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Income Tax: Last minute receipts can have unintended consequences

There is a lot of tax planning that is undertaken by salaried individuals but there are some occasions when some receipts can throw this completely out of gear.

February 27, 2012 / 03:47 PM IST

Arnav Pandya


There is a lot of tax planning that is undertaken by salaried individuals but there are some occasions when some receipts can throw this completely out of gear. This will mean that several payments that are due to the person would actually push up the taxable income of the individual that will be subject to tax and hence this will have to be considered in the overall planning by the individual. While the tax aspect for some of these items will be automatically taken care of there are also some unintended consequences that can be at play. Here is a look at some of them and how they can be tackled.


Bonus


One of the eagerly awaited actions especially in a few industries or sectors that give incentives is that of bonus. This can be known by different names like performance incentive or bonus and so on but in effect this is an extra payment that is received by the individual. In most cases there is no certainty about the amount of the bonus that will be received but is often decided upon the performance of the individual as well as the entity. In such a situation the entire amount of bonus that is received will be taxable in the hands of the employee.


The employee has to consider whether this makes any important difference for them with respect to their overall taxability. It could be that the bonus pushes then to an overall higher tax slab which would mean a higher liability of say 30 per cent for their additional income like interest when earlier only 20 per cent was applicable. If this happens then they need to ensure that any additional amount of tax is paid.  


Due amount


There are some cases wherein the salary for the last month of the year is delayed and hence this is paid a bit late. However when it comes to the issue of taxation there is no relief for such a situation in the sense that the amount has to be included for the purpose of the income calculation of the year. The tax that is deducted on this amount will also be considered as the tax paid for the year and hence this will have to be brought into the picture accordingly.


Salary income is taxed on an accrual basis so this needs to be considered and the necessary effect given to it. While the payment amount might not come in the same financial year this should have no impact on the planning or the tax filing process because the income tax return has to filed a few months later. However it is important to have the right estimate for the annual income so that any additional tax is paid by the due date.


Entitlements


There are several amounts that are included in the salary of the individual which are actually due to them as reimbursements. IF there are relevant expenses made for the heads for which they have been allocated then the full amount is given to the individual. So for example if there is a limit of Rs 10,000 for various news papers and books that are bought by an employee and there are the required bills produced for the expenses made then the full amount is given to them. However if the bills are not produced and there is no proof of the amounts having being spent and if they are due to them then there is a separate way in which the situation is tackled. Here the tax that is due on the amounts is deducted from the amounts and then the net figure is what is actually paid to the individual employee. Employees need to check the exact position with respect to the figures included in their salary because in many cases they might even lose the right to claim the amount if they have not incurred the relevant expenses. Conducting this exercise will help them get the exact benefit due to them.

Disclaimer: Views expressed in this article are entirely personal.
arnavpandya@hotmail.com.

first published: Feb 17, 2012 04:04 pm

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