Individuals are often confused as to why they are suddenly presented
with a tax payment at the time of filing of their income tax returns
when they seem to have discharged all their tax obligations. This
happens with the salaried as well as people who have income from
business and profession.
One of the main reasons for this situation is the presence of fixed deposit interest in their income. The argument goes that there is already tax that is deducted on these deposits so there should not be an extra amount to be paid at the time of filing returns. Here is a simple reason how this situation actually arises.
Fixed deposit interest
There is interest that is earned on fixed deposits that a person has with the bank. Salaried people will have this income and so will businessmen and professionals depending on the presence of the instrument in their portfolio. The basic condition is that once the income from deposits for a branch exceeds Rs 10,000 there will also be tax deduction at source that is undertaken by the bank on the income and the net amount will be received by the investor.
At the end of the financial year the bank will also give a Form 16A which will list out the interest earned and the tax deducted and this is to be included in the calculations at the time of the filing of the income tax return by the individual.
Working
The moment the tax working is done either by the chartered accountant or the software that is used at the time of filing the return then there is a tax due pops up in the working. This happens for salaried individuals also and there is surprise as to how this has actually taken place even when all the tax obligations have been completed by the individual.
While it might seem that the obligations have been completed in reality this is not actually true and hence the individual has to take a careful look at the entire situation.
The main reason for the additional tax is due to the income slab that the individual actually falls under. If the investor takes a look at their total income then they will know the maximum rate that they actually are paying on their income and for many people this is 30 per cent because their income is high or in some cases it is 20 per cent.
Difference
When the bank deducts the tax at source on the fixed deposit it is doing so at a rate of 10 per cent in most cases (if PAN is not submitted then this will be a higher rate) while the actual rate at which the tax has to be paid on the income is 20 per cent or 30 per cent depending upon the slab that the individual falls under. Only if the overall income is very less will the rate applicable on the income earned will be 10 per cent which matches with the tax deducted.
Now what remains to be paid is the difference between the rate deducted and the rate applicable. So for example if the fixed deposit interest is Rs 50,000 and there is a tax deducted at 10 per cent that comes to Rs 5,000 the investor will have to check the rate applicable to their income. If their income is say Rs 12 lakh then this will be 30 per cent then there is a differential that still has to be paid on the income. The final figure will be slightly different on account of the cess and other details involved in the final calculation. However this is the reason why there is still an amount outstanding that needs to be paid and hence this has to be taken care of by the investor.
There is also the danger that if the amount to be paid crosses the Rs 10,000 figure then there is also interest on advance tax that would have to be paid which would increase the amount due.
One of the main reasons for this situation is the presence of fixed deposit interest in their income. The argument goes that there is already tax that is deducted on these deposits so there should not be an extra amount to be paid at the time of filing returns. Here is a simple reason how this situation actually arises.
Fixed deposit interest
There is interest that is earned on fixed deposits that a person has with the bank. Salaried people will have this income and so will businessmen and professionals depending on the presence of the instrument in their portfolio. The basic condition is that once the income from deposits for a branch exceeds Rs 10,000 there will also be tax deduction at source that is undertaken by the bank on the income and the net amount will be received by the investor.
At the end of the financial year the bank will also give a Form 16A which will list out the interest earned and the tax deducted and this is to be included in the calculations at the time of the filing of the income tax return by the individual.
Working
The moment the tax working is done either by the chartered accountant or the software that is used at the time of filing the return then there is a tax due pops up in the working. This happens for salaried individuals also and there is surprise as to how this has actually taken place even when all the tax obligations have been completed by the individual.
While it might seem that the obligations have been completed in reality this is not actually true and hence the individual has to take a careful look at the entire situation.
The main reason for the additional tax is due to the income slab that the individual actually falls under. If the investor takes a look at their total income then they will know the maximum rate that they actually are paying on their income and for many people this is 30 per cent because their income is high or in some cases it is 20 per cent.
Difference
When the bank deducts the tax at source on the fixed deposit it is doing so at a rate of 10 per cent in most cases (if PAN is not submitted then this will be a higher rate) while the actual rate at which the tax has to be paid on the income is 20 per cent or 30 per cent depending upon the slab that the individual falls under. Only if the overall income is very less will the rate applicable on the income earned will be 10 per cent which matches with the tax deducted.
Now what remains to be paid is the difference between the rate deducted and the rate applicable. So for example if the fixed deposit interest is Rs 50,000 and there is a tax deducted at 10 per cent that comes to Rs 5,000 the investor will have to check the rate applicable to their income. If their income is say Rs 12 lakh then this will be 30 per cent then there is a differential that still has to be paid on the income. The final figure will be slightly different on account of the cess and other details involved in the final calculation. However this is the reason why there is still an amount outstanding that needs to be paid and hence this has to be taken care of by the investor.
There is also the danger that if the amount to be paid crosses the Rs 10,000 figure then there is also interest on advance tax that would have to be paid which would increase the amount due.
