CU-BBA-SEM III-Corporate Tax Planning-SECOND DRAFT

conduct a thorough investigation and adjust the wage structure so that exempt allowances are included. Section 16 (ia) allows for a standard deduction of $50,000 or the amount of gross pay, whichever is less. (2) Employees’ welfare schemes:Employee welfare plans include recognised provident funds, certified superannuation funds, and gratuity funds. Employees receive payments from such funds that are either completely exempt or exempt up to a certain level. Gratuity received by an employee covered by the Payment of Gratuity Act, 1972, for example, is exempt up to a total of 20 lakh. The employee's whole provident money from a recognised provident fund is exempt. Employers would be wise to implement such welfare programmes for the benefit of their employees. The amount that the employer contributes to the above funds is tax deductible.However, due to the restricted restrictions of section 40A (9) which prohibits any payment to any welfare fund unless it is covered by section 36(1)(iv)/(iva)/(v) or as required by or under any other legislation in effect at the time, a word of caution is warranted. In this regard, it's worth noting that section 10(23AAA) exempts any revenue from a staff welfare fund if specific conditions are met. Contributions to such welfare trusts can be prohibited by the Assessing Officer in the absence of a change to section 40A(9).Furthermore, the employer can contribute up to 12% of the employee's salary to a recognised provident fund account, which is not taxable in the employees' hands. (3) Insurance policies: Any payment made by an employer on behalf of an employee to maintain a life policy will be treated as perquisite in the hands of the employee. Further, payments received from the employer in respect of keyman insurance policies constitute income in the hands of the employees. However, the payment of premium by the employer on behalf of the employee will not be treated as a perquisite in the case of accident insurance policies. This is due to the fact that the employer has a vested interest in the safety of the life of his employee who is engaged in such dangerous occupations. [CIT v Lala Shri Dhar (1972) 84 ITR 192 (Del) and CIT v Vinay Bharat Ram (1981) 129 ITR 128 (Del)]. Furthermore, any sum paid by the employer in respect of any Mediclaim premium paid by the employee to maintain an insurance policy on his or any member of his family's health under any scheme approved by the Central Government or IRDA for the purpose of section 80D is not a perquisite in the employee's hands. (4) Dearness allowance, dearness pay: The employer should ensure that dearness allowance and dearness pay should form part of “salary”. This is due to the fact that some elements such as entertainment allowance, gratuity, commuted pension, and the employer's contribution to the recognised provident fund, among others, are determined based on pay. As a result, if the dearness allowance, dearness pay, and other perks are incorporated in the wage, the foregoing benefits will also increase, resulting in a higher exemption in the employee's hands. 151 CU IDOL SELF LEARNING MATERIAL (SLM)

(5) Commission:In Gestetner Duplicators Pvt. Ltd. v. CIT 117 ITR 1, the Supreme Court held that if an employee's commission is paid at a specified percentage of his or her turnover, such commission should be factored into the calculation of \"salary\" for purposes of gratuity and other benefits. Such a commission should be provided for by the employer. (6) Leave travel facility: The employer should extend leave travel facility to the employees at all levels. Under section 10(5) of the Income-tax Act, 1961, exemption is provided in the hands of the employee in respect of leave travel concession. Such exemption is available for the employee, spouse, children (to a maximum of 2 children), dependent parents, dependent brothers and dependent sisters. (7) Rent free accommodation / House Rent Allowance (HRA): An employee should analyse the tax incidence of a perquisite and an allowance, whenever he is given an option, in order to choose the one which is more beneficial to him. In the case of Rent-Free Accommodation vs. HRA, it must be noted that the perquisite of rent-free accommodation is taxed as per Rule 3(1) of the Income-tax Rules, 1962 and HRA is exempt to the extent mentioned in section 10(13A) read with Rule 2A. The employee should therefore work out his tax liability and net cash flow under both the options and then, decide on whether to receive HRA or choose a rent-free accommodation. (8) Uncommuted/Commuted pension: Uncommuted pension is fully taxable. As a result, the employees' pensions should be commuted. Government employees' commuted pensions are totally tax-free, while non-government employees' commuted pensions are only partially tax-free. (9) Provident Fund:If an employee is a member of a recognised provident fund and leaves before completing five years of continuous service, he should seek employment with a company that maintains a recognised provident fund. The accumulated balance of the provident fund with the previous employer will be exempt from tax provided the same is transferred to the new employer who also maintains a recognised provident fund. (10) Retirement benefits:When retirement benefits such as gratuity, commuted pension, and accumulated balance of unrecognised provident fund are paid at the beginning of the financial year, the likelihood of taxation is lower. The employer and the employees should mutually plan their affairs in such a way that retirement takes place in the beginning of a financial year. (11) Pension received by non-residents: Pension received in India by a non-resident assessee from abroad is taxable in India. If, on the other hand, the pension is received by or on behalf of the employee in a foreign nation and then remitted to India, it is tax-free. (12) Accident insurance:In the case of accident insurance contracts, the Supreme Court held in CIT v. L.W.Russel (1964) 53 ITR 91 that the word perquisite applied only to sums for which the employer had a legal obligation to pay and the employee had a vested right. If the 152 CU IDOL SELF LEARNING MATERIAL (SLM)

