Know these rules before filing ITR if you had pay cuts or withdrew PF
The tax-filing season has started. Last year, due to the pandemic, many people faced certain unprecedented situations such as pay cuts, pay deferments and job losses. These have impacted their incomes. Many people withdrew their savings to fund their immediate cash needs. The government also brought certain changes in tax rules to provide certain relief to the taxpayers. For example, it allowed tax-free withdrawal from employees’ provident fund (EPF). Although this withdrawal is tax-free, one needs to show this in the income tax return (ITR). Apart from these, there are other aspects that one should keep in mind while filing the ITR for this financial year.
Tax liability may be higher in case of pay deferment: Due to covid-19, many people faced salary delays, apart from pay cuts and job losses. Therefore, in case salaries were deferred, you need to make sure that you have paid the right amount of tax on your salary income.
Generally, salaried employees are not bothered about the tax deduction as the employer does it for them. However, there is an anomaly in the tax law that may lead to you paying lower tax or your employer deducting less. This may lead to a notice or penalty from the tax department. So, let us first understand the tax law around the taxability of the salary.
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“According to the Income Tax Act, salary income becomes taxable on due or received basis, whichever is earlier, while the employer is liable to deduct TDS (tax deducted at source) at the time of payment,” said Tarun Kumar, a Delhi-based chartered accountant.
So, suppose the employer has deferred the salary for March and paid the same in April, that is the next financial year, the tax on the same became due in March. As salaried employees are also subject to advance tax, you are supposed to pay tax on the same despite the fact that the employer will deduct TDS while paying salary.
“Where the employer has not deducted tax on a portion of salary, as its payment has been deferred, the employee is responsible to pay advance tax or self -assessment tax on that portion. because salary is taxable on due basis. Any failure in doing so will trigger levy of interest and penalty,” said Kumar. The TDS deducted by the employer in the next financial year for the deferred part can be claimed as refund.
Apart from this, in case of pay cuts, you should ensure that the same is reflected on each component of the salary slip and you get a revised contract. As in case of mismatch in tax deducted or tax due amount, the same can be shown as a proof to the tax department. “In case the CTC is revised (cut or hike), then the same should be reflected in the salary slip also. All the components of the salary such as basic pay and allowances should be revised accordingly,” said Kumar.
