Problems That You Might Face while Tax Planning in 2020

No matter how many times the tax season arrives, a lot of us tend to find ourselves quite bewildered every year. There are so many factors to consider, so many points to go through and so much information to collect. Which is why during tax planning, it can be hard to keep track of every new tax news and each little part of the process, leading us to run into tax problems again and again.

But the year 2020 can be different for you. With this tax planning guide, you can stay two steps ahead of any tax problems that may arise, whether they be generic or specific. Here are the most likely problems you might run into while tax planning for 2020 as well as how to solve them:

1. New mandatory tax situations:

   For the most part, important elements of tax rules such as tax slabs and tax rates have remained largely unchanged from last year. However, following  recent amendment, there are certain new taxable conditions this year that may not have qualified for tax filing last year. As per our tax planning guide, these are essential to keep in mind in order to avoid running into tax troubles. Income Tax filing for this financial year is mandatory for you if:
   a) You deposited more than Rs 1 crore in your current account
   b) Your foreign travel expenses incurred for self or any other person exceeded Rs 2 lakhs
   c) Your electricity bills amounted to Rs 1 lakh or more

2. For Non-Resident Indians:

   If you or a family member is currently a non-resident Indian, that is an NRI, your tax planning might also have to factor for the valuable gifts you exchange. As per recent amendment, transfer of gifts made to an NRI will be taxable and liable to be declared by the recipient, that is the NRI. This tax is levied as per the regular income tax slabs and therefore, the value of the gift will determine the rate and amount of tax paid by the NRI. Keep in mind that the definition of a gift in this context can vary from a valuable object, to education expenses to even transfer of property.

3. Scrambling for documents:

   The first and most avoidable tax problem you might face is the bringing together of all the required documents for your tax purposes. A single missing file can cause immense tax troubles for you. So, as per any tax planning guide, a good practice this year will be to start collecting all the necessary files, invoices, statements and documents that you might need for the filing next year. Right around the tax season, make sure to have at least Form 16 and Form 26AS handy as they contain essential details about your income and taxes deducted.

4. Overpaying: 

   The last thing you would want to do when tax season arrives is to overpay your share of taxes. Therefore, avoid falling into this situation by preparing accounts of your tax liabilities in advance. Also, make a note of all the tax-saving deductions and exemptions applicable to you and you arrive at the correct, considerably reduced taxable income. For instance, term insurance premiums qualify for a deduction under Section 80C of the Income Tax Act, 1961. You can learn more about Term Insurance by browsing the website for the various Term Plans offered by PNB MetLife.

5. Applicable form confusion:

   While planning for your taxes, you might also find yourself extremely confused by the plethora of forms available. There are about 9 types of ITR forms available in total for tax purposes, but out of these, only six are typically relevant for the average taxpayer: ITR-1,  ITR-2, ITR-2A, ITR-3, ITR-4 and ITR-4S. All of these are distinguished based on your residential and citizenship status as well as the type and sources of your overall income. A single incorrect detail can invalidate your entire Income Tax filing, so make sure to do ample research and find out the right form for you.

Hopefully, this tax planning guide will help you avoid any major or minor pitfalls when it comes to the crucial process of tax planning. Remember, a little caution in the early stages can help pull you through in the long run. Which is why with these points in mind, come income tax season, you are certain to be prepared.

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The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible.