Know these rules before filing an ITR if you have suffered salary cuts or withdrawn PF

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The tax liability may be higher in the event of deferral of salary: Due to covid-19, many people have faced wage delays, aside from pay cuts and job losses. Therefore, in case of salary deferral, you need to make sure that you have paid the correct amount of tax on your salary income.

Generally, employees don’t care about the tax deduction because the employer does it for them. However, there is an anomaly in the tax law that may cause you to pay less taxes or reduce your employer’s deductions. This may result in a notice or penalty from the tax department. So, let’s start by understanding the tax law around the taxability of wages.

“According to the income tax law, wage income becomes taxable on the basis due or received, whichever comes first, while the employer is required to deduct the TDS (tax withheld at source) at the time of payment. payment, ”said Tarun Kumar, a Delhi-accountant on duty.

So, suppose the employer postponed the March salary and paid the same in April, i.e. the following fiscal year, the tax on it became due in March. As employees are also subject to withholding tax, you are expected to pay tax on it despite the fact that the employer will deduct TDS when paying wages.

“When the employer has not withheld tax on part of the salary, its payment having been deferred, the employee is required to pay withholding tax or self-assessment tax on this part. because the salary is taxable on a due basis. Failure to do so will result in the levy of interest and penalties, ”Kumar said. TDS deducted by the employer over the following financial year for the deferred part can be claimed as reimbursement.

Other than that, if there is a drop in pay, you have to make sure that the same is reflected on every element of the payslip and you get a revised contract. As in the event of a mismatch between the amount of tax deducted or the amount of tax due, this can be presented as proof to the tax service. “In the event of a revision of the CLC (reduction or increase), the same should also be reflected in the payslip. All elements of the salary such as base salary and allowances should be revised accordingly, ”Kumar said.

Display of exempt income: Last year, when many people were facing a financial crisis, they took money out of their provident accounts. The government authorized the withdrawal of non-refundable advances by employees from their provident fund accounts. In addition, even a second advance with regard to such a withdrawal from the EPF was authorized.

In accordance with these withdrawals, the EPF member could benefit from a non-refundable advance of three months on base salary and cost allowances or up to 75% of the amount credited to the member, whichever is less. being withheld. These withdrawals are tax free. However, the taxpayer is required to show them in the ITRs. “The” FAQ on the EPF advance to fight the Covid-19 pandemic “published by the EPFO ​​specifically exempted such an advance / withdrawal by providing that” income tax is not applicable on no advance used under the EPF scheme ”. As a result, the amount of this withdrawal can be declared “exempt income” in the RTI, ”said Suresh Surana, founder of RSM India.

Apart from this, a person can make a withdrawal from provident funds under certain conditions, which will have tax implications depending on the length of employment of the person. You must report these cash flows in the ITR in the appropriate manner.

Allowances are fully taxable: Many employers paid a lump sum or reimbursed the employee for spending money on furniture because of working conditions from home. Any such payment by the employer to the employee is fully taxable.

“Few employers have deducted TDS on such payments. But these indemnities or reimbursements are fully taxable. Therefore, in the event that an employee has received such compensation or has been reimbursed for invoices, he must ensure that this is reflected in Form 16; otherwise, he / she should pay taxes on the same, ”said Shailesh Kumar, partner, Nangia & Co. LLP.

View financial assistance received for covid-19 in ITR: In accordance with the newly announced government relief measure, any financial assistance received by an employee for covid treatment from the employer or any other person will be exempt from tax for fiscal year 21 and subsequent years. . This exempt income is generally indicated in the “exempt income” section of the RTI. However, final guidelines are awaited on the same subject.

So if you are filing or planning to file RTI for FY 21, be sure to avoid such mistakes.

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