Before I flew to Indonesia, there loomed the 15th March deadline for “Advance Tax” payment – a critical “To Do” task akin to getting a root canal. Ugh!
While I have no regrets about going ‘independent‘, the simplicity of a salary is something I sorely miss.
So decided to share my pain by sharing my warped understanding of the Indian taxation system:
1. If salaried:
Declare salary and expected additional income, investments, at the start of the year
- Based on anticipated income, Tax is Deducted at Source (TDS) every paycheque – typically 30.9% of earnings
- Say ‘hello!’ to quarterly Advance Taxes for Fixed Deposits (like a GIC in Canada) where long before you ever see the interest at maturity, you pay tax!
- There are very limited ‘tax breaks’ to mildly mitigate your tax burden. Such as an ‘investment’ of 1 lac (USD 1,600) in insurance, reduces income. Not a heck of a lot of money in the grand scheme of things, eh? I long for Canada’s RRSPs – seriously!
Needless to say, the Indian taxman is now rather clever at getting money from salaried folks immediately. There was a time when a company could structure salaries to be ‘tax smart’.
The legacy of a small ‘basic’ salary with a heavy ‘special allowance’ remains – it confounds those from outside India without actually resulting in any significant advantage for those within India.
However the beauty of this approach is that when it comes time to file taxes – your company form 16 sez it all! If you have other sources of income, download your consolidated TDS form from the website, factor it in and voila – c’est toute!
2. If in ‘business’:
Gaze into a crystal ball and predict your earnings for a year… Seriously! Now I don’t know about you, however I have no clue one year in advance which assignments I will be lucky enough to land!
- From these gloriously confident estimates, pay Advance Tax each quarter
- Plus also pay professional tax, Service Tax, etc
- Keep meticulous track of ALL items that can be claimed as business expenses. Little did I know that some new conservative clothes bought for appropriate dressing in largely Muslim countries could be claimed. Naturally this became known AFTER throwing out the receipts… Sigh…
- Which brings me to the next point… The less than honest find all sorts of creative ways to pad expenses as a well established and accepted practice. CA’s will ask “well how much tax do YOU want to pay…. hmmm??”
And as a good corporate citizen of the world, I DO pay appropriate taxes. However want to be smart about it too.
Free advice welcome! Comiseration too!