Vismitha sold an inherited land (residential plot) in January 2022 for Rs.20 Lacs and there was no TDS on the transaction. Vismitha works for a private company and her employer deducts TDS on the salary. Vismitha received the entire sale consideration in her bank account and she plans to invest the money in a fixed deposit. Computed capital gain on this transaction is Rs. 10.49 Lacs. She knows that she has to pay capital gain tax on the sale of land. But she wants to defer the payment till the time of filing returns (July 2022). Would this be a beneficial decision for Vismitha?
PAYE – Pay As You Earn
Income Taxes are computed on PAYE (Pay As You Earn) basis. As far as the salary income is concerned, an employer computes and deducts tax before paying it to the employee. With respect to all other heads of income, an assessee is liable to remit “advance tax” to the Government as and when he/she earns the income.
What happens when one does not pay tax as he/she earns income?
Sec 234A, 234B and Sec 234C of the Income Tax Act 1961, deal with penal interest chargeable in case of delay, failure or inadequacy in payment of advance tax. To understand the quantum/impact of these penal interests, let’s take numbers in Vismitha’s case.
Tax filing – self-service mode
There are quite a few online portals where assessee can file their returns by navigating through a series of objective questions. In fact the expectations of the new income tax portal is also the same. This route holds good when one has only income from salaries. Taxes are already computed and paid by the employer in the form of TDS. In this context, one could assume that tax filing is only a box-ticking exercise. But is this a reality?
Capital gains on Sale of land is chargeable to tax at flat 20%. Hence the tax liability on Vismitha’s transaction would be Rs. 2,18,192 (10,49,000 X 20.04%). If she defers paying the taxes till she files her income tax returns (assuming she files on 31 July 2022), she will have to pay a penal interest of about Rs. 20,000.
“You must pay taxes. But there’s no law that says you gotta leave a tip”
Morgan Stanely.
Hence it would be prudent for Vismitha to pay her taxes and then invest the balance as not doing so would unnecessarily increase her tax liability.
How can we help you?
Various clauses from the Income Tax Act may be simplified in online contents. But most of the time, it requires professional help in identifying suitable route for specific instances. Similar to nurturing and taking care of personal health, it is important to also keep a tab on one’s financial health. We at Chockalingam Unnamalai & Associates, can help you understand the pros and cons of various choices you make in the context of personal taxation. You can bank on us for a stress free tax filing and related compliances.
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