A stitch in time saves tax!

By Kapildeo Singh

Meet Avanti Purohit, a 24-year old media professional who works with a production house in Mumbai. She rents a flat and lives alone. Besides, having an independent streak, Avanti is ambitious and wants to build a career. And fast!

She also wants to secure her finances. Here's a quick look at what she earns:

Like many salaried professionals, Avanti has no clue about tax rules. The result: a shrinking salary!

Avanti's top tax mistake
She received her first bonus amount of Rs 50,000 in July 2007. She used this money to pay the deposit on the flat she planned to rent. By September, Avanti realised that the taxman was eating into a large part of her salary.

Her friend who happened to be a chartered accountant pointed out that she needed to invest around Rs 50,000, to save tax this year. Assuming that the next bonus amount would come in January, she postponed her investment plans for then.

Unfortunately, the company postponed its plans, and her bonus installment arrived in the first week of March 2008. By then, the last date to submit her investment proofs had passed, and the company refused to extend the date.

Why this happened
In September, Avanti had declared to the company that she would be making investments of Rs 50,000. She would have saved at least Rs 10,000 in tax by making those investments.

The company went ahead and deducted her monthly tax (called tax deducted at source or TDS) on the basis of that delcaration. All Avanti had to do was submit the proof of those investments in February, which she didn't. Hence, her company considered her investments as zero for the current financial year and will recompute her TDS amount.

So, all the money Avanti could have saved (Rs 10,000), would be deducted from her March salary. This was a big blow for Avanti!

What Avanti must do NOW
According to chartered accountant Amit Nagar, Avanti can still do some damage control to save tax. “She needs to make the right investments before March 31, 2008 and claim for the refund of the tax deduction in her tax returns,” he says. 

• Avanti must choose investments, specifically selected to help her save tax. It would be a good idea for her to consult a reliable financial planner.
• She can choose from tax-saving instruments like Public Provident Funds, National Savings Certificates, Equity Linked Savings Schemes and the like.
• To be eligible for the refund she will have to file her tax returns on or before July 31, 2008. Along with her tax return form, she must attach the proofs of the investments. A chartered accountant can help her with this. Every city has a local income tax office where tax returns can be filed. Avanti can log on to the Income Tax web site to find the nearest office.

The catch: The refund won’t come instantly. Avanti may have to wait for it for at least a couple of months or maybe more.

Quick list for working professionals:

1. Make all your investments before March 31, and keep the investment details handy.

2. Try to spread your investment strategy throughout the year to avoid having to make hasty bulk investments at the end of the financial year. For example, if buying a mutual fund is in your plan then investing through systematic investment plan (SIP) makes better sense than a bulk buy.

3. Submit your investment details on time. The time frame could vary from company to company (usually it is in the months of January or February). 

Also check out! How to use the Right to Information Act to claim overdue refunds.