Indian Income Tax Issues

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The total income of the employee has to be computed including salary, other sources, capital gains, income from house property reported by the employee. Further, deductions under section 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80GG, 80GGA and 80U have to be reduced. Then, the total income chargeable to tax will be estimated. On this, tax has to be calculated at the slab rates applicable as per the latest Finance Act. To the tax, applicable surcharge and cess are to be added to arrive at the total tax to be deducted.

Note: Deduction for 80G, however, is not considered by the employer/Drawing and Disbursement Officer (DDO) while calculating total income. The deduction under section 80G has to be claimed by the employee while filing his return of income.

1. Non-Reporting of other sources like bank interest etc: The employee-assessee either forgets to report the other sources of income. Take for ex: interest on FD or savings account. This will reflect in the 26AS of the individual and not reporting will result in the employer not deducting sufficient tax on the same and the employee need to pay the same along with interest at the time of filing of the return which can be quite painful.

Note: Please note:

Ø Up to Rs.10000 earned by way of interest on savings bank account can be claimed as a deduction under section 80TTA for non-senior citizen and up to Rs.50000 can be claimed as a deduction under section 80TTB for senior citizen. Hence, non-reporting of the same up to the limit may not result in tax liability at the end.

Ø Banks also will deduct TDS at 10% on interest. However, this may not be enough in case of individuals who come under the highest slab, 30%.

2. Change of Jobs-to take care: In case of change of jobs during the financial year, every employee has to take care to inform the second employer, the salary earned with the first employer and the tax deducted by the first employer. If not reported, the second employer will give deduction under section 80C to the full which will result in double deduction both with first employer and second employer. The second employer will also calculate the slabs from the scratch. First basic exemption, 10% slab, 20% slab and then, 30% slab. Needless to say, these slabs would have been already taken care by first employer. Hence, the basic exemption will be double claimed, 10% will be double claimed, 20% tax rate will also be double claimed. At the time of filing of return, all will be consolidated by the return filing utility and the tax liability will be too much for the employee to bear in one go.

3. HRA management: In case of HRA claim, employees will intimate the highest amount of rent that can be accepted by the employer without PAN. Further, rent receipts are also created for employer and submitted to employer. As a matter of caution, it is suggested that rent receipts be taken from the actual landlord and submitted to the employer.

4. Double claims in case of working couple: Sometimes, it so happens that the life insurance, medical insurance etc. are paid by one of the working couples but claimed by both husband and wife. This happens due to oversight while collecting all the proofs for submission. It needs to be taken care to avoid double claims.

5. Claiming HRA while residing in own house: Sometimes, employees take loan to purchase house property. Interest on loan can be reduced from other income. But, there is a cap for interest on loan paid for self-occupied house property. Hence, people show a nominal rent and claim full interest. On top of that, they claim HRA also while residing in the same house. This needs to be avoided.

Hence, to ensure smooth processing of return, employees need to take care of the above items.