Types of tax filing
Income Tax in India can be filed by submitting seven types of forms. The Income Tax Return (ITR) files are classified under forms one to seven. The first four are for salaried individuals, while the last three are for corporates. The first four forms have sub-divisions among them:
In most cases, your employees will have to fill and submit ITR-1, as it is for persons who earn a maximum salary of Rs 50 lacs per annum.
Tax filing for your salaried employees
As stated, filing the income tax returns is of utmost importance. If you wish to assist your employees in the process, here are some handy tips for you:
Start with a detailed explanation of the entire process. To begin with, the employee needs to log in to the ITR website and enter his personal details such as his name, date of birth and PAN. Then, he needs to enter his salary details, including the amount of salary earned, the type of salary earned and the source of the salary. Next, he needs to provide data on the TDS deducted. Form 16 details need to be entered at this step. In the TDS DETAILS section, the TAN of the employer needs to be entered. Next, your employee needs to provide information about his applicable tax deductions, such as investments where he can claim an IT benefit. Next, the employee needs to enter his bank details and opt for the E-FILING option. The employee will then see a REFUND, NO TAX DUE or TAX DUE option and he needs to choose the option correctly.
To file the income tax, a set of documents need to be kept handy. Every employee must have the following papers ready:
a. PAN Card
b. Aadhaar Card
c. Bank account details
d. Form 16
e. Tax Saving Investments details
It is important for you to explain the process and documentation clearly to your employees. Most people will be able to file their taxes on their own but have an assistance cell ready for those who need some help. This will ensure all your employees file their taxes on time.
Offer your employees all the possible assistance to help them file their taxes accurately and on time.
Tax Deducted at Source, or TDS is a common financial term. It refers to the tax amount an employer deducts from the employee’s salary before it is paid out to the latter. The employer submits the TDS to the IT department. At the time of filing taxes, the employee can claim a TDS refund, if applicable. Listed below are some important pointers related to TDS:
The TDS rates are not uniform and depend on the type of income you have. For instance, an income received as a lottery win will have a much higher TDS than a monthly salary. The TDS rates in India range between 5% to 30%. Employees who earn less than Rs 2.5 lacs will not have to pay TDS. However, as an employer, you have to deduct the TDS every month and deposit it with the IT department every quarter. The employees can then ask for a refund at the end of the financial year when they file their taxes.
2. Reason for TDS deduction
So why is the TDS deducted by the employers? TDS, also known as the tax deducted at source, is deducted mainly to ensure there is minimal tax evasion in the country. Sadly, a lot of people do not pay their taxes and this leads to huge losses for the government. To ensure this does not happen, the tax is deducted when the employee gets paid so that there is no reliance on him for the payment of the tax later on.
3. How TDS is deducted
TDS is deducted when the income is paid out to the person. Employers deduct 10% (or the rate applicable as per the slab) of the employee’s salary as TDS and pay the remaining sum to him. Let us assume a person’s salary is Rs 20,000 a month. You have to then deduct Rs 2,000 (at the rate of 10% TDS) and pay him a salary of Rs 18,000. Banks also do the same when paying out interests on fixed deposits, etc.
4. Importance of matching TDS with Form 26AS
Form 26AS is a credit statement issued by the Income Tax department. It is a document of all the taxes deducted from a person by his employer, his bank, his tenant, etc. Form 26AS is an extremely important document that needs thorough scanning. The TDS deducted from a person should be properly deposited to the IT department. Sadly, at times employers do not do so and even after deducting a worker’s TDS, the amount is not sent to the IT department. It is used for the betterment of the organisation. The employee should, therefore, check Form 26AS and match the TDS accurately.
5. Mismatch rectification
If an employee notices a mismatch between forms 16 and 26AS, he can take some definitive measures to rectify the issue. To begin with, the source of the dispute needs to be identified. If you, the employer, have made an error, you need to rectify it at your end and issue a new Form 16 to the employee. If the error is due to a mistake on the part of the IT department, the employee needs to visit the income tax website and correct the error.
6. How to check Form 26AS?
It is a very simple process to check Form 26AS. The employee simply needs to visit the IT portal and view his form. Every form is password protected. The date of birth is the password to access the form online. The form can be downloaded from the TRACES website or from the net banking section of select banks.
TDS is a very important tax component. Make sure the TDS collected from your employees are properly deposited to the IT department.
Responsibility of a company
As stated, every employer needs to be responsible for TDS deducted and deposited. Here are the two main duties of an employer:
1. TDS Deduction
Taxes are crucial for a country’s growth and economic development. This is why everyone who is eligible to pay tax should do so without fail. Unfortunately, a large number of people try to evade taxes. This is a crime and must be curbed at all costs. As an employer, it is your duty to ensure your employees pay their taxes. A good way to reinforce this is to deduct the TDS before you pay the salaries to your workers. By doing so, you are helping the government to minimise tax evasion to a great degree.