employee has no vested interest in the policy, it cannot be considered as a perquisite. In view of this position, in cases where an employer takes out accident insurance policy covering all workmen and staff members and pays insurance premium and whenever any worker/staff member meets with an accident and the amount of claim is received from the insurance company and the same is paid away by the employer to the said worker or his family members, the premium paid by the employer in respect of group accident policies could not be considered as a perquisite, under section 17 to be added in the salary income of any employee [CIT v. Lala Shri Dhar (1972) 84 ITR 192 (Delhi)]. The money received from an insurance company in the event of an accident or death of an employee, or his dependents will not be considered income, but rather a capital receipt, and so will not be taxable. (13) Tax free perquisites: The following are the perquisites which are exempt from tax– (i) Use of computers and laptop by employee. (ii) Medical facility in employer’s own hospital or a public hospital or Government or other approved hospital. (iii) Educational benefit in a school run by employer provided value of benefit does not exceed ₹ 1,000 per month per child. (14) Considerations for salary structuring: The perquisite valuation rules prescribe the method for valuing the various perquisites provided by the employer to his employees on the basis of the cost of such perquisites to the employee. For a detailed study, students are advised to refer to the chapter on ‘Salaries’. Accordingly, the entire salary structuring for employees will have to be done after carefully weighing the pros and cons of paying salary in monetary terms or allowing the benefit of perquisites in kind to the employees. It may be noted that a salaried person can opt for concessional rates of tax under section 115BAC in respect of his total income (other than income chargeable to tax at special rates under Chapter XII), if he does not avail certain exemptions/deductions like Leave Travel Concession, standard deduction under the head “Salaries”, interest on housing loan on self- occupied property, deductions under Chapter VI-A [other than 80CCD (2) and section 80JJAA] etc. So, a salaried taxpayer not availing the above deductions/exemptions or availing a lesser amount of such deductions/exemptions can analyse his tax liability under the regular provisions of the Income-tax Act, 1961 vis-à-vis Special provisions under section 115BAC. He can choose whether or not to exercise the option in each previous year. An employee intending to opt for concessional rate of tax under section 115BAC has to intimate the same to the employer. ILLUSTRATION 1 Mr. A, aged 32 years, is employed with XYZ (P) Ltd. on a basic salary of ₹ 50,000 p.m. He has received transport allowance of ₹ 15,000 p.m. and house rent allowance of ₹ 20,000 p.m. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

from the company for the P.Y. 2020-21. He has rented an apartment in Delhi for ₹ 25,000 per month. Mr. A has paid a total of ₹ 2,10,000 in interest on a housing loan he took out to build his home in Mumbai. The house was finished in March of 2021 and is now available for rent. Other Information - Contribution to PPF - ₹ 1,50,000 - Contribution to pension scheme referred to in section 80CCD - ₹ 50,000 - Payment of medical insurance premium for father, who is of the age of 65 - ₹ 55,000 - Payment of medical insurance premium for self and spouse - ₹ 32,000 Compute the total income and tax liability of Mr. A for the A.Y. 2021-22 SOLUTION Computation of total income and tax liability of Mr. for A.Y. 2021-22 Particulars ₹ 6,00,000 Salaries 1,80,000 Basic Salary [₹ 50,000 x 12] - Transport allowance [₹ 15,000 x 12] 7,80,000 (50,000) HRA received 2,40,000 7,30,000 Less: Least of the following exempt u/s 10(13A) 2,40,000 HRA Received 2,40,000 Actual rent paid – 10% of salary [₹3,00,000 – ₹ 60,000] 2,40,000 3,00,000 50% of salary Gross salary Less: Standard deduction u/s 16(ia) Income from house property [Annual Value is Nil. Deduction u/s 24(b) for interest on housing loan would (2,00,000) be restricted to ₹ 2,00,000, in case of self-occupied property, which would 154 CU IDOL SELF LEARNING MATERIAL (SLM)

represent loss from house property] 25,000 5,30,000 50,000 1,50,000 Gross Total Income 50,000 Less: Deductions under Chapter VI- A 75,000 Section 80C Contribution to PPF Section 80CCD(1B) Own contribution to pension scheme Section 80D Mediclaim insurance premium For self and spouse, restricted to For father, who is a senior citizen, restricted to Total Income 2,55,000 Tax liability 250 Tax @ 5% on ₹ 5,000 [₹ 2,55,000 - ₹ 2,50,000] 250 Less: Rebate u/s 87A Total Tax Liability - Computation of total income and tax liability of Mr. A for A.Y. 2021-22 in accordance with the provisions of section 115BAC Particulars ₹ Salaries 6,00,000 Basic Salary [₹ 50,000 x 12] 1,80,000 Transport allowance [₹ 15,000 x 12] 2,40,000 10,20,000 HRA received Income from house property - Interest on housing loan 155 CU IDOL SELF LEARNING MATERIAL (SLM)

