It’s that time of the year when your finance department will start pestering you for IT declarations. They will demand ‘investment proofs’ submission for the TDS calculation.
For many of us, who haven’t taken any steps yet to make investments or gather proofs, it’s going to be crazy few weeks ahead to understand the requirements for saving tax, make the necessary investments, submit declarations and proofs.
There are a lot of websites that help with tax calculations, information on deductions allowed; some also do tax calculations for you and some will let you file IT returns at the end of the financial year.
But we IT professionals are mostly not very proficient when it comes to finances or rather we don’t get enough time to understand the nuances of it and every year we face a multitude of questions and difficulties before the end of the year regarding taxation.
So here are a few questions answered in a straightforward and fun manner for IT professionals, and they might benefit you if you have recently come into the tax bracket (congratulations!) or if you are a regular taxpayer but still don’t understand it very well:
What is TDS?
You join as a fresher, and you are happy to be able to pay the rent of a sharing flat, food, cellphone, parties on your own. But then when you can afford or buy ‘more’ such as bikes, cars, iPhone, able to have a party more than twice a week then government starts demanding ‘hafta,’ i.e., share from your salary for letting you utilize the infrastructure of the country and providing you with job opportunities. This term for this share TDS (Tax Deducted at Source) and your organization deducts it and sends to the government (that’s probably because the government doesn’t trust you that if it asks you to part with your salary, then you will reveal your salary)
Why do I need to share my salary with the government?
I know it’s difficult to share (especially the salary), but the government does provide you with infrastructure like roads, water, electricity, safety, etc. and to keep it going they dip in our pockets. I know there are more potholes than roads and more crime than it should be and you might feel that we are paying more than the facilities we get but than we are still better than many other countries in the world and hopefully ‘someday’ our taxes will fetch us better facilities.
So when do I need to start sharing with government and how much?
| How much tax do you need to pay (Income tax slab 2018) |
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| (1) | You are fresh out of college and didn’t land your dream job, and your salary does not exceed Rs. 2,50,000 | Thank god at least I don’t have to share. (No Tax) |
| (2) | You landed up a decent job or slogged through last year and got a decent raise and has a decent salary between Rs. 2,50,000 and Rs. 5,00,000 | Congratulations! You have become a respectable tax paying citizen of India (Tax at 5 %) |
| (3) | You are progressing well in your career and have become Software Engineer and have 3-4 years of experience under your belt and can afford to fly back to your hometown on Diwali and salary is between Rs. 5,00,000 Rs. 10,00,000 | You are moving up now you have to cough out more share for govt. I know it hurts. (Tax at 20 %) |
| (4) | You have spent enough time in the industry and are a tech lead, project manager carrying an iPhone, have a home loan, driving a car or a genius college graduate who landed up a job with Google and your total income exceed Rs. 10,00,000 | Phew! the cost of living is so high, and you are hardly able to meet your expenses, and yet the govt wants the biggest share (Tax at 30 %) |
| Hold on the government will also charge tax on top of the tax already charged in the name of supporting farmers (or any other reason) in the form of ‘cess’ and ‘surcharge.’ You end up paying almost 4% more on the total tax paid | ||
My CTC on the offer letter is Rs. 5,00,000 so do I need to pay 20% tax on it?
Luckily the tax isn’t calculated on your CTC (or we would have been further broken). Your salary is divided into different expense head by your organization such as rent you pay (HRA), telephone bills, food coupons, etc. There is a certain limit up to which there is no tax charged. E.g., Govt. may think that Rs. 1,100 per month is enough for your food, so the amount of Rs. 13,200 (1100 * 12 months) will not be considered as part of your taxable salary.
Also, there are different deductions that government allows for some expenses that it deems necessary for individuals that deduction also happens in total salary before considering your salary for taxation.
What are these hashtags 80C, 80CCD, 80CCG, 80D, 80E, etc. should I worry about them?
You should definitely worry about them. They are your saviors. These are helper methods that will clean your string (i.e., reduce your taxable salary) before sending it for manipulation (i.e., taxation). These are some schemes by the government where if you invest, the invested amount (up to a limit) can be deducted from taxable salary. For example, if your salary is Rs. 5 Lacs and you have invested Rs. 1,00,000 in provident fund and Rs. 50,000 in mutual funds(ELSS) than your taxable income goes down to Rs. 3,50,000 (5,00,000 – 1,50,000).
My company deducted tax (Grrrr!), do I still need to do something?
At the end of a financial year (April to March), if your income is more than Rs. 2,50,000 you need to file an income tax return. A return is a form letting the government know how much you earned this year, how much taxes you paid and if you did any investments in the categories specified by them (indeed the government doesn’t trust us, probably that’s why we don’t believe them).
What’s the benefit of filing tax returns?
Filing Tax returns is mandatory if your CTC is more than Rs. 2,50,000. But more than it being mandatory return filing is important so that in case your organization deducted more tax from your salary, you could ask the government to send it back to you.
Also, in an offchance, if your organization didn’t deduct enough tax, you can pay the remaining tax to the government honestly (more than honesty, they will charge penalty and interest if you don’t deposit the full tax for a year). Also, Tax return documents are becoming mandatory for various things such as getting a loan, applying for credit card, applying for Visa, etc.