Unit V

Tax Management

Q1) How is Tax deducted at Source?

A1) Tax deducted or collected at source shall be deposited to the credit of the Central Government by following modes:

1) Electronic mode: E-Payment is mandatory for

a) All corporate assesses; and

b) All assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable.

2) Physical Mode: By furnishing the Challan 281 in the authorized bank branch

Q2) What is Advance Tax?

A2) Advance tax refers to paying a part of your taxes before the end of the financial year. Also called ‘pay-as-you-earn’ scheme, advance tax is the income tax payable if your tax liability is more than Rs 10,000 in a financial year. It should be paid in the year in which the income is received. By paying in advance, you help the government and also yourself by not finding it hard to pay the whole tax at one go at the end. This way, if your advance tax liability for the financial year 2017-18 has exceeded Rs 10,000, you are expected to pay it in the same financial year.

Q3) What are the deadlines for advance tax payment?

A3) The deadlines are: at least 15 per cent of the liability on or before June 15, 45 per cent by September 15, not less than 75 per cent by December 15 and the whole amount of the tax calculated, by March 15 of each financial year. If the estimate of one’s income changes as the instalments progress, the advance tax payable can be increased or reduced accordingly. Any amount paid up to March 31 will also be accepted as advance tax for that financial year.

Payment of advance tax: Self-employed and businessmen

Payment of advance tax: Companies

Q4) How to file Advance Tax?

A4) Individuals may pay advance tax using tax payment challans at bank branches authorised by the Income Tax (I-T) Department. It can be deposited with the Reserve Bank of India and all the other authorised banks. There are 926 branches in India that can accept advance tax payments. Individuals may also pay it online through the I-T department or the National Securities Depository.

Do not worry if you miss the deadline, because if you fail to pay or the amount you’ve paid is less than the mandated 30% of the total liability by the first deadline (15 September), you will need to pay an interest. This is computed @ 1% simple interest per month on the defaulted amount for three months. The same interest penalty would apply if you fail to pay the second deadline (15 December). Failing to pay the third and last deadline (15 March) would mean paying 1% simple interest on the defaulted amount for every month until the tax is fully paid.

And in case you land up paying a higher advance tax than you ought to, you will receive the excess amount as a refund. Interest @ 6% per annum will be paid by the Income Tax department to the assessee on the excess amount if the amount is more than 10% of tax liability.

Try to treat advance tax as an EMI to the tax department, which eventually helps you pay your income tax without being stressed about it. Likewise, use the payment of advance tax as an opportunity to stay a step ahead of your tax liabilities, so that you are not left worrying over how much you owe to the tax department at the end of the year, you also save yourself from paying penalties for not paying the taxes in advance. Moreover, you could contribute in your own small way towards nation building even as the government receives the advance tax money from you, which in turn is used towards infrastructure development of the country.

Q5) What are the various forms of assessment?

A5) The various forms of assessment are as follows:

Q6) What is Self assessment?

A6) The assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax return. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions if any, available to him during the year. The total income of the assessee is then arrived at. The assessee reduces the TDS and Advance Tax from that amount to determine the tax payable on such income. Tax, if still payable by him, is called self assessment tax and must be paid by him before he files his return of income. This process is known as Self Assessment.

Q7) Explain Summary Assessment.

A7) It is a type of assessment carried out without any human intervention. In this type of assessment, the information submitted by the assessee in his return of income is cross-checked against the information that the income tax department has access to. In the process, the reasonableness and correctness of the return are verified by the department. The return gets processed online, and adjustment for arithmetical errors, incorrect claims, and disallowances are automatically done. Example, credit for TDS claimed by the taxpayer is found to be higher than what is available against his PAN as per department records. Making an adjustment in this regard can increase the tax liability of the taxpayer.

After making the aforementioned adjustments, if the assessee is required to pay tax, he will be sent an intimation under Section 143(1). The assessee must respond to this intimation accordingly. Here you can read a more detailed article on Section 143(1).

Q8) Explain Regular Assessment.

A8) The income tax department authorizes the Assessing Officer or Income Tax authority, not below the rank of an income tax officer, to conduct this assessment. The purpose is to ensure that the assessee has neither understated his income or overstated any expense or loss or underpaid any tax.

The CBDT has set certain parameters based on which a taxpayer’s case gets picked for a scrutiny assessment.

a. If an assessee is subject to a scrutiny assessment, the Department will send a notice well in advance. However, such notice cannot be served after the expiry of 6 months from the end of the financial year, in which return is filed.

b. The assessee will be asked to produce the books of accounts, and other evidence to validate the income he has stated in his return. After verifying all the details available, the assessing officer passes an order either confirming the return of income filed or makes additions. This raises an income tax demand, which the assessee must respond to accordingly.

Q9) What is Best Judgement Assessment?

A9) This assessment gets invoked in the following scenarios:

a. If the assessee fails to respond to a notice issued by the department instructs him to produce certain information or books of accounts

b. If he/she fails to comply with a Special Audit ordered by the Income tax authorities

c. The assessee fails to file the return within due date or such extended time limit as allowed by the CBDT

d. The assessee fails to comply with the terms as contained in the notice issued under Summary Assessment

After providing an opportunity to hear the assessee’s argument, the assessing officer passes an order based on all the relevant materials and evidence available to him. This is known as Best Judgement Assessment.

Q10) What is Income Escaping Assessment?

A10) When the assessing officer has sufficient reasons to believe that any taxable income has escaped assessment, he has the authority to assess or reassess the assessee’s income. The time limit for issuing a notice to reopen an assessment is 4 years from the end of the relevant assessment Year. Some scenarios where reassessment gets triggered are given below.

a. The assessee has taxable income but has not yet filed his return.

b. The assessee, after filing the income tax return, is found to have either understated his income or claimed excess allowances or deductions.

c. The assessee has failed to furnish reports on international transactions, where he is required to do so.

This is known as Income Escaping Assessment.