The tax-filing season has began. Last yr, as a result of pandemic, many individuals confronted sure unprecedented conditions corresponding to pay cuts, pay deferments and job losses. These have impacted their incomes. Many folks withdrew their financial savings to fund their quick money wants. The authorities additionally introduced sure adjustments in tax guidelines to supply sure reduction to the taxpayers. For instance, it allowed tax-free withdrawal from staff’ provident fund (EPF). Although this withdrawal is tax-free, one wants to indicate this within the revenue tax return (ITR). Apart from these, there are different points that one ought to consider whereas submitting the ITR for this monetary yr.
Tax legal responsibility could also be larger in case of pay deferment: Due to covid-19, many individuals confronted wage delays, other than pay cuts and job losses. Therefore, in case salaries have been deferred, it’s good to just be sure you have paid the correct quantity of tax in your wage revenue.
Generally, salaried staff usually are not bothered concerning the tax deduction because the employer does it for them. However, there may be an anomaly within the tax legislation that will result in you paying decrease tax or your employer deducting much less. This might result in a discover or penalty from the tax division. So, allow us to first perceive the tax legislation across the taxability of the wage.
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“According to the Income Tax Act, wage revenue turns into taxable on due or obtained foundation, whichever is earlier, whereas the employer is liable to deduct TDS (tax deducted at supply) on the time of cost,” mentioned Tarun Kumar, a Delhi-based chartered accountant.
So, suppose the employer has deferred the wage for March and paid the identical in April, that’s the subsequent monetary yr, the tax on the identical grew to become due in March. As salaried staff are additionally topic to advance tax, you’re purported to pay tax on the identical even though the employer will deduct TDS whereas paying wage.
“Where the employer has not deducted tax on a portion of wage, as its cost has been deferred, the worker is accountable to pay advance tax or self -assessment tax on that portion. as a result of wage is taxable on due foundation. Any failure in doing so will set off levy of curiosity and penalty,” mentioned Kumar. The TDS deducted by the employer within the subsequent monetary yr for the deferred half might be claimed as refund.
Apart from this, in case of pay cuts, it’s best to be certain that the identical is mirrored on every element of the wage slip and also you get a revised contract. As in case of mismatch in tax deducted or tax due quantity, the identical might be proven as a proof to the tax division. “In case the CTC is revised (lower or hike), then the identical ought to be mirrored within the wage slip additionally. All the parts of the wage corresponding to primary pay and allowances ought to be revised accordingly,” mentioned Kumar.
Showing exempt revenue: Last yr, as many individuals confronted monetary crunch, they withdrew cash from their provident fund account. The authorities allowed withdrawal of non-refundable advance by staff from their provident fund account. Further, even a second advance close to such EPF withdrawal was permitted.
In accordance with such withdrawals, the EPF member may avail a non-refundable advance of three months of the essential wages and dearness allowances or as much as 75% of the quantity standing to member’s credit score, whichever is decrease. Such withdrawals are tax-free. However, the taxpayer is required to indicate them within the ITR. “The ‘FAQs On EPF Advance to Fight Covid-19 Pandemic’ issued by EPFO particularly exempted such advance/withdrawal by means of offering that ‘income tax is not applicable on any advance availed under EPF scheme’. Accordingly, the quantity of such withdrawal could also be declared ‘exempt income’ within the ITR,” mentioned Suresh Surana, founder, RSM India .
Apart from this, an individual could make provident fund withdrawal underneath sure situations, which can have tax implications relying on the period of employment of the particular person. You ought to present such money flows within the ITR within the applicable method.
Allowances are totally taxable: Many employers have given a lump sum or reimbursed the worker for spending cash on shopping for furnishings as a consequence of work-from-home situations. Any such cost by the employer to the worker is totally taxable.
“Not many employers have deducted TDS on such funds. But these allowances or reimbursements are totally taxable. Therefore, in case an worker has obtained such allowance or has bought payments reimbursed, he/she ought to be certain that the identical is mirrored within the type 16; in any other case he/she ought to pay tax on the identical,” mentioned Shailesh Kumar, accomplice, Nangia & Co. LLP.
Show monetary assist obtained for covid-19 in ITR: As per the newly introduced reduction measure by the federal government, any monetary assist obtained by an worker for covid remedy from the employer or some other particular person will probably be tax exempt for FY21 and subsequent years. Such exempted revenue is mostly proven underneath the ‘exempt income’ part of the ITR. However, closing pointers are awaited on the identical.
So, if you’re submitting or planning to file the ITR for FY21, be sure to keep away from such errors.
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