Finance

Self-Assessment Income Tax — The One “Expense” I Failed To Plan For In Advance This Past Financial Year

Posted Vinaya HS

If there was one thing I really sucked at in the last financial year, it was to plan for in advance for paying the self-assessed portion of my income tax liability. The result — I ended up paying a big chunk of of money as income tax due plus penalty plus interest just before filing my income tax return. Sucks! Really.

Thanks again, to the parked emergency fund, which hadn’t been used since quite some time, I was able to bail out of the situation without a hassle.

Going forward though, here’s my simple strategy for handling this situation —

  • At the start of each financial year (that is, in April), assess, and for all practical purposes this will be a close enough approximation, the self-assessment income tax due. But for this financial year, I’ll have to start from September.

  • Treat this as just another “annual expense.” My approach for saving towards annual expenses has worked very very successfully over the past few years.

  • Pay the saved amount in chunks at the start of each quarter so that some of the weird advance income tax rules are complied with.

  • I will either end up overpaying a bit or underpaying a bit — since my assessment of the income tax due is an approximation. And this should be OK because if I overpaid I’d later get a refund and if I underpaid I can pay the final balance due without attracting any penalty plus interest.

That should work. But how about you? If you’re in the same situation, how are you handling things?

7 thoughts on “Self-Assessment Income Tax — The One “Expense” I Failed To Plan For In Advance This Past Financial Year”

  1. From my limited IT knowledge,

    Normally this will not be the case for regular (salary based) tax payer as proportionate TDS is deducted by employer. This takes care of any sudden inflows from employer like LFA also.

    However, issue comes when there are other outside incomes(which are substantial) for which tax needs to be paid. As per IT rule, there will be penalty, if the tax paid in any quarter or year exceeds liability by more than 10%. To overcome this, one needs to plan in advance and pay advance tax as applicable.

    As i normally belong to the first para batch, i had not encountered the problem.

  3. @Srinivas —

    You are right. In fact, you can even declare your income from other sources in advance to your employer and have the applicable income tax deducted as TDS each month from your salary itself.

    But on second thoughts I don’t think I will ever do that because I believe in keeping these two separate. :-)

  5. Hi Vinaya,
    Righto…
    This year had to pay more tax for the interest earned on the FDs.
    As from this year the interest earned is autoamtically reflecting
    in the income tax web site due to PAN number.
    Bank would have deducted 10% tax , but need to pay the difference
    as per the slab applicable and update the details while filing
    the returns. Good idea is to have the fixed’s in my spouse name,
    so we can save on the tax. Please give your valuable feedback.
    Regards, Girish

  6. @Girish —

    That’s generally a good idea.

    Sometime back, one of the readers had pointed out the HUF route. Haven’t really been able to explore the details. Will do so and update.

  7. Interest on FD’s, generally will be low(<10% of total tax). Hence it can be safely paid before filing returns, easily.

    As a matter of fact, the more PAN cards one legally use, the better he can distribute his/her income and tax. HUF indicated is one such legal way. Spouse is another and adult children is the next.

    Of these, HUF will be fully under one's control hence can be used effectively for tax planning.

    However one should know the legal implications of using other PAN cards fully, before start using them.

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