Forget tax planning or tax saving investments. Just ensuring that your employer has correctly deducted income tax from your salary may turn out to be your overlooked tax saving action.
You can claim your excess tax deduction back if there is an error.
Believe it or not, with dependence on computer systems, the number and types of mistakes in tax computation and in deduction certificates given to employees by the employers have actually gone up.
With wide spread computerisation of payroll and tax deduction systems at companies, laborious systems have given way to a new dependence on new age tools.
Recent years have seen a number of unusual errors in tax deduction certificates issued by even larger companies.
Many employees have unknowingly lost money through such mistakes. Alert employees have even obtained refunds from Income Tax authorities when such errors were rectified.
A powerful modern technology, thus, is a slave to the systems that run them and to the people who manage and validate those systems.
There is one more very important reason why such errors are coming up. These areas are likely to get less audit attention because these mistakes hurt employees personally, but they are not going to make any difference to the correctness of the employer's assets and liabilities or income and expenditures.
Here are some examples:
1. Suresh approaches us for filing his tax return. He worked for two companies A (first 3 months) and B (the next nine months) during the year. On scrutiny of the two Form 16s, we observe that the tax deducted at A was much higher per month compared to the deduction at B.
On enquiring with Suresh, we gather that he has joined B at a much higher salary. Subsequent follow up revealed that A's deductions were higher than required and the company A which normally straightens such things towards the year end could not do so in the case of Suresh since he left after only three months in the year.
But for our scrutiny, he would suffer higher tax of about Rs 15,000.
2. Or let us take the case of Ramesh, where the employer charged him much higher value for his company provided accommodation. The company's definition of salary for the purpose of perquisite valuation was wrong and this resulted in higher valuation and a higher tax deduction for Ramesh.
3. Similarly, A Ltd did not accept the view that a particular item was not taxable, since the matter was under consideration of the courts. Subsequently, the view of the court came in favour of the employees. Employees of A Ltd were not aware that favourable judgement should have resulted in lower tax deduction in their relevant cases.
An employee could get a refund caused by this wrong application of law only when he claimed this excess deduction through his return.
As you see from these, it would be practical to accept that a computer-generated statement can contain mistakes, both due to faulty designing of systems as well as poor administration. Most of all, you must ensure that you have suffered the correct tax.
Although it is natural for you to have high opinion about your employer and its systems and controls it would be practical to run a reality check on the tax deductions made from your salary.
The author is a Mumbai-based chartered accountant. This article is adapted from his book How to File Your Own Income Tax Return With Due Attention & Care.The eBook version in printable PDF format is available at http://file-return.info/
You can also enroll for a free e-mail course on How to get complete control on your income tax return by sending a blank e-mail to filemyreturn@getresponse.com