Monday, July 31, 2006

Switching Job – Don’t suffer due to underpayment of tax

My several friends changed jobs during the year. Now while filing returns, most of them ended up having an additional tax liability. Botheration was not only the added penalty interest, but also the unplanned expenditure, ranging from Rs 10,000 to 50,000.

Why does it happen?
Both companies compute annual tax independently and divide it by 12 to get the monthly liability. Following are the tax slabs
Upto 1 Lacs ------Nil
1-1.5 Lacs ------- 10%
1.5-2.5 Lacs ----- 20%
2.5 Lacs + --------30%
While calculating annual tax liability, Company A will follow the above slabs, and company B will also use the same. In effect, your tax will be computed using the 1 Lac - zero tax slab twice.
This is the simplest case, when you have not declared any savings, etc. Things can be further complicated if both companies consider the 1 Lac deduction under section 80C

What shall you do?
When you join a new company, payroll department asks for a statement from the previous company, which provides the detail similar to Form 16 (Since form 16 is available only at the end of year). If you can get that statement in time, well and good; otherwise submit the actual salary slips and monthly tax calculation sheets (if provided by the previous company).

Most people told me that despite of providing the details to the new company, they still faced the problem of underpayment of tax. So do not just submit the documents, but also track the tax computation done by the new company, in the first salary itself.

Take corrective action
In the month of February/ March, check the actual income, investments and compute the tax. If tax deducted does not meet the calculation, ask your payroll deptt to deduct more tax, or as a last resort, submit the tax in a nationalized bank before March 31. This will at least save you the penalty interest.

Know the Law
For exact rules and regulation, visit www.incometaxindia.gov.in.
In simple terms, if you do not pay the full tax till March 31, there is a penalty interest chargeable to you. And if you do not pay the remaining tax along with the penalty interest before last date of filing return (July 31), its becomes an offence, and you will be charged additional penalty (and of course interest) at the least.

How to pay the Additional Tax
Compute the tax liability; and deposit the amount in the nationalized bank (ICICI bank included) along with the appropriate challan (available on income tax website).

Be cautious from the beginning, it really hurts when your tax agent tells you on July 25 that you would have to shell out additional 30,000 bucks in 5 days

2 Comments:

At August 01, 2006 9:00 AM, Blogger Ravi said...

Well all this was news to me. Thanks a million Shilpi!

 
At August 03, 2006 3:16 PM, Blogger Dexter said...

so nice of you to drop by :)

yikes! tax reminds me that i have midterms coming up :(
accounts :'(

 

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