Gross your income for tax payments
When a person makes certain payments or receives income, there is often tax deduction at source. When you are receiving a certain amount on your fixed deposits or any other form of income through a cheque, it is actually the net figure after the deduction of tax. While filing for returns, most individuals make a mistake in taking the figures into consideration. They consider the amount that is received when he has to do some work to ensure that the details shown are correct.
Process of calculating income
Every individual falls in a certain salary slab and once the individual crosses the limit of that slab, he will have to pay tax. The individual must make payment to deduct tax on the amount that is paid and then remit the net amount. The tax deducted is deposited with the government along with the PAN card details of that individual for whom the tax is deducted. Most often, when an individual gets a payment on deposits or other form of income in the form of a cheque, they consider it to be included in their tax returns. But there are a few specific steps to be followed as usually tax is deducted on the payments already.
How to gross up your income?
The amount that the individual receives from the bank is not the actual amount that is not the actual income earned as income as there has already been deductions made from the amount earned. The individual will then have to gross up his income, it is nothing but he will have to add the tax that was deducted to the income received to arrive at the income he has actually earned. For example, if you have earned Rs.18,000 as interest on your fixed deposits. But, this figure is derived after the deduction of tax of Rs.2,000. To arrive at the gross income earned you need to add the amount earned as interest plus the deduction, i.e. Rs.18,000 + Rs.2,000 which is Rs.20,000. Therefore, Rs.20,000 is the income earned that is to be shown while filing for tax returns.
Credit for tax paid
When an individual gets salary, there is tax deduction which is deposited with the government, there should be a credit taken for this entire process. If your total tax deductions is Rs.48,000 from all the sources and the total tax that needs to be paid is Rs.64,000, then you can take credit for the tax deducted and you will have to pay the remaining outstanding balance which is Rs.16,000. This will ensure that the benefit of tax that has been paid on your behalf will be available and visible in the assessment year. Therefore, the individual needs to check the respective figures appearing in the statement and when it is visible make the necessary tax payment.