Gross Total Income 10,20,000 Less: Deductions under Chapter VI- A Section 80C - Contribution in PPF Section 80CCD - Contribution to pension scheme Section 80D - Mediclaim insurance premium for self and parents Total Income 10,20,000 Tax liability 4,000 79,000 Tax@20% on ₹ 20,000 [₹ 10,20,000 – ₹ 10,00,000] 37,500 Tax @15% on ₹ 2,50,000 [₹ 10,00,000 - ₹ 7,50,000] 25,000 Tax @10% on ₹ 2,50,000 [₹ 7,50,000 - ₹ 5,00,000] 12,500 Tax @5% on ₹ 2,50,000 [₹ 5,00,000 - ₹ 2,50,000] Add: Health & Education cess @ 4% 3,160 Total Tax Liability 82,160 Since tax payable as per the regular provisions of the Act is lower than the tax payable under the provisions of section 115BAC, it would be beneficial for Mr. A not to opt for section 115BAC. Note: In this case, Mr. A is entitled to exemption u/s 10(13A), benefit of interest on housing loan in respect of self-occupied property and Chapter VI-A deductions, owing to which his total income is reduced by ₹ 7,65,000. His total income under the regular provisions of the Act is less than ₹ 5,00,000, owing to which he becomes entitled to rebate u/s 87A. Hence, in this case, it is beneficial for Mr. A not to opt for section 115BAC. 11.5SUMMARY  The scope for tax planning from the angle of employees is limited.  The definition of salary is very wide and includes not only monetary salary but also benefits and perquisites in kind. 156 CU IDOL SELF LEARNING MATERIAL (SLM)

 The employer should plan the salary structure keeping in view the deductions and exemptions available under the Act.  There are several employees’ welfare schemes such as recognized provident fund, approved superannuation fund, gratuity fund. Payments received from such funds by the employees are totally exempt or exempt up to significant amounts.  Any payment made by an employer on behalf of an employee to maintain a life policy will be treated as perquisite in the hands of the employee. 11.6KEYWORDS • HRA – House Rent Allowance • CIT – Commissioner of Income Tax • LLP – Limited Liability Partnership • HUF – Hindu Undivided Family 11.7LEARNING ACTIVITY 1. Download Form 16 (Part A and Part B) from internet and notice closely on various Payroll Components. ___________________________________________________________________________ ___________________________________________________________________________ 2. Learn how to convert the single-entry system of accounting to double entry system of accounting. ___________________________________________________________________________ ___________________________________________________________________________ 11.8UNIT END QUESTIONS A.Descriptive Questions Short Questions 1. Write short notes on accrual system of accounting. 2. Describe briefly about tax-free perquisites and give examples. 3. Mr. Rahul, aged 32 years, is employed with XYZ (P) Ltd. on a basic salary of ₹60,000 p.m. He has received transport allowance of ₹ 15,000 p.m. and house rent allowance of ₹ 20,000 p.m. from the company for the P.Y. 2020-21. He has paid rent of ₹ 25,000 p.m. for an accommodation in Delhi. Mr. A has paid interest of ₹ 2, 10,000 for housing loan taken for the construction of his house in Mumbai. The construction of the house is completed in March 2021 and the house is vacant. 157 CU IDOL SELF LEARNING MATERIAL (SLM)

Other Information - Contribution to PPF - ₹ 1, 50,000 - Contribution to pension scheme referred to in section 80CCD - ₹ 50,000 Compute the total income and tax liability of Mr. for the A.Y. 2021-22. 4. Briefly discuss about the taxability of leave travel allowance. 5. Differentiate between cash system and mercantile system of accounting. Long Questions 1. Explain the various components of salary and its tax implications. 2. Explain the taxation of leave travel facility. 3. Briefly explain a few deductions from the gross total income. 4. Explain in detail about the choice of accounting system. 5. Discuss in detail about the single-entry system and double entry system of accounting. B. Multiple Choice Questions 1. Maximum deduction under section 80C is a. ₹ 1,20,000 b. ₹ 1,50,000 c. ₹ 2,00,000 d. None of these 2. What is the maximum deduction available u/s 80D for self-aged less than 60? a. 50000 b. 30000 c. 25000 d. None of these 3. Example for tax-free perquisites is __________ a. Use of computers and laptop by employee b. Medical facility in employer’s own hospital or a public hospital or Government or other approved hospital c. Educational benefit in a school run by employer provided value of benefit does not exceed ₹ 1,000 per month per child d. All of these 4. Pension received in India by a non-resident assessee from abroad is __________ in India a. Not taxable b. Taxable c. Partly taxable and partly non-taxable 158 CU IDOL SELF LEARNING MATERIAL (SLM)

d. Taxed and can be claimed as deduction 5. Standard deduction u/s 16(ia) is ____________ a. ₹ 50000 b. ₹ 40000 c. ₹ 35000 d. ₹ 60000 Answers 1-d, 2-c, 3-d, 4-b, 5-a 11.9 REFERENCES  V.K. Singhania,DirectTaxes,Taxman Publication (P)Ltd.,Delhi,Latestedition.  Lakhotia R.N., Income Tax Planning Handbook, Vision Books, New Delhi, Latestedition.  H.C. Mehrotra–IncomeTaxLaw&Practice.  Bhagwati Prasad: LawandPracticeofIncomeTaxinIndia  H.P.Ranina:CorporateTaxation: AHandbook(Taxmann).  V.S.Datey:IndirectTaxes– LawandPractice(TaxmannPublicationsLimited).V.S.Datey:IndirectTaxes– LawandPractice(TaxmannPublicationsLimited). 159 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 12: TDS STRUCTURE 12.0 Learning Objectives 12.1 Introduction 12.2 TDS Chart 12.3 Applicability and Rates of TDS 12.4 Time schedule for TDS 12.5 Consequences of Noncompliance 12.6 Summary 12.7 Keywords 12.8 Learning Activity 12.9 Unit End Questions 12.10 References 12.0 LEARNING OBJECTIVES After studying this unit students will be able:  State the modes of recovery of Income tax from an Assessee  Examine the provisions governing Tax deducted at source  Explain the when Advance Tax is to be paid  Identify persons responsible for paying Tax deducted at source 12.1 INTRODUCTION The scope of a person's total income chargeable to tax on an annual basis is defined by the Income Tax Act. The tax liability is calculated according to the terms of the Income-tax Act, and it is discharged in one of the following ways: 1. Tax Deducted at Source (TDS) 2. Tax Collected at Source (TCS) 3. Advance Tax 4. Self-Assessment Tax (SAT) 5. Tax on regular assessment Liability for TDS Any person responsible for making payment of certain category of incomes is liable to deduct tax at source at an appropriate occasion. 160 CU IDOL SELF LEARNING MATERIAL (SLM)

