Monday, March 10, 2014

Some Last Minute Questions About Income Tax Planning and Filing Tax Returns – Answered

March is almost mid-way through and we have 3 weeks until the financial year comes to a close. February end was probably the deadline most companies set for their employees to make their Investment & Tax Saving declarations for that to be considered in the form 16 document. The idea behind this article is to go over some common questions that you may have reg. your Tax Planning or Tax Return Filing. If you feel your question is not present in this page – please feel free to leave a message in the comments section and I will be more than happy to answer it.

Question No. 1: My company deadline to submit tax related proof’s was End of Feb 2014. Does this mean I cannot claim tax benefits for any Investments I do in March 2014?

No, absolutely Not. As per our law, you are entitled to tax benefits for any and all investments that you make before the 31st of March 2014. In fact, if historical statistical data is anything to go by, the last 3-5 days of March are the days when most activity happens in Banks where people are scrambling to open up Tax Saving FD’s or in Insurance companies like LIC.

Question No. 2: My company deadline to submit tax related proof’s was End of feb 2014. Is it ok for them to set this cut-off one month prior to the actual financial year?

Yes, it is perfectly fine. Actually speaking the government does not mandate for companies to collect your tax related documents and then incorporate the same into your final form 16. As long as they deduct TDS from your salary, they are doing more than what is required out of them. They are doing this as an added benefit to their employees. Since performing tax calculation, submitting documents to the Tax Office etc are time taking activities and also since the form 16 has to be issued by May-June timeframe, most companies set up such deadlines so that they have sufficient time to complete their part in helping their employees.

Personally, I feel this is good because it will instill some discipline in us. Proper tax planning is vital to getting good returns on our investments. Last minute tax saving exercise and putting our money into some random insurance policy just to get the 30% tax benefit is a really bad idea and you may not appreciate this decision by the time the policy matures. So, it is better you start planning properly for your Tax Saving.

I recently published an e-book titled “Your Complete Guide to Indian Income Tax and Retiring as a Crorepati” in which I have explained all the different sections using which you can reduce your tax liability. You can use this book to not only save tax but also to build up a solid retirement portfolio that can help you retire as a Crorepati. Check it out now by Clicking Here.

Question No. 3: If I missed my tax related document submission deadline, how can I still get my tax benefits?

Actually speaking, you can do the adjustments yourself when you file your Tax Return forms and then submit it along with your form-16 and the additional documentation. However, this activity is a little complicated and any mistakes in your tax returns could prove costly. So, it is better you consult a competent chartered accountant or tax consultant and take their help in filing your tax returns. Though this will cost you a few hundred rupees you will not regret this decision.

Question No. 5: I have components in my salary called LTA, Medical Allowance etc. I don’t have bills to cover for the entire amount. What happens to the remaining amount?

If you do not have bills for the amount of LTA or Medical Allowance in your salary, the remaining amount is considered fully taxable income. For ex: Lets say your LTA is Rs. 50,000/- this year and you went on a family trip and claimed an LTA of Rs. 35,000/-. The remaining 15,000/- rupees is fully taxable and will be added to your taxable salary

Question No. 6: My company deducted excess TDS and I am supposed to get a refund. When will I get it?

These days the tax returns process is simplified very much and people are getting their refunds within months of filing their tax returns. Usually people with low refunds (a few thousand rupees) get it faster than those that have heavier refunds. If you need to get a refund of 1.5 lakhs because you fell into the category of people in Question No. 3 and your colleague has to get only Rs. 15,000/- because he submitted his proof documents to your company ahead of time, he will get the refund first because the amount is low. Usually the authorities scrutinize tax returns that have heavy refunds to make sure the calculations are right before they pay out the refund. Smaller numbers get processed faster.

Don’t forget to submit your investment proof’s well in advance. Not only will you get a higher take home salary (due to lower TDS) but also, your waiting time for the refund is reduced greatly. Why waste this double benefit?

Question No. 7: Is it true that the Tax Authorities don’t scrutinize documents properly for low to medium level income earners?

Absolutely NOT. They can scrutinize all documents thoroughly and for as many times as they want. Due to the sheer volume of submissions one or two cases where people had fake claims may slip through which could give you an idea that you may get away with submitting false documents. The truth is – the authorities can go back and scrutinize even tax returns from past years that have been settled if they get some doubt. If they find you are engaged in any malpractice they can arrest you and put hefty penalties. Why take this risk?

Question No. 8: I live in a house that is owned by a family member. Can I claim HRA?

No, you cannot. As you are living as a family, ideally speaking you are not supposed to claim HRA. However, if the other family member is filing tax returns and is willing to include the Rent as an income in his/her tax returns, then you can claim HRA. You need to mention their PAN Card number in your Rent Receipt to establish the connection.

Please note: Husband and Wife cannot pay rent to one another. Even father/son, brother/sister kind of combinations are not allowed since they are of the same family but they aren’t rejected due to the fact that they may be considered separate families. A husband and wife cannot be part of two separate families and hence this option is not available for them.

Question No. 9: My Actual house rent is Rs. 25,000/- and based on my HRA Calculation, my HRA Eligibility is only Rs. 20,000/-. Can my spouse claim the remaining amount?

No, they cannot. Let me give an example.
Lets say A and B live in a house in Chennai where rent is Rs. 20,000/-. Both A and B are working. A’s basic salary is Rs. 35,000/- and the HRA component in his Salary is Rs. 20,000/-. A is the husband and wants to claim HRA.

HRA Calculation for Mr. A:

Mr. A’s HRA Exemption will be the lower of:
1. 50% of Basic Salary – Rs. 17,500/- or
2. Actual Rent minus 10% of Basic – Rs. 16,500 or
3. HRA Component of Salary – Rs. 20,000

As you can see – Actual rent minus 10% of the basic salary is the lowest and his HRA eligibility will be Rs. 16,500 per month.

You may ask me – the rent I am paying is Rs. 20,000/- and there is a difference of 2500 rupees which Mrs. B can claim. Right?

If you see the calculation closely, this 16,500/- is Mr. A’s eligibility provided he claims to pay the full rent of Rs. 20,000/-

Happy Tax filing…


  1. Hi Anand,

    Thanks for sharing such wonderful information!

    I have a query regarding last question (no 9). How did you derive at 18250 figure (Actual Rent minus 10% of Basic – Rs. 18,250). Don't you think it should be 16500 ?


    1. Thanks for pointing out Raveesh. It was an error on my side :)

      Mistake rectified now.


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