In a land of one billion, you will be surprised to learn that there are only 1.6 cr individuals who have filed returns but paid zero tax, while there are only 1.1 lakh individuals who have declared an income between 10-25 lacs, and only 3 have declared income above Rs 100 crore – as per the the data of A.Y 2012 -13.
These statistics seem difficult to accept as we constantly hear employees at senior levels in big organizations are getting fat paychecks, and even employees in startups are drawing enviable salaries.
There is obviously a discrepancy in the earning capacity of the individuals and the correct income tax filing. The most common belief is that disclosing income through income tax filing will mean more tax liability. Hence, people either refrain from filing tax which is tantamount to tax evasion, or do not declare their complete income and assets which is also considered tax evasion. So much so that the Income Tax department is now running an Income Declaration Scheme, 2016 where it is encouraging people to come forward and pay their rightful income tax by paying 45% of the applicable tax, surcharge and penalty of the income declared.
Believe it or not, on the other end of the tax evading spectrum lie many honest citizens who pay 30-35% excess tax. Most of them are unaware that by restructuring of income and taking advantage of certain laws, tax could be optimized i.e. you can pay less tax and save more, all through legal means.
According to Sudhir Kaushik, CFO of TaxSpanner and a practising tax consultant for 17 years, “Indians are paying too much in tax, and not because our taxrate is high. Compared to other countries, the tax rate in India is quite reasonable. In fact, some deft investment planning can reduce the tax on an annual income of Rs 10 lakh to barely Rs 35,000.”
TaxSpanner is a pioneer in taxation services and offers services in restructuring income and reducing resultant tax liability. Below are a few tips to provide you a clearer picture of how some clever tax planning can reduce your income tax:
- Some organizations allow salary restructuring to make it more tax friendly. It gives the employees a broad framework to define the benefits they want.
- The highly taxable ‘special allowance’ head under salaries can be partly redirected to NPS (New Pension Scheme) which can give tax deduction over and above the Rs 1.5 lakh limit under Section 80 C.
- Also, the special allowance can be taken in the form of food coupons or gift cards which are tax free and can be used to buy groceries and food at many selected outlets.
- Investment in listed shares or Mutual Fund ELSS (Equity Linked Savings Schemes), if it is less than Rs. 10 lakh a year can help you enjoy tax free dividend. Also, if these securities are held for a period of at least 12 months, you are not required to pay income tax on gains as the income is tax exempt.
- Buying an additional health cover apart from the employer-provided medical expense reimbursement, gives benefit under Section 80D which can extend upto a limit of Rs. 60,000/-.
- Company leased car allows a good tax reducing option as the taxable value of perquisite is very low.
TaxSpanner’s TaxOptimizer service offers dedicated service of an expert Chartered Accountant who will analyze the trend of your taxes and study the compensation structure to offer you the best scenario in investments and expenses.
The last date i.e the 31st of July, is almost here, and you are due to file your income tax returns by then. By availing our service, a tax expert will not only file your ITR for FY2015-16, but will also help you check on various scenarios of “what-if” investments and taxations for FY2016-17. You will be able to understand your past tax history and gain information as to how your tax outgo could have been made more efficient.
Understanding your compensation and tax structure will help you give greater compliance with the Income Tax system and help you become a responsible citizen. No more fear of declaring your rightful income and evading tax!