Unit 4

Tax management

Q1) What is TDS? State its benefits.              2

A1) TDS means Tax Deducted at Source. It is a tax which is to be deducted on some expenses and payments. As per Income Tax Act, persons responsible for making payments are required to deduct TDS at different rates.

Q2) Discuss the provisions related to TDS.   10

A2) 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.
2. 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.
3. 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;
3. 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”.

Q3) State the provisions related to advance tax payment.    10

A3) 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.

Q4) What is Taxes Deducted / Collected or Paid as Advance Tax in the Previous Year?                   4

A4) 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.

Q5) When assess to be deemed as default?  2

A5) 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.

Q6) What is the interest for late deposit of TDS?   4

A6) 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:

Q7) Write a small note of certificate for TDS.               2

A7) 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.

Q8) State the time of TDS payment.       5

A8) The time of TDS payment are stated below-

(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,

c.            on or before 30th day of April where the income or amount is credited or paid in the month of March; and

d.            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:

Q9) State the form of TDS payment.              2

A9) 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.

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

Q10) What should TDS Certificates Specify ?      5

A10) 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”.

Q11) State the liability for advance tax payment.          4

A11) 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.

Q12) State the provisions related to computation of advance payment. 5

A12) 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 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.

Q13) How to pay Tax Deducted/Collected at source?

A13) 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.

Q14) When should TDS be deducted and by whom?       4

A14) Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN. Your employer deducts TDS at the income tax slab rates applicable. Banks deduct TDS @10%. Or they may deduct @ 20% if they do not have your PAN information.

For most payments rates of TDS are set in the income tax act and TDS is deducted by payer basis these specified rates. If you submit investment proofs (for claiming deductions) to your employer and your total taxable income is below the taxable limit – you do not have to pay any tax. And therefore no TDS should be deducted on your income.

Similarly, you can submit Form 15G and Form 15H to the bank if your total income is below taxable limit so that they don’t deduct TDS on your interest income. In case you have not been able to submit proofs to your employer or if your employer or bank has already deducted TDS and your total income is below the taxable limit) – you can file a return and claim a refund of this TDS. The complete list of Specified Payments eligible for TDS deduction along with the rate of TDS.

Q15) Who is not liable to deduct TDS?      2

A15) Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payment. But no TDS has to deducted if the person making the payment is an individual or HUF whose books are not required to be audited.

Q16) What is advance tax payment?          2

A16) 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.

Q17) State about TDS by government officials.  2

A17) 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.

Q18) 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%.

A18) 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

Q19) What is TAN?               2

A19) Tax Deduction and Collection Account Number (TAN) is a unique 10 digits alpha numeric number allotted to deductor/collector of TDS. It is issued to identify each deductor. Every person who is require to deduct TDS shall apply for TAN. TAN is required to be quoted on all TDS payment challans, TDS certificate & TDS returns. You can submit an application in Form 49B in any NSDL office or you can also apply online for TAN from NSDL website. Penalty – There is penalty of Rs. 10,000 on failure to apply for TAN or failure in quoting TAN in payment challans, TDS certificates & TDS return.

Q20) The following issues arise in connection with the deduction of tax at source under Chapter XVII -B. Discuss the liability for tax deduction in these cases:

(a) An employee of the Central Government receives arrears of salary for the earlier 3 years. He enquires whether he is liable for deduction of tax on the entire amount during the current year.

(b) A T.V. Channel pays Rs. 10 lakhs on 1.9.2018 as prize money to the winner of a quiz programme, "Who will be a Millionaire?"

(c) State Bank of India pays Rs 50,000 per month as rent to the Central Government for a building in which one of its branches are situated.

(d) A television company pays Rs 80,000 to a cameraman for shooting of a documentary film.

(e) A State Government pays Rs20,000 as commission to one of its agent on sale of lottery tickets.

(f) A Turf Club awards a jack-pot of Rs 5 lakhs to the winner of one of its races.

A20) (a) As per section 192, tax is deductible at source by any person who is responsible for paying any income chargeable under the head salaries. However, under sub-section (2A) of that section, the employee will be entitled to relief u/s 89(1) and consequently, he will be required to furnish to the person responsible for making the payment, such particulars in the prescribed form. The person responsible for making the payment shall compute the relief and take into account the same while making deduction of tax at source from salary.

(b) Under section 194B, the person responsible for paying by way of winnings from any card game and other game in an amount exceeding 10,000 shall at the time of payment deduct tax at 30%.

(c) Section 194-I, which governs the deductions of tax at source on payment of rent, exceeding Rs. 1,80,000 per annum is applicable to all taxable entities except individuals and HUFs, not liable to tax audit in preceding financial year. However, under section 196, exemption is provided in respect of payments made to Government from application of provisions of tax deduction at source.

(d) If the cameraman is an employee of the T.V. Company, the provisions of section 192 will apply. However, if he is a professional, TDS provisions under section 194J will apply and tax at 10% will have to be deducted at the time of credit of Rs.  80,000 or on its payment, whichever is earlier.

(e) Under section 194G, the person responsible for paying to any person stocking, distributing, purchasing or selling lottery tickets shall at the time of credit of the commission or payment thereof, whichever is earlier, amounting to more than Rs. 15,000, deduct tax at 5%.

(f) The payment by way of winnings from horse race is governed by section 194BB. Under this section, the people responsible for payment shall, at the time of payment deduct tax at source @ 30%, if the payment exceeds Rs. 10,000