The legislation specifies when TDS should be deducted, at what rate it should be deducted, and when TDS should be paid to the government, as well as the administrative responsibilities of the payer (tax deductor) and payee (tax deductee). The following chart states at a glance income from which TDS should be made: 12.2 TDS CHART Section Nature of Income/ Threshold Person Rate at which to be 192 Payment Limit Responsible to deducted 193 Make TDS Salary Maximum Any person being average rate of amount not liablean Employer income- tax to tax for computed on the employee basis of rates in force for the financial year in which the payment is made, on the estimated salary income of the employee for that financial year Interest on securities 10,000, if Any person issuing Discussed later income the security from 8% Saving Bonds, 2003 194 Dividend 5,000, if interest @10% if PAN is 194A on debenture provided @20% if Any interest other Nil Company PAN is not provided than interest on @10% if PAN is securities Exceeding Any person other provided @20% if PAN is not provided ₹ 5,000 in a year than individual or or 10,000 in case HUF payer is banking company or co- operative society or deposit with post office 161 CU IDOL SELF LEARNING MATERIAL (SLM)

194B Winnings from ₹ 10,000 Any person 30% [Sec. 115BBB] 194BB lottery or crossword Puzzle or card game and other game of any sort including television game Winning from 30% [Sec. 115BBB] Winnings from horse ₹ 5,000 horse race race 194C Any Payment in If a contract Central or State If the receipient is an 194D pursuance of any contract for exceeds contract Government, Local individual/HUF = 1% consideration ₹ 30,000 or total Authority, If the recipient is any Insurance commission in a year Central/State or other person = 2% contracts with Provincial Corpn., 20%, if PAN is not the same Company Co- provided (in the both contractor or operative Society the cases). sub- contractor Housing Board, If the receipt is a exceed ₹ 75,000. Trustor University, transport operator and Firm eligible to compute in come u/s 44AE and he furnishes his PAN to payer, TDS ₹ 20,000 Any person rate = Nil 10% if PAN furnished 20%, if PAN not furnished 194DA Any person made ₹ 1,00,000 Any person 2% payment to a resident person under Life Insurance Policy, including bonus on such policy, except income u/s 10(10D) 162 CU IDOL SELF LEARNING MATERIAL (SLM)

194E Income for Nil Any person 20% participation in any game or sport in India; by way of remuneration for articles on sorts, etc Guaranteed sum in Nil Any person 20% relation to any game or sport played in India. 194EE Any sum out of ₹ 2,500 Any person 20% National Savings Scheme u/s 80CCCA 194F Amount on account Nil Any person 20% Section of repurchase relevant of units covered u/s. 80CCB Nature of Income/ Threshold Limit Person Responsible Rate at which to be Payment to Make TDS deducted 194G Commission, Exceeding Any person 10% remuneration ₹ 1,000 or prize – relating to lottery tickets 194H Commission or Exceeding Other than 10%, if PAN Brokerage ₹ 5,000 p.a individual and HUF furnished 20%, if PAN not furnished 163 CU IDOL SELF LEARNING MATERIAL (SLM)

194-I Rent ₹ 1,80,000 p.a Other than 2% on Machinery or 194J Fees for Professional ₹ 30,000 p.a individual and HUF plant equipment or technical services 10%, any land or building or furniture or fittings. Other than 10%, if PAN individual & HUF furnished 20%, if PAN not furnished 94LA Immovable Property ₹ 2,00,000 p.a Any person 10% 194LB 5% + EC + SHEC (other than (w.e.f. 1-7-2012) agricultural land) Acquisition Compensation. Interest payable on Nil Any person Infrastructure debt fund 194LBA Where any Nil Person responsible 10% (1) for making the distributed income is payment payable by a business trust to its unit holder 194LBA Where any Nil Person responsible 5% (2) for making the distributed income is payment payable by a business trust to its unit holder 194LBB Income in respect of Nil Business Trust 10%, if PAN units of Invest- ment furnished 20%, if Fund (w.e.f. 1st June, PAN not furnished 2015) 164 CU IDOL SELF LEARNING MATERIAL (SLM)