2. TDS Return
The tax you deduct from your employees needs to be filed and deposited diligently and on time. You need to make a deposit every quarter. It can be done online in just a few minutes. It is a huge responsibility of yours, as an employer, to ensure the entire tax money is deposited. Under no circumstances can you use the money for your own benefit. Sadly, many organisations use the employees’ tax money for their own growth and development. This is a fraud as both the employees as well as the tax authorities are cheated. Doing such a thing is ethically and legally incorrect and so you must avoid it at all costs.
How to help your employees file their taxes?
It is intimidating and difficult for some people to file their taxes. For this reason, they do not file their taxes or even initiate a refund. This is harmful and needs prevention. As an employer, you can make the process simple for your employees. You can give them a consolidated platform so that each employee can file their own taxes themselves and have control over their portfolio. Design the platform with the help of your in-house experts or hire a third-party for the job.
Why is it important to help?
As mentioned above, the tax filing process can be cumbersome for some of your employees. Your help is thus greatly needed to ensure every employee’s tax is properly filed. Without your intervention and help, the employee may get voluntarily or involuntarily involved in tax evasion. Not only will this cause problems for the employee in question, but it will also put a black mark upon your organisation.
When is Form 16 given?
Form 16 is an important tax document given by the employers to the employees. It is a record of the tax deducted by the employer in the form of TDS. It documents the total salary the employer pays the employee and the tax deducted in that regard. The employee can use his Form 16 to file his taxes and get the refunds if any.
Form 16 is usually given by the employer on or before the 15th of June of the specific financial year on which the taxes need to be filed. As an employer, it is your duty to issue Form 16 to all your workers who can then verify it and use it to their benefit.
Employee benefit taxation norms
There are certain employee benefits taxation norms. With the help of these, you can help your employees to save tax. Here are some effective ways in which you can do so:
1. EPF –
When you deduct a percentage of an employee’s salary and invest it in a provident fund account, the employee can claim a tax benefit of up to Rs 1.5 lacs in a year. This is a good and effective way in which you can help your workers to save tax.
2. LTA –
By offering a leave and travel allowance, or LTA as it is better known, you can help your employees to save tax. They can claim a tax rebate on the amount they spent travelling with their family in a year, within India. This is another effective employee taxation benefit from that you can implement in your organisation.
3. HRA –
The house rent allowance (HRA) is another area in which your workers can get a tax benefit. The Amount paid to pay the rent of the premises he or she resides in can be tax exempted, provided it is a part of the salary. Up to 50% of the salary earned can be used towards HR expenses and the employees can get a tax benefit thereby.
4. Food coupons –
You can pay a part of the salary to your employees in food coupons. Food coupons can be redeemed at supermarkets, restaurants, cafes and so on. Amounts of more than Rs 25,000 can be claimed as tax rebates with the use of such coupons.
5. Child education –
If an employee pays part of his salary as his child’s school fee, he can claim a tax discount. A maximum of Rs 1200 a year can be deducted from a person’s taxable income when the salary is used in this effect.
These are some of the easiest ways in which you can help your employees save tax. Introduce these in your organisation and help your workers to save tax in a legal and safe manner.
Latest Budget Update 2020
In the new Union Budget 2020, the Finance Minister introduced a new tax slab which has lower tax rates compared to the existing tax slab.
The new tax slab would be applicable from the financial year 2020-21, i.e. from 1st April 2020. The slab is as follows –
|Taxable income||Applicable tax rate|
|Up to INR 250,000||Nil|
|INR 250,001 to INR 500,000||5%|
|INR 500,001 to INR 750,000||10%|
|INR 750,001 to INR 10,00,000||15%|
|INR 10,00,001 to INR 12,50,000||20%|
|INR 12,50,001 to INR 15,00,000||25%|
|INR 15,00,001 and above||30%|
If your employees use the new tax slab to calculate their tax liability, they would not be allowed any deductions (under Chapter VI A of the Income Tax Act, 1961 and other Sections) or exemptions (mentioned above) from their taxable income. Only if you contribute towards the National Pension Scheme (NPS) on behalf of your employees, such contributions would be allowed as a deduction under Section 80CCD (2) up to a maximum of 10% of your employee’s salary. However, the new tax regime is optional and your employees can use the old tax slabs ton calculate their income tax liability. The old tax slabs would also allow all eligible deductions and exemptions and might help your employees to reduce their tax liability. So, educate your employees to use both the tax regimes at the time of tax computation and then choose the regime which results in the lowest tax liability.
To wrap it up
Paying tax is one of the biggest and most important obligations a person has. As an employer, it is also your obligation to ensure your employees are paying their taxes properly. Help them to understand the taxation norms, the importance and needs of paying their taxes. Also, provide them with all the assistance they need to ensure they can pay their taxes smoothly. Offer platforms through which this can be done, as mentioned above. As for the TDS, you need to be very alert and mindful both with the deduction as well as the deposits. There should not be any slips or discrepancies from your end. You need to find which tax slab would work best for your employees and then deduct TDS as per the tax liability computed using that tax slab. You also need to offer the best possible employee tax benefits norms to help your workers save tax. Document all the tax and salary-related financial statements in Form 16 and furnish the forms to your employees on time. All these measures will ensure there is no taxation default from anyone associated with your company. This, in the long run, will bring lots of wellness to the reputation and the financial health of your organisation.