Business Tax Procedures and Management

Advance Tax Interest TDS Assessment

ADVANCE TAX
Under the provisions of advance tax , every income is liable for advance tax payment if the tax payable is Rs.10000 or more. Every assessee is liable to pay advance tax irrespective of residential status or even if the income is subject to TDS. Hence an assessee has to estimate the current years income to pay advance tax

An assessee who has opted for the scheme of computing business income on a presumptive basis shall be exempted from paying advance tax

Due dates for payment of advance tax Assessee Non-corporate upto 30% upto 60% 100% Corporate upto 15% upto 45 % upto 75% 100%

15th June 15th Sep 15th Dec 15th Mar

Computation of advance tax payable

I Estimate total income for the year II Claim deductions if any allowable III For the net income compute tax IV. Add surcharge and education cess to the advance tax payable V Deduct TDS if any deductible from the advance tax payable VI If the advance tax payable is Rs.10000 or pay advance tax in installments on the dates

more due

The following are the estimated income for the year 2011-12
A B & Co (individual) ( firm) 380000 3000 36000 298000 16000 24000 13000 43000 C Ltd (company) (14000) 550000 67000 38000

Salaries House Property Business income STCG Other sources Deduction u/s 80

28000

2000

3000

Determine the amount of advance tax payable during 201112.

Class excercises
1.

ABC Ltd. estimates its income for the year 2011-12 as under: Income from house property 100000 Income from business 400000 Interest on debentures of a listed company 200000 (TDS 10% ) The company is eligible to claim deduction u/s 80 to the extent of Rs.50000. Compute advance tax payable. If the company made a LTCG of Rs.150000 on sale of its assets on 10th Aug 11. What would be the amount of advance tax payable in the subsequent instalments.

Advance tax payment payment in pursuance of AOs order The AO can may pass an order for payment of advance tax if the assessee who has been earlier assessed to tax has not paid advance tax inspite of legal obligation The AO would calculate the current years income as under : Total income of the last previous year which was assessed

or
Total income returned by the assessee for any subsequent year whichever is higher If subsequent to passing an order but before the end of the relevant financial year the assessee has furnishes a return/ assessment of any later year has been completed at a higher figure, then the AO can pass a revised order.

Lower estimate by the assessee On receipt of the notice, the assessee can submit his own estimate and pay advance tax ( Intimation in Form 28A )

Higher estimate by the assessee The assessee can also make a higher estimate and pay taxes accordingly. No intimation is required.

INTEREST
Sec 234A : Interest for default in filing of return Interest @ 1% p.m or part of the month on tax payable from day immediately following the due date upto the date of furnishing the return or date of assessment u/s 144 if no return has been furnished Tax payable = Tax on assessed income Advance tax TDS

Determine the amount of interest u/s 234A X

X Ltd

Due date of filing the return 30.06.10 30.09.10 Actual date of filing return 02.02.11 10.12.10 Date of completion of assessment 15.02.11 15.04.11

Income declared Income assessed Advance tax paid TDS

350000 352000 50000 5000

350000 360000 75000 10000

Sec 234B For default in payment of advance tax

1.

When advance tax is not paid : Interest @ 1% p.m or part of the month on the assessed tax from April 1 of the A.Y to the date of assessment

2. When advance tax paid is less than 90% of assessed tax Interest @ 1% p.m or part of the month on the assessed tax minus advance tax paid from April 1 of the A.Y to the date of assessment

1. -

Note : If the assessee has paid tax before the assessment then - upto the date of tax payment interest will be calculated as above - from the date of payment ,interest shall be computed on the shortfall [ assessed tax (advance tax paid +tax paid on self assessment )]

Interest u/s 234C For deferment in payment of advance tax Non corporates Due date Default Interest payable on Period 15.09.10 Tax paid < 30% (a-b) 30%(a-b) c 3 mths 15.12.10 Tax paid < 60% (a-b) 60%(a-b)-d 3 mths 15.03.11 Tax paid < 100% (a-b) 100%(a-b)-e 1 month Corporates 15.06.10 Tax paid < 12% (a-b) 15% (a-b) c 3 mths 15.09.10 Tax paid < 36% (a-b) 45%(a-b) d 3 mths 15.12.10 Tax paid < 75% (a-b) 75%(a-b)- e 3 mths 15.03.11 Tax paid < 100% (a-b) 100%(a-b)-f 1 month a = Tax on total income declared in return b= TDS c,d,e advance tax actually paid by the due dates No interest shall be charged if the shortfall in payment of advance tax is due to capital gains / winning from lotteries/game shows etc.