194LC Interest paid or Nil Specified Company 5% +EC+SHEC Payable to a non- or a Business Trust resident/ Foreign Company 195 Any interest or any Nil Any person If the NR is resident sum chargeable as of a country with income (other than which India has salary) (Except Double Tax interest u/s 194LB or Avoidance 194LC or Agreement, (DTAA) 194LD) beneficial of the rate as per FA or DTAA. 196B Income in respect of Nil Any person 10% Notes: units referred to in Sec. 115AB purchased in foreign currency or income of long-term capital gains from such units. Table 12.1 TDS Chart 1. Threshold Limit: payments in a year upto these limits are not liable for TDS. If the amount of payment exceeds threshold limit, then provisions of TDS apply. 2. Rate of TDS is prescribed by the Finance Act (FA) that is applicable during the year when TDS is to be made. For example, for the current year from 1st April, 2014 to 31st March, 2015 (2014-15) TDS rates will be available in the Finance (No. 2) Act, 2014. 3. TDS rates specified herein above are rates of income tax. These are required to be increased by surcharge specified in The Finance Act applicable. Education cess and secondary and higher education cess is applicable when salary is paid to a resident or non-resident and when any amount (other than salary) is paid to a non-resident or a foreign company. 4. Individual and HUF: Individuals or Hindu Undivided Families whose total sales, gross receipts, or turnover from their business or profession exceed the monetary limits specified in clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income is credited or paid are liable to deduct income tax under this section. 165 CU IDOL SELF LEARNING MATERIAL (SLM)

Payments made by way of fees which are exclusively for personal purposes will not attract provisions of Sec. 194J. 12.3 APPLICABILITY & RATES OF SURCHARGE Assessee Income Rate of Surcharge 10% Every Individual or Hindu undivided family or Exceeding ₹1 crore 5% AOP/BOI (whether incorporated or not), or every 10% 2% artificial judicial person, Co-operative society, 5% Firm (including limited liability partnership) Domestic companies Exceeding ₹1 crore Exceeding ₹10 crore Foreign company Exceeding ₹1 crore Exceeding ₹10 crore Table 12.2 Applicability and rates of surcharge Rationalisation of provisions relating to Tax Deduction at Source (TDS) [W.e.f. 1-10 2009] Tax deduction at source is a method of collecting taxes on behalf of the Government at the time of payment or credit. The Deductor has a legal obligation under the Income Tax Act to deduct tax on the correct amount, at the correct rate, and deposit it in the Government account. The TDS rates are determined in part by the Finance Act and in part by the Income- tax Act. Over and above some of the prescribed TDS rates, deductors must also compute surcharge and cess. Interest, penalty, and prosecution provisions may be triggered if the deductor fails to deduct the tax or fails to deposit the tax after deduction. Further, under the provisions of section 40(a)(ia), if the deductor fails to deduct tax on a prescribed payment or fails to deposit the tax deducted in time, the 30% of the expenditure is disallowed while computing his total income. To make it easier for deductors to comply with their TDS duties and decrease their compliance burden, it is proposed that the terms of TDS be streamlined as follows: Amendment in Section 193: At present, no tax is required to be deducted at source if interest payable to a resident individual on debentures issued by a listed company does not exceed ₹ 2,500 in a year. This limit is increased to ₹ 5,000 w.e.f. 1-7-2012. This concession will now apply to debentures issued by unlisted public companies as well as to interest payable to resident HUF. The existing exemption in respect of interest paid on debentures issued by listed companies which are held in Demat Account will continue without any limit. The amendment in this section comes into force on 1-7-2012. 166 CU IDOL SELF LEARNING MATERIAL (SLM)

Amendment in TDS rates and other provisions of section 194C i) Rate of TDS under section 194C rationalized [W.e.f. 1-10-2009]:Under the existing provisions of section 194C of the Income-tax Act, TDS at the rate of 2% is deducted on payment for a contract in case of recipient is other than Individual/HUF and 1% in case of Individual/HUF.The Act has prescribed the same rate of TDS for payments to both contractors and sub-contractors in order to eliminate the opportunity for disputes about contract classification as subcontract. The Act has given a single rate of TDS in the case of payment for advertising contracts to simplify TDS rates and eliminate various classifications. To avoid hardship to small contractors/sub-contractors most of whom are organized as individuals/HUFs, the Act has prescribed following rates of TDS: a) 1% where payment for a contract is to individuals/HUF b) 2% where payment for a contract is to any other person. If the transporter provides his PAN, the zero rate will apply. If PAN is not quoted, the rate for an individual/HUF transporter will be 1% and for other transporters will be 2% till 31.3.2010. TDS will be 20% in all of the above circumstances if the deductee does not quote his or her PAN as of 1-4-2010. i) Provisions for payments and tax deducted at source to transports [W.e.f. 1-10- 2009]:Payments to transport contractors engaged in the business of plying, hiring, or leasing goods carriages are required to be taxed under section 194C.However, if they furnish a statement that they do not own more than two goods carriages, tax is not to be deducted at source. Transport operators claim difficulty acquiring TDS certificates because clients do not supply them promptly, and they are unable to visit the client again because their company may need them to relocate across the country. The Act has inserted sub-section (6) to section 194C and has exempted payments to transport operators (as defined in section 44AE) from the purview of TDS. However, this would only apply if the operator provided the deductor with his Permanent Account Number (PAN). According to section 194(7), deductors who make payments to transporters without deducting TDS (because they have mentioned a PAN) must inform the Income Tax Department of these PAN details in the approved format. Amendments in section 194C (6): As there is no rationale for exempting payment to all transporters, irrespective of their size, from the purview of TDS, the Act has amended the provisions of section 194C of the Act to expressly provide that the relaxation under section 194C(6) of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE of the Act (i.e. a person 167 CU IDOL SELF LEARNING MATERIAL (SLM)

