Exploring the role of Form 26 AS in lowering income tax liability

Keywords – Form 26AS, how to save income tax

Income tax planning is a crucial aspect for individuals. Often, many wonder, how to save income tax? Note that to minimise tax liability legally, it is essential to understand the consolidated statement available, such as Form 26AS. In this article, discussed is the importance of Form 26AS in saving income tax. 

Understanding Form 26AS

Form 26AS is a consolidated statement that displays all tax-related information like TDS (Tax Deducted at Source), TCS (Tax Collected at Source), advance tax, and self-assessment tax paid by the taxpayer. It serves as a comprehensive record of tax transactions.

Verification of TDS Deducted

Form 26AS enables taxpayers to verify whether the TDS deducted by their employers or other deductors has been correctly deposited with the Income Tax Department. By cross-checking this information, individuals can ensure they receive credit for the TDS deducted from their income.

Example: Alex can access Form 26AS to verify the TDS deducted by his employer and confirm its accuracy. This allows him to avoid any discrepancies and claim the appropriate tax credit.

Avoiding double taxation

Form 26AS helps individuals avoid double taxation. By reviewing the TDS details, taxpayers can ensure that taxes deducted in one financial year are not being deducted again in subsequent years.

Example: Priya can refer to Form 26AS to ensure that the TDS deducted in the previous financial year is not being considered for deduction again. This helps her avoid paying excess tax.

Tracking advance tax payments

Form 26AS provides a consolidated view of the advance tax payments made by the taxpayer. This allows individuals to monitor their tax payments and avoid any penalties or interest charges for non-compliance.

Example: Rahul can utilise Form 26AS to track his advance tax payments throughout the financial year. This ensures that he has paid the required amount of tax at regular intervals and avoids any penalties.

Facilitating correct filing of income tax returns

Form 26AS serves as a vital document while filing income tax returns. It assists taxpayers in accurately reporting their income, TDS, and other tax-related information, ensuring compliance with tax regulations.

Identification of erroneous entries

By reviewing Form 26AS, individuals can identify any discrepancies or errors in the TDS details. This enables them to rectify the errors with the respective deductors and maintain accurate records for income tax purposes.

Claiming refunds

Form 26AS allows taxpayers to track the refunds due to them. It reflects the details of excess tax paid, which can be claimed as a refund while filing income tax returns.

Cross-verification of income

Form 26AS provides a consolidated view of the income reported by the deductors. Taxpayers can cross-verify this information with their own income to ensure accuracy and avoid any mismatches that may lead to tax notices or penalties.

Reporting high-value transactions

Form 26AS includes information about high-value transactions, such as property purchases, investments, and loans. Taxpayers can review this data and ensure they have reported all such transactions correctly in their returns.

Facilitating loan processing

Financial institutions often request Form 26AS to assess the creditworthiness of individuals applying for loans. By presenting this form, individuals can provide a comprehensive picture of their tax compliance, which can positively impact loan approvals and interest rates.

Rectification of mismatched tax credits

In case of any discrepancy between the TDS claimed by the taxpayer and the TDS reflected in Form 26AS, individuals can take steps to rectify the mismatch. This helps avoid unnecessary tax notices and facilitates a smooth tax filing process.

Maintaining financial transparency

Form 26AS promotes transparency by ensuring that taxpayers have access to their tax-related information. It enables individuals to track their tax payments, deductions, and credits, thereby fostering a culture of compliance and accountability.

Avoiding tax evasion

By providing a comprehensive record of tax-related transactions, Form 26AS acts as a deterrent against tax evasion. It encourages individuals to accurately report their income and ensures that tax authorities have access to relevant information for effective tax administration.

E-filing and digital convenience

Form 26AS is easily accessible through the Income Tax Department’s website. This allows taxpayers to conveniently download their form and review their tax-related information without the need for physical paperwork.

Real-time updates

Form 26AS gets updated in real-time as and when TDS or TCS information is filed by the deductors. This ensures that taxpayers have access to the most recent and accurate information, aiding them in tax planning and compliance.

Avoiding penalties and interest

By keeping track of TDS, advance tax payments, and self-assessment tax details in Form 26AS, individuals can avoid penalties and interest charges that may arise due to non-compliance with tax payment obligations.

NRI Tax compliance

Form 26AS is crucial for non-resident Indians (NRIs) who earn income in India. It provides them with a consolidated view of their tax-related transactions, enabling them to fulfill their tax obligations even when residing outside the country.

Fostering confidence in taxpayer records

Form 26AS helps maintain accurate taxpayer records. By ensuring that TDS and other tax-related details match those of the deductors, individuals can build confidence in their own records and substantiate their income tax returns.

Easier tax assessment

When tax authorities assess an individual’s tax liability, they often refer to Form 26AS to verify the accuracy of income and TDS details. By maintaining accurate records in the form, taxpayers can expedite the assessment process and avoid unnecessary scrutiny.

Prevention of tax identity theft

By regularly reviewing Form 26AS, individuals can identify any unauthorised TDS deductions that may indicate tax identity theft. Detecting such instances at an early stage can help prevent financial loss and protect one’s tax identity.

Supporting tax planning

Form 26AS acts as a valuable resource for tax planning purposes. By analysing the TDS and tax payment details, individuals can evaluate their tax liability and explore avenues to save tax through deductions and exemptions.

Ensuring proper deduction of taxes

Form 26AS enables taxpayers to ensure that the deductors are correctly deducting TDS as per the applicable rates. This helps individuals avoid penalties or legal issues arising from incorrect TDS deductions.

Streamlining tax compliance

Form 26AS plays a vital role in streamlining tax compliance. It serves as a single point of reference for taxpayers to review their tax-related information and helps them stay updated on their tax payments and obligations.

Facilitating tax planning for senior citizens

Senior citizens often have different income sources and may be eligible for specific tax benefits. By reviewing Form 26AS, senior citizens can analyse their TDS details, claim relevant exemptions, and optimise their tax planning strategies.

Encouraging voluntary tax compliance

Form 26AS encourages voluntary tax compliance by providing individuals with a clear picture of their tax-related transactions. It promotes self-assessment, accurate reporting, and timely tax payments, fostering a culture of voluntary compliance.

Simplifying tax audits

During tax audits, Form 26AS serves as a vital document for tax authorities to verify the taxpayer’s compliance. By maintaining accurate and up-to-date information in the form, individuals can simplify the audit process and establish their tax compliance.

Availability of previous years’ information

Form 26AS allows individuals to access their tax-related information for the previous financial years. This can be helpful for tax planning, comparison of tax liabilities, and addressing any discrepancies from the past.

Enhanced financial discipline

By regularly reviewing Form 26AS and maintaining accurate tax records, individuals develop a sense of financial discipline. They become more aware of their tax obligations, take proactive steps to save tax, and remain compliant with tax regulations.

Conclusion

Form 26AS is an invaluable tool for individuals in India to lower their income tax liability. It provides a consolidated view of tax-related information, aids in tax planning, and ensures compliance with tax obligations. By leveraging the benefits of Form 26AS, individuals can optimise their tax savings and contribute to the nation’s development. So, make sure to utilise Form 26AS effectively and explore various avenues to save income tax within the legal framework.