The financial year 2005-06 is now coming to a close. For most of the individual tax payers, certain important points have to be taken care of before finally the financial year comes to a close.
By taking full advantage of some of the under-mentioned aspects the individual taxpayer will be able to achieve optimum level of income tax planning in respect of income which is accruing to him/her during the financial year 2005-06.
If care is not taken to implement some of the under mentioned items, then it is likely that the tax burden of an individual taxpayer as also the tax burden of the Hindu Undivided Family is likely to go up.
Hence, in tune with the aspects of the tax planning and for achieving the best tax planning for the financial year 2005-06 the following items should be a part of your agenda to be completed within 31.03.2006.
Once you have concluded the under mentioned agenda, your tax planning will be at its best and would help you in a guaranteed manner to save a portion of the income tax which you are presntly paying.
The first step
The first step of what remains to be done in the financial year 2005-06 is to make investment so as to achieve the maximum tax deduction permissible in terms of section 80C of the Income Tax Act, 1961.
It may be recalled here that every individual as well as a Hindu Undivided Family is allowed a tax deduction in respect of the investments made or the payments made as per the provisions contained in section 80C of the Income tax Act, 1961.
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In case these payments are not made on or before 31st March, 2006 then the benefit of the tax deduction cannot be taken advantage of.
To a any hassle and tension from the Income tax Department it is always better to ensure that not only you make a payment in time for the above purpose but also do ensure that all payments so made by you are cleared from your bank account on or before 31st of March, 2006.
If you take this small little care then you will find no hassles and problems in implementing tax deduction programme for the investment made by you.
Just for ready reference please do remember that the maximum amount, which can be contributed by individual/HUF for claiming tax deduction, is the sum of Rs 1 lakh.
Out of this amount any sum of money can be invested either in insurance, PF, PPF, NSC, NSS, infrastructure bonds, repayment of the housing loan, payment of tuition fees of the children.
Thus, an attempt should be made by almost all tax payers who are having taxable income to take advantage of the full investment scenario to avail tax deduction which will cut down the payment of your income- tax during the financial year 2005-06.
While make the investments please keep in view that now a days there is no sub-limit for different items.
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However, the investment in PPF account as per the law cannot be made of an amount exceeding Rs 70,000.
You may, however contribute in PPF account of your wife over and above this limit and enjoy tax deduction.
As per section 80CCC of the Income- tax Act, 1961, tax deduction is permissible in respect of payment made under any Pension Plan.
The maximum amount of such amount is limited to the extent of Rs 10,000. If you have not yet made your payment or contribution in any one or more of the Pension Plan then it is right now the time for you to make investment in the Pension Plan surely before 31st of March, 2006.
For ready reference it may be noted that the amount contributed under the Pension Plan in terms of section 80 CCC of the Income- tax Act, 1961 the assessee is entitled to a deduction @ 100% of such contribution subject to a maximum of Rs 10,000.
It may also be noted that the deduction for Pension Plan contribution together with the deduction under section 80C is limited to Rs 1 lakh only as per section 80CCE of the Income-tax Act, 1961.
House property
If you are having income from house property in respect of the financial year 2005-06 then please do not forget to make payment of the house tax if any which is due on your property.
Please do remember that in case the property is given on rent and the house tax is not paid then while computing the income from property of the year the payment of house tax will be allowed as a deduction but only when the entire amount so claimed as a deduction by way of house tax is actually paid by the assessee.
Hence, do ensure that you make the payment of house tax in respect of the house property which is owned by you.
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Advance tax
In respect of the financial year 2005-06 all categories of taxpayers are required to make payment of advance tax when the advance tax payable is Rs 5,000 or more.
However, if the advance tax payable is less than Rs 5,000 then there is no obligation on the tax payer to make payment of the advance tax and that the assessee can make payment of the tax while filing its Income Tax Return.
The last date of advance tax was 15th of March 2006. If you have missed the bus even then it is better to make payment of your advance tax before 31st March 2006 so that unnecessary penal interest is not charged.
Similarly, also to remember that if the assessee is having income which have accrued after the last day of advance tax then the assessee can make the payment of advance income- tax by 31st of March.
Proviso to section 211 (1) states that any amount of money, which is paid by way of advance tax on or before the 31st day of March, shall also be treated as advance tax payment during the financial year for the purposes of Income- tax Act.
Hence, keep in your pending agenda list the activity of making payment of advance tax in case you have not already received the claim.
It may also be remembered here that the penal interest which you pay to the Income- tax Department is not allowed as a deduction in computing your income.
Hence, it is time now to make payment of the taxes well in time to a any extra liability by way of penal interest.
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Please also do remember to pay Advance Tax in respect of your Savings Bank account Interest, interest on Bank Fixed Deposit as also interest on NSC because the same is now not exempted under section 80L.
Cash Accounting system
For all those persons who are adopting cash system of accounting it is time up for them to glance their projected profit and loss account and make payment of the business liability if any.
The taxpayers should remember that while computing the income of business or profession of an assessee who are following the cash system of accounting the deduction is allowed in respect of only those business expenses which have actually been incurred and paid off.
Thus any business expenditure which is not paid during the financial year 2005-06 will not be allowed as a deduction while computing the income from business or profession especially for a person who is adopting a cash system of accounting.
However, this principle will not apply to a businessman who is adopting mercantile system of accounting.
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If you are either an individual or a Hindu Undivided Family or a company please make sure that you deposit in the bank your surplus cash in hand in excess of Rs 50,000.
This is important especially from the point of view of payment of Wealth-tax. It may be noted here that the individual, Hindu Undivided Family and a company are required to make payment of Wealth-tax but only when the net taxable wealth exceeds the sum of Rs 15 lakhs.
The rate of wealth tax is @ 1% per annum. It is provided in the Wealth-tax Act that cash in hand in excess of Rs 50,000 at the end of the accounting year will be treated as liable to wealth tax.
This limit is applicable for individuals and Hindu Undivided Families, while in the case of other tax payers namely the corporate sector the cash in hand would be included in wealth tax but only so much of the amount which is not recorded in the Books of Account.
If the tax payers were to follow the above check list of what to do before 31st March 2006 then they will be able to manage their tax affairs in a better manner a ing any problem at a later stage and taking full advantage of the tax deductions and rebate as per the permissible provisions of the Income- tax Law.
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