While most of us are aware of the significance of income tax in our financial lives, it might be difficult at times to decipher complex jargon and legalese. Some people still get stumped with terms like TDS, income tax declaration and tax filing.
During our Parichay Webinar Series, CA Agnel Pereira, a seasoned chartered accountant, decoded the basics and took questions from our attendees. Here’s an edited summary of our takeaways from the conversation. We suggest that you watch the entire recording after reading it.
As per Section 192 of the Income Tax Act, 1961, employers are required to deduct tax while paying salaries to employees. Usually deducted on a monthly basis, the amount is deposited at a bank authorised to collect taxes on behalf of the Government of India.
The financial year is the year in which the income is earned. The assessment year is when the actual computation happens for that financial year.
After deducting the tax, the employer has to pay the same to the government by the 7th of the following month. The due date for remitting the tax for the salary of March is 30th April.
There is an interest of 1% per month for non-deduction and 1.5% per month for non-remittance.
The employer also has to pay an additional penalty of INR 200 per day (The maximum penalty cannot exceed the TDS amount).
Employees have to submit a tax declaration, to their employer, at the commencement of the financial year. Also called investment declaration or expenditure declaration, it consists of all the tax-saving investments, deductions and expenses in that year. At the end of the year, the employee has to provide proof of investment (POI) for everything.
The computation of the monthly tax amount is based on the average tax rate, the estimated annual income of the employee and the tax declaration made by the employee at the beginning of the year.
All employees have to file an income tax return (ITR) every year. This form has the concerned employee’s income and tax details for the financial year. Form 16, provided by an employer to the employee, has all the details. Filing can be done online on the income tax department’s portal.
If an excess tax is paid, the employee will receive a tax refund from the income tax department. If there is a shortage, the concerned individual has to pay the same.
The employer has to file a quarterly return (in Form 24Q) by the 15th of the following month.