Not all of us are familiar with various tax deduction concepts and the benefits we can avail from those. We tend to follow certain myths regarding tax deduction and we end up making the whole process of taxation too complex. Let’s understand some common tax myths.
Tax Deduction and its Myths
Here are some of the popular tax deduction myths:
Most of us fail to understand the difference between the cost to company (CTC) and the net salary. Cost to company is the aggregate of all forms of compensation and benefits offered by the company, while the net salary is the total amount received after deducting net tax liability on each component. People are often quick to become elated on receiving a higher CTC, failing to realize that the actual increase in the amount they receive in-hand may be marginal. This makes it necessary to understand the various components of CTC, which affect your in-hand salary directly.
Income tax is paid by an individual during an assessment year, on the income earned during the previous year. As a result, tax collection is delayed until the conclusion of the previous year. TDS (Tax Deduction at Source) is a method of collecting income tax from salaried individuals, wherein the applicable tax amount is deducted at the time of computing the income itself. An individual who has authorized TDS receives his/her salary after deduction of the tax. The tax deducted from the assessee’s (tax-payer) salary account is deposited with the Government treasury within a specified time, helping in faster collections.