Someone I know recently planned for a fantastic holiday overseas. This was a dream holiday which this person had worked hard for and saved money. In fact, the thought of the forthcoming holiday had helped this person manage many difficult situations and overcome several frustrating days at work.
When the time came for the holiday, after applying for the required leave and getting all the required documents for the visa to be processed, the person got a rude shock when an important set of documents could not be located in time. Several countries ask for copies of the income tax return to process a visa application, and in this case the visa was held up as these copies had not been given in time.
At the end of the day, the dream holiday turned into a nightmare as not only was the visa was not processed in time, but the person also lost money while cancelling their travel and stay.
If you think that this is an exception, think again. I personally know many people, especially those at the beginning of their career, who tend to take their taxes very casually. The three main areas which needs attention and is often missed out are:
~ Awareness about the various components which make up your total compensation and the tax implications is important. Although the majority of those who pass out and start their career fall under the lowest tax bracket, understanding the compensation break up always helps. The employee provident fund is one such important component which is a default saving for the individual; what’s more, it also qualifies for tax deduction. Along similar lines, it is important to submit various proofs for taxation purpose to the employer. Since this is done for a large number of people, adhering to the deadlines is important, because if you don’t you stand to lose out on a tax benefit.
~ Knowing and understanding the taxation process , especially the various ways of saving on income tax. Although the income tax rules have increasingly become streamlined and the multiple options for saving taxes have been reduced, it is better to stay updated. For example, the rules pertaining to provident fund have been changed quite a bit and not knowing them would put you at a disadvantage.
~ Documenting and maintaining records . Last but definitely the most important of points is to maintain documents of all tax-related records. Be it salary slips, proof for deductions or the income tax returns form, acknowledgement, and the like. Although it is definitely easier to maintain these as soft copies, there are two aspects to this approach. In many cases these documents are password protected and in case you forget or misplace the password, accessing them urgently would become an issue. In case physical copies are required, having a file containing all these for the various years makes in easier.
In an increasingly digital and connected world, taxes and related details would only become a more important part of your life. You would require these for a myriad occasions and it is always better to start the habit of taking ownership of your taxes early on.