Unit 4

Tax management

4.1 Tax Management: Tax deduction at source

1. Taxes Deducted / Collected or Paid as Advance Tax in the Previous Year [Section 190]

Although regular assessment in respect of any income is to be made in a later assessment year, but tax on such income is payable in the previous year itself in the following manner:

1. Tax deducted at source (TDS): In case of certain incomes/payments, tax is deducted at source by the payer at the prescribed rate at the time of accrual or payment of such incomes to the payee.
2. Tax collected at source (TCS): In certain cases, tax is collected at source by the seller from buyer or a person from his licencee/lessee, etc. at the time of debiting the amount to account of the buyer/licencee/lessee or the receipt of payment whichever is earlier.
3. Advance tax: The assessee, in certain cases, is under an obligation to pay tax in advance in certain installments.

2. Procedure and Scheme of TDS:

Under the scheme of tax deduction at source (TDS), persons responsible for making payment of income, covered by the scheme, are responsible to deduct tax at source and deposit the same to the Government’s treasury within the stipulated time. The recipient of income—though he gets only the net amount (after deduction of tax at source)—is liable to tax on the gross amount and the amount deducted at source is adjusted against his final tax liability.

3. Assessee to be Deemed as Assessee in TDS Default [Section 201(1)]

Where any person, including the principal officer of a company,—

1. Who is required to deduct any sum in accordance with the provisions of this Act; or
2. Referred to in section 192(1A), being an employer,

— does not deduct, or

— does not pay, or

— after so deducting fails to pay,

The whole or any part of the tax, as required by or under this Act, then, such person, be deemed to be an assessee in default in respect of such tax and hence shall be liable to penalty under section 221.

4. Penalty payable under section 221 when the payer is an assessee deemed to be in TDS Default under section 201

When an assessee is deemed to be in default in making a payment of tax, he shall, in addition to the amount of arrears, be liable to pay by way of penalty as the Assessing Officer may direct, and in the case of a continuing default, such further amount or amounts as the Assessing Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears.

5. Interest for Late Deposit of TDS [Section 201(1A)]

As per section 201(1A), without prejudice to the provisions of section 201(1), if any such person, principal officer or company does not deduct whole or part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at the rate given in the table below:

6. Certificate for TDS [Section 203 and Rule 31]

Every person deducting tax in accordance with the provisions of TDS shall within such period as may be prescribed from the time of credit or payment of the sum, furnish to the person to whose account such credit is given or to whom such payment is made, a certificate to the effect that tax has been deducted, the rate at which the tax has been deducted and such other particulars as may be prescribed. Further, as per section 203(2), every person, being an employer, referred to in section 192(1A) shall, within such period, furnish to the person in respect of whose income such payment of tax has been made, a certificate to the effect that tax has been paid to the Central Government, and specify the amount so paid, the rate at which the tax has been paid and such other particulars as may be prescribed. The above provisions shall also be applicable in the case of an employer who has paid the tax on the non-monetary perquisites provided to the employee. Failure without reasonable cause to furnish a certificate as required by this section attracts penalty under section 272A(2) read with section 273B. Deliberately furnishing a false certificate, is an offence under section 277 and abatement of that offence is punishable under section 278.

7. Time of TDS Payment

1. (i) Tax deducted (TDS) by an office of the Government:
   1. On the same day where the tax is paid without production of an income-tax challan; and
   2. On or before seven days from the end of the month in which the deduction is made, where tax is paid accompanied by an income-tax challan.

Ii.            Tax deducted (TDS) In any other case

1. On or before 30th day of April where the income or amount is credited or paid in the month of March; and
2. In any other case, on or before seven days from the end of the month in which the deduction is made.

Iii.            Special cases where TDS Payment can be Deposited Quarterly

In the following cases, the Assessing Officer may with the prior approval of the Joint Commissioner, allow payment of TDS quarterly as under:

8. Forms and Time Limit of issue of TDS Certificate [Rule 31]

The person responsible for deducting the TDS is required to issue a certificate in the prescribed forms to the employee/payee on account of tax deducted at source.

(A) Prescribed forms for TDS Certificate [Rule 31(1)]

(B) What should TDS Certificates Specify? [Rule 31(2)]

The certificates in Form 16 or 16A shall specify:—

1. Valid permanent account number (PAN) of the deductee;
2. Valid tax deduction and collection account number (TAN) of the deductor;
   1. Book identification number or numbers where deposit of tax deducted is without production of challan in case of an office of the Government;
   2. Challan identification number or numbers in case of payment through bank.
   3. Receipt number of the relevant quarterly statement of tax deducted at source which is furnished in accordance with the provisions of rule 31A;
   4. Receipt numbers of all the relevant quarterly statements in case the statement referred to in clause (i) is for tax deducted at source from income chargeable under the head “Salaries”.

4.2 Advance payment of tax

Advance Payment of Tax refers to the liability to pay Income Tax for income earned during the same Financial Year. In general, taxpayers are required to pay tax only for the income of the preceding year. However, if the tax payable is in excess of ten thousand rupees, the tax should be remitted to the government before the due date mentioned in the Act. The purpose of incorporating Advance Tax provisions in the Act is to ensure that revenue reaches the Government without delay.

Liability for payment of advance tax (Section 207)

(1) Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as ―current income.

(2) The provisions of sub-section (1) shall not apply to an individual resident in India, who—

(a) does not have any income chargeable under the head ―Profits and gains of business or profession; and

(b) is of the age of sixty years or more at any time during the previous year.

Conditions of liability to pay advance tax (Section 208)

Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is ten thousand rupees or more.

Computation of advance tax (Section 209)

(1) The amount of advance tax payable by an assessee in the financial year shall, subject to the provisions of sub-sections (2) and (3), be computed as follows, namely:—

(a) where the calculation is made by the assessee for the purposes of payment of advance tax under sub-section (1) or sub-section (2) or sub-section (5) or sub-section (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year;

(b) where the calculation is made by the Assessing Officer for the purpose of making an order under sub-section (3) of section 210, the total income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment or the total income returned by the assessee in any return of income furnished by him for any subsequent previous year, whichever is higher, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year;

(c) where the calculation is made by the Assessing Officer for the purpose of making an amended order under sub-section (4) of section 210, the total income declared in the return furnished by the assessee for the later previous year, or, as the case may be, the total income in respect of which the regular assessment, referred to in that sub-section has been made, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year;

(d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be 1[deductible or collectible at source] during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable.

Key Takeaways

• Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this chapter referred to as ―current income.

Case study

ABC Pvt Ltd have to make payment of Rs 1,00,000 to Mr. XYZ for professional fee. TDS rate specified on professional fee is 10%.

TDS required to be deducted = 10% on Rs 1,00,000 = Rs 10,000

Net payment to Mr. XYZ = Gross Amount – TDS Deducted = Rs 1,00,000 – Rs 10,000 = Rs 90,000

TDS to be deposited to Government by ABC Pvt Ltd = Rs 10,000

References:

1. Singhanai V.K.: Student’s Guide to Income Tax; Taxmann, Delhi.

2. Prasad, Bhagwati: Income Tax Law & practice: Wiley Publication, New Delhi.

3. Dinker Pagare: Income Tax Law and Practice; Sultan Chand & Sons, New Delhi.

4. Girish Ahuja and Ravi Gupta; Systematic approach to income tax; Sahitya Bhawan Publications, New Delhi.

5. Chandra Mahesh and Shukla D.C.: Income Tax Law and Practice; Pragati Publications, New Delhi.