who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN. Clarification regarding “work” under section 194C [W.e.f. 1-10-2009]: There is continuing litigation about whether TDS is deductible on outsourcing contracts under section 194C and whether outsourcing is considered work. To clarify the situation, the Act states that \"work\" does not include making or supplying a product to a client's requirement or specification using raw materials obtained from someone other than the customer, unless the contract is for \"sale.\" This will however not apply to a contract, which does not entail manufacture or supply of an article or thing (e.g., a construction contract). Within the meaning of ‘work,' the Act has included making or supplying a product to a client's requirement or specification using material acquired from that customer. TDS shall be deducted on the invoice value excluding the amount of material acquired from such customer if such value is indicated separately in the invoice, as provided in section 194C(3). TDS will be deducted on the entire invoice value if the material component is not individually indicated in the invoice. Further, in a case where the payment is made by an individual or HUF to the contractor exclusively for personal purposes of such individual or member of HUF, there will be no need to deduct tax at source under section 194C. Payment in respect of Life Insurance Policy [Section 194DA] According to the section 194DA Finance (No.2) Act of 2014, any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, must deduct income tax at the rate of 2% at the time of payment. If the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee for the financial year is less than one hundred thousand rupees, no deduction shall be made under this provision. Rate of TDS reduced in case of section 194-I:TDS on rental payments is prescribed at the rate of 2 percent for the use of any machinery, plant or equipment, and 10% for the use of any land, building, furniture or fittings, if the payee is an individual or HUF, under the existing provisions of section 194-I of the Income-tax Act. The Act has rationalised and reduced the TDS rates on rental payments as follows: 2 percent for the use of any machinery, plant or equipment, and 10% for the use of any land, building, furniture or TDS will be 20% in all of the above circumstances if the deductee does not quote his or her PAN as of 1-4-2010. Amendment to section 194-I by the Finance Act, 2015 168 CU IDOL SELF LEARNING MATERIAL (SLM)

