate of deductions from the gross total income, one arrives at the taxable income or net total income. An individual or assessee is liable to pay tax if his net total income exceeds Rs. 50,000/- during the previous year ended 31-03-2001. 

Further, one can reduce his tax liability by claiming a tax rebate that is permitted when one makes certain specified investments. A special rebate is allowed to senior citizens.

The tax payable is usually deducted at source at the time of disbursing the income. The organization making this payment is under a legal obligation to collect the tax and remit it to the Government on behalf of the recipient of the income. There are also provisions that may require an assessee to directly discharge his tax obligations during the previous year itself. This is done by payment of estimated tax liability over three installments. This is called advance tax. If any tax remains unpaid by the end of the previous year, the assessee may pay the tax before filing his return (self -assessment tax) with interest, if applicable.

File your annual Return of Income
An individual having salary income and no business income must file his return not later than 30th June of the assessment year. The due date of filing the return by an individual having business income and whose accounts are not required to be audited under the Act is 31st August. The return should be in the prescribed form (Saral Form). It is also necessary to file a return to claim a refund of any excess tax paid.

You need to attach documentery support for tax deducted at source, investments/payments made that allow you to claim deductions and tax rebates and employer's certificate in Form 16-A.

The income tax year or assessment year is the year in which income of the previous year is to be assessed. The financial year following a previous year is called the assessment year in relation to that previous year. Thus the assessment year for the previous year 1999-2000 is 2000-2001.

An assessment, therefore, comprises of two stages:

1. Computation of total income and
2. Determination of the tax payable thereon.

When both these stages are completed, an assessment is said to have been made.