Half your income going into taxes?
Here are 10 questions to ask your Chartered Accountant!
Commerce students would relate to this — Each one of us had the subject of “taxation” in our curriculum. Science, Arts and other streams — well, they didn’t think you needed it!
After all, you were going to be a Chartered Accountant or a Banker. If you wanted to be a doctor, a Media professional, a teacher perhaps even an actor — Taxation is hired expertise. Your CA is trained to do it.
Why bother? Right. Wrong!
During my college days when I was studying for my Chartered Accountancy exam, I remember mugging up tons of clauses and sections to clear my paper. Indian Tax laws are definitely not for the faint-hearted I realized. The different sections of the Income Tax Act, whether you are a Resident Indian or an NRI, expenses allowable while filing taxes, so much related itself to one simple goal — Paying optimum taxes.
It strangely interested me to know that the world of taxation, if understood and imbibed in the right spirit, could be almost life-saving in a lot of financial situations.
Most of my classmates from college who ended up successfully pursuing Non-Finance roles such as Architects, Doctors or Lawyers never really bothered about what happened to their money after they made it. They usually outsourced the headache to their accountants to figure out the simple to-dos like income tax returns or tax-saving instruments.
What they forgot was — depending too much on a third party for something so imperative could be well dangerous. He may be preoccupied with other clients, he may also have the dreadful belief that you would have done whatever best you could do, to be prudent with your money and hence your taxes.
Scary thought, right?
P.S.: Contrary to popular opinion, the Government is extremely generous and thoughtful when it comes to the Income Tax Act. It gives us various means by which we can save our taxes — by way of investing and by way of spending allowances for certain necessary expenses that we make during our life. So lets just say, it is our own ignorance that we are dispelling and not finding faults with the law of the land.
HERE GOES: A handy list of questions you MUST ASK your Chartered accountant at least 2 times in a year:
- What are the various important income tax-related deadlines? Every year, the income tax department comes out with a calendar that has dates for all its important deadlines related to — Advance Tax, TDS, Form 16, Filing ITR. Get all your paperwork done to avoid any penalties and interest for overdue taxes and late payments.
- How many heads of income do I have? Oh, if you didn’t know — There are 5 — Salary, Business Income, House property income, Investment and capital gains income, Other Sources (like interest and lottery). The calculation of taxable income from each of these heads has its nuances. Understanding your Computation of Total Income will give you some clarity as to where you stand and even how much money you are truly making.
- What are the deductions available for my salary income? The standard deduction of Rupees fifty thousand is one. There are many such. Your entire salary structure can be better worked out not just with your CA but even your company HR, so that you end up paying clever taxes, not too much taxes.
- Can my high rent or high EMI be of any use to me? There are provisions in Income Tax that allow you to take benefit of the House Rent Allowance (HRA component) in your salary. It also allows you to take advantage of the Huge EMI you are paying — principal portion under 80C or interest portion under Income from House Property. Find it out.
- What records should I keep? In most cases, if you are paying tax on a particular business income, the expense incurred to generate that income will be allowed by the government as a deduction. Keep a record of all your expenses including traveling, stationery, client entertainment bills, internet and phone bills etc. As a professional and even as a business owner, these can be accounted for as expenses for deduction out of your income.
- Am I using the tax free slab of Rs. 1 lacs in Long term capital gains(LTCG) income? Investing in shares and dabbling in mutual funds is not just about checking the price of your coveted investment everyday. If you are active in buying-selling, you must also be aware of the taxation of your gains. And how to optimise that so you can use up your LTCG tax-free benefit of Rs. 1 lac per annum to book profits on time.
- Which of the Chapter VI-A deductions are available to me? Now that you have your income sorted, it’s time to save tax! Find out if there are any deductions that you are currently not availing of that you can consider incorporating in the next year. Most of us don’t even know that expenses incurred to care for our elder parents are actually tax deductible. Or that random good deed of charity you did is also claimable as expense under tax.
- Am I using my 80C limit to the best extent? Under section 80C the government allows you to reduce up to Rs. 1.5 lacs from your taxable income if you invest it in any of the following instruments — Tax saving mutual funds, National pension scheme, Tax saving FDs, Public provident fund and even your office’s Employee Provident fund. The government reduces your tax liability if YOU make investments for YOURSELF, can you believe that? Wait, there’s more — another Rs. 50,000 can be claimed for investing in NPS. But point is, did you do enough to save for yourself in time?
- What Do I have to tell you about the gifts I have received this year? It was your birthday — your mom got really emotional and made a Rs. 5 lac FD in your name. Not to worry there, that isn’t taxable. But a far-off cousin got emotional and gifted you 1 Bitcoin? Ahem, that might get you into trouble if you don’t show. So, ask your CA what all needs to be shown for disclosure in your IT returns and don’t get caught off-guard, ever!
- What is my Income Tax portal username and password? Log onto https://www.incometax.gov.in/iec/foportal/ and get familiar with the new income tax portal. There’s a good chance your CA has already created an account for you — all you need to do is get the passwords! Make sure all your details — your mobile number, your email address, your bank details are all up to date. This will make it easier for you to track the filing process and maybe even receive any refunds from the department of tax!
If you are still reading this then you are already one step closer to financial empowerment. Knowledge is Key! Understand the applicable tax slabs for the current financial year and figure out where you stand.
Remember being in the highest tax slab is a GOOD THING. It means you’re making that much money! There is a lot of difference between tax evasion, tax avoidance and tax planning. We are going for the latter. We don’t want to put your CAs out of a job, you must simply learn how to speak their language!
Minakshi Todi, Founder of The Finance Box and Vidyabroad is the heart and mind behind this mission movement of Financial Wisdom for the everyday user.
Armed with an MSc. Finance from Cass Business School London, she quit an illustrious career in Investment Banking and took up Financial teaching as her life’s purpose.
She believes that in order to go smoothly through life, one must understand why money matters and the need to manage it in the simplest terms possible.
Her ‘students’ are aged 10 to 70 years and she is often quoted in noted business dailies for her thoughts on personal finance.
You too can participate and learn from her short one-to-one online courses. Of course, privileged access and special offers apply to Dais Readers. Click here to begin your journey.
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