X Ltd. furnishes the following data :

Income declared in return Income assessed Date of assessment Advance tax paid 15.06.10 15.09.10 15.12.10 15.03.11 520000 575000 15.04.11

4000 10000 25000 50000 89000

TDS 10520 Compute interest u/s 234 B and 234C

X Ltd furnishes the following data for the year 2010-11 Business income 200000 LTCG 50000 Interest on securities 60000 Details of advance tax paid

15.09.10 15.12.10 15.03.11

12000 12000 24000

The company files the return on 15.12.11. Compute tax and interest payable.

A company has made the following payments of advance tax during the financial year 2010-11.
15.09.10 600000 15.12.10 1400000 15.03.11 500000 The income returned by the company is Rs.80 lakhs as business income and Rs.1000000 LTCG on sale of property effected on 1.03.11. Assuming that the company filed the return on 30.11.11. Compute the interest payable u/s 234 A/B/C and the amount payable as self assessment tax.

Sec 234D : Interest on excess refund If an assessee had claimed refund in his return of income and also received and subsequently on regular assessment , a higher income is assessed then interest has to be paid on excess refund @ 0.5 % p.m or part of the month from the date of refund to the date of regular assessment Sec 220 (2) : Interest on late payment of income tax If the assessee has failed to make payment of any tax ( other than advance tax ) specified in a demand notice within 30 days then he is liable to pay interest @ 1%. Per month or part of the month. However the Chief commissioner or Commissioner may waive such interest in certain circumstances. Sec 201 (1A ) For failure to deduct and pay tax at source Interest is payable @ 12% p.a on the amount of such tax from the due dates till the date of actual payment of tax.

Sec 244 A assessee

Interest payable to the

Interest is payable by the Govt. on any refund of tax paid ( advance tax, TDS , self assessment tax ) @ 0.5% p.m or part of the month from the first day of A.Y / date of Assessment order to the date of signing the refund order

RETURN OF INCOME AND ASSESSMENT

Who has to file a return Sec 139
Company / Firm Any income or loss A person other than company or firm If the gross total income before claiming deduction exceed exemption limit

Return forms

ITR -1 Individuals having income from salaries ITR-2 Individual/HUF not having income from business ITR-3 Partnership firms ITR -4 Individuals / HUF having income from business ITR -5 AOPs / BOI ITR-6 Companies ITR -7 Persons claiming exemption u/s 10/11 ITR V Acknowledgement where return is filed without digital signature

Return of loss : A return of loss can also be filed within the due dates . Certain losses cannot be carried forward if such return is not submitted in time.
Belated return : If the return is not filed within the due dates or within the time of notice given , it may be filed at any time before the end of 1 year from the end of the A.Y( before the assessment is made ). The assessee will be liable for interest and penalty Revised return : An assessee can file a revised return if any error or omission is discovered after the filing of the return. It should be filed within I year from the A.Y or before completion of assessment whichever is earlier. A belated return cannot be revised

Defective or incomplete return If the AO finds that a return is defective or incomplete then he may intimate the defect to the assessee. The assessee has to rectify it within 15 days ( time limit may be extended by the AO). If the defective return is not rectified , the AO will consider the return as invalid.

Assessment 1. Self Assessment (sec 140A) 2. Inquiry before Assessment (Sec 142/142A): The AO may pass an order for : - submitting the return - produce documents and records - furnishing in writing information on such points as he may require - Make inquiry for the purpose of obtaining full information - give direction for audit - refer to Valuation officer 3. Summary Assessment ( Sec 143(1)) The AO can complete an assessment without passing an order on the basis of return filed by the assessee. In such case an intimation may be given to the assessee if there is any interest or tax due or if any refund is allowable to the assessee

Scrutiny Assessment Sec 143(3) The scheme of scrutiny is applicable if the AO considers it necessary to ensure that the assessee has overstated loss or understated tax In such a case a notice may be served on the assessee to produce any evidence . Such notice should be served within 1 year from the end of the month in which the return is filed. Best judgement assessment ( Sec144) An AO can make an assessment of total income or loss based on information available with him if the assessee has not filed a return or the AO is nor satisfied about the correctness of the accounts or if the assessee fails to comply with the notice given earlier Such assessment can be made only after giving the assessee a reasonable opportunity of being heard. Reassessment if the AO has reasons to believe that an income has escaped assessment , he may assess/ reassess that income. e.g No return has been furnished even though income> exemption limit or return is furnished but the income is understated or underassessed. The AO has to issue a notice in writing to the assessee.

Rectification of mistake
An income tax authority may rectify any mistake which is apparent from record and amend the Assessment order or intimation . A mistake is one which is obvious from records and does not need an argument or explanation. e.g error of law or fact, clerical error, error in determining WDV etc.

