On April 1, the Central Board of Direct Taxes (CBDT) notified all the income-tax related (ITR) forms for assessment year 2020-21. While you have time to file your returns (for income earned during the FY 21), till July 31, there are few things that you should complete in April itself, to avoid unnecessary complication and trouble. Read more to know
Old or new income tax regime: declare now
From the last financial year i.e. 2020-21, taxpayers are required to choose between the new and old income-tax regime they want to adopt.
If you are a salaried individual, you must make this declaration to your employer in the month of April itself so that your employer can deduct the taxes accordingly, before paying your monthly salaries. “That’s because the tax rates and exemption and deductions that an individual can claim, are quite different in both of the tax regimes,” said Kapil Rana, Founder And Chairman, HostBooks Limited.
For instance; under the new tax regime, the exemption of section 10(14) are not allowed, except transport allowance to disabled employees. Additionally- and under the new income-tax regime- deduction under sections part of Chapter VIA of the Income-tax Act that deal with investments and expenses (such as Section 80C) are not available. However, few allowance directly related to performance of duties like conveyance allowance, travelling allowance and daily allowance can be claimed by the employee and those are exempted from tax. Rana adds that deductions of Section 80CCD(2) (employer contributions made to the National Pension Scheme (NPS) on behalf of the employee) are allowed for deduction even under the new regime.
Also read | Why the existing income-tax regime with deductions still scores over the new regime
Naveen Wadhwa, DGM, Taxmann suggests that to decide which income-tax regime to select, salaried employees must compute their taxes twice, first under existing or the old tax regime (after claiming all exemptions and deductions) and second under the new tax regime without claiming exemptions and deductions. “It’s best to do this in April itself, so that they can declare the preferred regime to the employer to deduct the tax accordingly,” he says.
Wadhwa reminds us that the CBDT has clarified that in the absence of this communication, the employer will assume that the employee wants to stick to the existing income-tax regime. “Therefore, it is necessary for an employee intending to opt for a new tax regime, to tell this to his employer,” added Wadhwa.
Investment and expenses declaration
If you wish to stick to the existing income-tax regime, make a declaration of your investments and expenses that you intend to make during the current financial year, right away to your employer. This is especially for those investments and expenses that qualify for income-tax deductions..
“The companies usually ask for investment declarations from their employees for TDS purposes around this time, which the employees would need to comply with otherwise, it may lead to higher withholding of tax,” said Sandeep Sehgal, director -Tax and Regulatory, AKM Global, a tax and consulting firm.
For instance; make declaration of investments you are planning in equity-linked tax saving mutual funds (ELSS), Public Provident Fund (PPF), National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY),5-year tax – saving fixed deposits (FD) or term deposits in post offices; all these investments qualify for deduction under section 80C. Similarly, expenses such children education fees, interest on home loan, education loan, electric vehicle loan, and house rent and so on qualify for deduction in different sections.
Also read | Lesser known income-tax deductions to axe your income
Furnishing Form 15 G and 15 H
Those who are having investment in fixed deposits (FDs) should submit form 15G or 15H as applicable to banks, if their income is expected to remain below the taxable limit. Ideally, this should be done at the start of the financial year, because banks are required to deduct TDS in case your interest income is more than Rs 40,000 in a year. For this purpose, the bank adds deposits held in all its branches to calculate this limit.
Form 15G and Form 15H are self declaration forms for an individual below 60 years of age and those above the age of 60 years, respectively. Some banks also allow you to submit the forms online
Vivad se Vishawas scheme
The deadline for the payment of tax without additional interest under the 'Vivad se Vishwas' scheme is 30 April, 2021. The Direct Tax 'Vivad se Vishwas' Act, 2020 was enacted on March 17, 2020, with the objective to bring down pending income tax litigations, generate timely revenue for the government and to benefit taxpayers. Make sure to pay the due tax if you have opted for the scheme by the end of April.
Pay the self-assessment tax
The due date to file the ITR for FY 21 is 31 July 2021, unless the government extends it. However, if there is any tax due at your end on income earned during the FY21, it will continue to attract interest, till you pay the same. So, it is prudent to self assess your tax liability and make the payment to avoid panel interest. This self assessment of due tax is called self-assessment tax (SAT). Once you pay the SAT, you can even file your returns instead of waiting till 31 July.