In most cases, the younger generation of professionals does not want to be involved in the key procedure of filing the taxes they have been paying. They are capable of dealing with the hardest and harshest of assignments that are put in front of them but make basic mistakes when it comes to filing their tax returns. However, it need not be like that. At the start tax planning could appear to be a complicated process but once someone gets the basic idea of how it is to be done it can be a very fruitful and satisfying procedure.
It takes only a few minutes to understand the basics of tax planning and then one can become an expert of sorts in a procedure that is going to serve him or her well for the rest of the professional life. The first thing that one needs to understand while filing an income tax return is that whether he or she should pay the tax in the first place. The answer of this question is dependent on the amount being earned as well as the various components of one’s salary. Under normal circumstances the following constituents of one’s salary are subjected to taxation:
· Basic salary
· special allowance
· dearness allowance
· bonuses
However, the following are generally exempted from taxation:
· house rent allowance
· various reimbursements
· conveyance
In certain cases people have other sources of income as well such as the interest accrued from fixed deposits, bank balance and different bonds. People also invest in various funds and stocks and they receive capital gains from the same. If someone has a real estate property there could be income on the same through rent. In any case there is always a basic exemption limit that tends to vary on a yearly basis and the tax calculations need to be made on the basis of that.
Quite often young professionals have their taxes deducted at source. This happens when the employers deduct the amount that is to be paid as income tax and deduct it from the salary. However, considering the fact that the tax needs to be paid on the aggregate income such a deduction may not be a sufficient one if all the different sources of income have not been considered. In case someone has changed jobs during the period under review then it is better to report the earnings from the previous employer/s in the tax report as well.
If this is not done then one may receive more than the fair share of tax exemption and that can lead to a huge amount that shall have to be paid by the end of a financial year.