Time limit for completion of assessment :

All assessment except reassessment : 2 years from the end of A.Y Reassessment : 1 year from the end of the financial year in which notice was served.

Obligation to furnish Annual Information return ( 285 BA )

1. Banking company Cash deposits Aggregating Rs.10 lacs or more in the SB A/c of a person

2. A company issuing credit card Payment made by any person aggregating Rs.200000 or more 3. A Mutual Fund co. Receipts from any person aggregating Rs.200000 or more 4 A company or Institution Receipt from a person amount issuing bonds/ debentures of Rs.500000 or more 5. A company issuing shares Receipt from any person an amount of Rs.100000 or more

Appeals and Revision

I II III IV

Against AO s order - Commissioner of Income Tax ( Appeals ) Against CIT s order - Income Tax Appellate Tribunal ( ITAT ) Against Tribunals order High Court Against HC order Supreme Court

The order of the Supreme Court is final and is referred to as case law.

Income Tax Authorities 1. 2. The Central Board of Direct Taxes Director General of IT / Chief Commissioner of IT

3.
4. 5. 6.

Directors of IT / Commissioner of IT
Commissioner of Income Tax ( Appeals ) Addnl. Directors / Addnl Commissioners ( IT /Appeals ) Joint Directors/ Joint Commissioners

7.
8. 9. 10.

Deputy directors / Deputy Commissioners

Asstt. Directors / Asstt. Commissioners Income Tax Officers Tax recovery Officers

11.

Inspectors of Income Tax

A receives a salary of Rs.400000 p.a. The employer deducts Rs.1200 p.m as PF and the appropriate TDS. During the year A invests Rs.50000 in NSC, Rs.10000 is paid as life insurance premium. A also has a housing loan on which he pays Rs.60000 annually ( Rs.20000 towards principal repayment and Rs.40000 as interest ). A declares all the above details to his employer. A also receives the following income during the year. Interest on debentures Rs.12000 Dividend on equity shares Rs.25000 Long term capital gain on sale of jewellery Rs.15000 Prepare an income and tax statement for A for the A.Y 201011

Tax Deducted at Source Under TDS provisions , persons responsible for making certain payments are responsible to deduct tax and deposit it with the Govt.

Tax deducted at Source

TDS is applicable on the following payments Salaries Normal tax rates applicable to individuals 2. Interest on securities 10% + e.cess ( in case of debentures interest TDS applicable only if the amount exceeds Rs.2500 ) 3. Dividends 10% + e.cess 4. Other interest ( bank interest etc ) ( > Rs.10000) 10% ( interest on Post office savings schemes, interest paid by Govt.,interest paid by a infrastructure capital company is not subject to TDS ) 5. Winnings from lotteries , crossword puzzles etc ( > Rs.10000) 30%+ e.cess
1.

6. Winnings from horse races ( > Rs.5000) 30% + e.cess 7. Payment to contractors or sub contractors 1% + e.cess if paid to individuals 2% + e.cess if paid to other persons
TDS is applicable only if a single payment exceeds Rs.30000 or Rs.75000 aggregate in the financial year. TDS is not applicable on payment to transport operators if they produce PAN. Insurance commission ( > Rs.20000 ) 10% + e.cess Payment to non resident sportsmen or sports associations - 10% + e.cess 10.Repurchase of MF units 20% + e.cess

8. 9.

10.

11. Commission on sale of lottery tickets ( > Rs.1000) 10% + e.cess 12. Commission or brokerage ( > Rs.5000) 10% +e.cess 13. Rent ( > Rs.180000 ) 10% + e.cess ( 2% for machinery, plant or equipment) 14.Fees for technical services ( > Rs.30000 in a year ) 10% +e.cess 15. Transfer of controlling interest in a foreign company having assets in India 20% +e.cess 16 .LTCG on foreign currency bonds 10% + e.cess 17.Income of FIIs from securities 20% +e.cess

Individuals and HUF are liable to deduct tax on the following payments only if the turnover/gross receipts from a business or profession exceeds than following limits Rs. 60 lacs in case of business Rs.15 lacs in case of profession Following payments are not subject to TDS as above:
Interest other than interest on securities Rent Commission and brokerage Payment to contractors/sub contractors

No TDS is applicable on payment made to Government, RBI, Mutual fund

TDS certificate
For salaried persons Form 16 and form 12BA For other Form 16A Relief from TDS /TDS at lower rate Form 13 to be submitted to Income Tax authorities Form 15 G/15H to be submitted to payer of income Form 15 G/H is applicable for interest , dividend, NSS