Where rent income is credited or paid to a business trust, which is a real estate investment trust, in respect of any real estate asset described to in section 10(23FCA), owned directly by such business trust, no deduction is allowed under section 194-I. Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land) [Section 194-IA] [w.e.f. 1.6.2013] There is a statutory requirement under section I39A of the Income-tax Act read with rule 114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of ₹5 lakh or more. However, according to information provided to the department by the Registrar or Sub- Registrar in Annual Information Returns, a majority of purchasers or sellers of immovable properties valued at Rs. 30 lakh or more during the financial year 2011-12 did not quote or quoted an invalid PAN in the documents relating to the transfer of the property. Tax is required to be deducted at source on certain specified payments provided to residents in the form of salary, interest, commission, brokerage, professional services, and so on, under the existing requirements of the Income-tax Act. Tax must be deducted at source by the transferee when a non-resident transfers immovable property. Except in the case of forcible acquisition of certain immovable assets, there is no such obligation on the transfer of immovable property by a resident. The Act has included a new section 194-IA to create a reporting mechanism for transactions in the real estate industry, as well as to collect tax at the earliest possible time: Transferee to deduct tax at source:Any person responsible for paying (other than the person referred to in section 194LA) any sum as consideration for the transfer of any immovable property (other than agricultural land) to a resident transferor shall deduct an amount equal to 1% of such sum as income-tax thereon: at the time of crediting such sum to the transferor's account, or at the time of payment of such sum in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier. However, where the total amount of consideration for the transfer of an immovable property is less than ₹ 50,00,000, no tax deduction will be made under this provision. i) Deductor not required to obtain tax deduction and collection account number [Section 194- IA (3)]: The provisions of section 203A relating to obtaining tax deduction and collection account number shall not apply to a person required to deduct tax in accordance with the provisions of this section. Meaning of agricultural land: “Agricultural land” means agricultural land in India, not being aland situate in any area referred to in items (a) and (b) of section 2(14)(iii). Meaning of immovable property: “Immovable property” means any land (other than agriculturalland) or any building or part of a building. In other words, TDS shall not be applicable in case of transfer of rural agricultural land. 169 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 194J — TDS on fees from professional or technical services: This section is now amended w.e.f. 1-7-2012. It will now be necessary for a company to deduct tax at source from any remuneration, fees or commission paid or payable to a director, if no tax is deductible u/s.192 under the head salary. The rate for TDS is 10%. It may be noted that the manner in which the section is amended indicates that this deduction is to be made irrespective of the quantum of such payment in the year. As regards professional fees, technical service fees, royalty, etc. to which this section applies, it is provided that tax is to be deducted only if payment under each head exceeds ₹ 30,000 in the financial year. Therefore, in case of payment of fees to non-executive directors and independent directors as ‘Director’s Fees’, the tax at 10% will be deductible even if the total payment in the F.Y. is less than ₹ 30,000 to each of them. Example 1 Examine the applicability of TDS provisions and TDS amount in the following cases: (a) Rent paid for hire of machinery by B Ltd. to Mr. Raman ₹ 2,60,000 on 27.9.2020. (b) Fee paid on 1.12.2020 to Dr. Srivatsan by Sundar (HUF) ₹ 35,000 for surgery performed on a member of the family. (c) ABC and Co. Ltd. paid ₹ 19,000 to one of its directors as sitting fees on 01-01-2021. Answer (a) The provisions of section 194-I for deduction of tax at source are attracted since the rent paid by B. Ltd. for the hire of machinery to Mr. Raman exceeds ₹ 2,40,000. If Mr. Raman had provided B Ltd with his permanent account number, the rate for deducting tax at source under section 194-I on rent paid for hire of plant and machinery is 1.5 percent. Therefore, the amount of tax to be deducted at source: = ₹ 2,60,000 x 1.5% = ₹ 3,900. Note: By virtue of section 206AA, if Mr. Raman does not provide B Ltd. with his permanent account number, tax will be deducted at a rate of 20% on the sum of ₹ 2,60,000. (b) According to section 194J, a Hindu Undivided Family is only required to deduct tax at source on fees paid for professional services if the total sales, gross receipts, or turnover from the business or profession exceeded 1 crore in the case of a business or 50 lakhs in the case of a profession in the financial year preceding the current financial year, as the case may be, and such payment was made for professional services and is not exclusively for the personal purpose of any member of Hindu Undivided Family. Section 194M allows a HUF (which is not obligated to deduct tax at source under section 194J) to deduct tax at source on fees for professional services if the whole amount or aggregate amount exceeds ₹ 50 lakhs during the financial year. 170 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 194J is not applicable in this situation because the costs for professional services to Dr. Srivatsan were paid on 1.12.2020 for a personal purpose. Section 194M would have been attracted, if the payment or aggregate of payments exceeded ₹ 50 lakhs in the P.Y.2020-21. However, since the payment does not exceed ₹ 50 lakh in this case, there is no liability to deduct tax at source under section 194M also. (c) Section 194J provides for deduction of tax at source @7.5% from any sum paid by way of any remuneration or fees or commission, by whatever name called, to a resident director, which is not in the nature of salary on which tax is deductible under section 192. The threshold limit of ₹ 30,000 up to which the provisions of tax deduction at source are not attracted in respect of every other payment covered under section 194J is, however, not applicable in respect of sum paid to a director. Therefore, [email protected]% has to be deducted at source under section 194J in respect of the sum of ₹ 19,000 paid by ABC Ltd. to its director. Therefore, the amount of tax to be deducted at source: = ₹ 19,000 x 7.5% = ₹ 1,425 Certain income from units of a Business Trust [Section 194LBA] As per the newly inserted section 194LBA by the Finance (No.2) Act, 2014 provided that – When a business trust pays its unit holder who is a resident any distributed income referred to in section 115UA that is of the nature referred to in clause (23FC) of section 10, the person responsible for making the payment shall, at the time of crediting such payment to the payee's account or at the time of payment in cash, by the issue of a cheque or draft, or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10%. When a business trust pays a non-resident (not being a company) or a foreign company any distributed income referred to in section 115UA that is of the nature referred to in clause (23FC) of section 10, the person responsible for making the payment shall, at the time of crediting such payment to the payee's account or at the time of payment thereof in cash, or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 5%. Any distributed income referred to in section 115UA that is of the nature referred to in clause (23FCA) of section 10 is payable by a business trust to its unit holder, who is a non-resident (not being a company) or a foreign company, and the person responsible for making the payment shall, at the time of crediting such payment to the payee's account or at the time of cash payment thereof, or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Tax deduction from income in respect of units of investment fund [Sec. 194LBB] 171 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 194LBB has been inserted with effect from June 1, 2015. Provisions of this section are given below – Time of tax deduction - Tax deduction is applicable if a business trust distributes any income referred to in section 115UB [not being business income of the nature referred to in section 10(23FBB)] to its unit holders. Tax is deductible when the payment is credited to the payee's account or when the payment is made in cash, by issuing a cheque or draft or by any other method, whichever comes first. Rate of TDS - Tax is deductible at the rate of 10 per cent. If the recipient does not have PAN, tax is deductible at the rate of 20 per cent. Lower TDS certificate - Provisions of section 197 or section 197A are not applicable. Income by way of interest from Indian company [Section 194LC] 1 When any income by way of interest referred to in sub-section (2) is payable to a non- resident who is not a company, or to a foreign company by a specified company or a business trust, the person responsible for making the payment shall, at the time of crediting such income to the payee's account or at the time of payment in cash, by issue of a cheque or draft, or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of 5%. 2 The interest referred to in subsection (1) is the income payable by the designated company or business trust in the form of interest, — i) with relation to funds borrowed in foreign currency from a source outside India - a) under a loan agreement signed on or after July 1, 2012, but before July 1, 2017; or by way of issuance of long-term infrastructure bonds on or after July 1, 2012, but before October 1, 2014; or by way of issuance of any long-term bond, including long-term infrastructure bonds, on or after October 1, 2014, but before July 1, 2017, as approved by the Central Government; and ii) to the extent that the amount of interest calculated at the rate approved by the Central Government in this respect does not exceed the amount of interest calculated at the rate approved by the Central Government in this regard, taking into account the terms of the loan or bond and its repayment. Income by way of interest on certain bonds and Government securities [Section 194LD] [w.e.f. 1.6.2013] Person responsible for paying interest to deduct tax at source [Section I94LD(1)]: Any person who is responsible for paying to a person being a Foreign Institutional Investor or a 172 CU IDOL SELF LEARNING MATERIAL (SLM)

Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon. Rate of TDS: The rate shall be 5% Notes: 1. Surcharge as applicable, education cess & SHEC shall be added to the above rates. 2. The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee. 3. As tax cannot be deducted at lower rate, section 197 shall not be applicable in this case. i) Income on which tax is to be deducted [Section 194LD (2)]: The income by way of interest referred to in sub-section (1) shall be the interest payable on or after 1.6.2013 but before 1.6.2017 in respect of investment made by the payee in— a) a rupee denominated bond of an Indian company. b) a Government security. However, the rate of interest in respect of bond referred to in clause (i) shall not exceed the rate asmay be notified by the Central Government in this behalf. Since, tax on such interest is deductible under section194LD, corresponding amendments have been made in sections 195 and 196D to exclude such interest under those provisions. Meaning of “foreign institutional investor”: “Foreign Institutional Investor” shall have the meaningassigned to it in clause (a) of the Explanation to section 115AD. Meaning of “Government of security”: “Government security” shall have the meaning assigned to itin clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956. Meaning of “Qualified Foreign Investor: “Qualified Foreign Investor” shall have the meaning assigned to it in the Circular, No. CIR/IMD/DF/14/2011, dated 9.8.2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992. Rate of TDS on unlisted debentures or security or on Interest other than securities reduced to 10%. Rate of TDS has been reduced by the Finance (No. 2) Act, 2009 from 20% to 10% in case of the following: i) TDS on interest on unlisted debentures and on any income other than mentioned in Para l(o) of Part II of Schedule I to the Finance (No. 2) Act, 2009 relating to TDS rates in case of a person other than a company who is resident in India has been reduced from 20% to 10%. 173 CU IDOL SELF LEARNING MATERIAL (SLM)

ii) Similarly, TDS on interest other than interest on securities and on any income other than mentioned in Para 2(a) of Part II of the Schedule I to the Finance (No. 2) Act, 2009 in case of a domestic company has also been reduced from 20% to 10%. TDS to be deducted at basic rates In order to ease the computation of TDS, the Act has removed surcharge and education cess & SHEC on tax deducted on any payment made to resident taxpayers except in case of salary. In case of salary TDS shall be deductible after including education cess and SHEC. This provision shall be effective after the Finance (No. 2) Act becomes the Act. Case Law: The directors of the assessee company have routed the loan taken in their individual capacity in the name of company. The company was merely acting as the agent of the directors for receiving & disbursing the loans to the directors. It was held that as per the provisions of section 194A, TDS is to be made at the time of credit of such income to the account of the payee. So the company was liable to deduct tax on the interest payment to lenders as there was no resolution passed by the Board of Directors which empowered the company to merely act as a medium for routing the borrowing & repayment - CIT vs. Century Building Industries P. Ltd. 293 ITR 194. The assessee has entered into an agreement for use of the premise for storage of goods. While making payment the assessee deducted tax at 2% u/s 194C considering that it was a contractual payment. However, it was concluded that the payment made by the assessee is in the nature of rent u/s 194I of the Act & TDS should have been made @ 20%. The Apex court held that once tax is paid by the deductee on the income received from the deductor, the deductor cannot be once again called upon to pay the tax on same income. However, the assessee is liable to pay interest u/s 201(1A) for delay or non-payment of tax to the Government within prescribed time. Hindustan Coca Cola Beverages P. Ltd. vs. CIT 293 ITR 226 (SC). Example 2 Examine the applicability of tax deduction at source provisions, the rate and amount of tax deduction in the following cases for the financial year 2020-21: (1) Payment of ₹ 27,000 made to Jacques Kallis, a South African cricketer, by an Indian newspaper agency on 02-07-2020 for contribution of articles in relation to the sport of cricket. (2) Payment made by a company to Mr. Ram, sub-contractor, ₹ 3,00,000 with outstanding balance of ₹ 1,20,000 shown in the books as on 31-03-2021. (3) Winning from horse race ₹ 1,50,000 paid to Mr. Shyam, an Indian resident. 174 CU IDOL SELF LEARNING MATERIAL (SLM)

(4) ₹ 2,00,000 paid to Mr. A, a resident individual, on 22-02-2021 by the State of Uttar Pradesh on compulsory acquisition of his urban land. Answer (1) Section 194E requires the person responsible for paying any amount to a non-resident sportsman who is not an Indian citizen for contributions of articles in a newspaper connected to any game or sport played in India to deduct tax at source at a rate of 20%. Further, since Jacques Kallis, a South African cricketer, is a non-resident, health and education cess @4% on TDS should also be added. Therefore, tax to be deducted = ₹ 27,000 x 20.80% = ₹ 5,616. (2) Provisions of tax deduction at source under section 194C are attracted in respect of payment by a company to a sub-contractor. Under section 194C, tax is deductible at the time of credit or payment, whichever is earlier @ 0.75% in case the payment is made to an individual. Since the aggregate amount credited or paid during the year is ₹ 4,20,000, tax is deductible @ 0.75% on ₹ 4,20,000. Tax to be deducted = ₹ 4,20,000 x 0.75% = ₹ 3,150 (3) Under section 194BB, tax is to be deducted at source, if the winnings from horse races exceed ₹ 10,000. The rate of deduction of tax at source is 30%. Hence, tax to be deducted = ₹ 1,50,000 x 30% = ₹ 45,000. (4) As per section 194LA, any person responsible for payment to a resident, any sum in the nature of compensation or consideration on account of compulsory acquisition under any law, of any immovable property, is required to deduct tax at source, if such payment or the aggregate amount of such payments to the resident during the financial year exceeds ₹ 2,50,000. In the given case, there is no liability to deduct tax at source as the payment made to Mr. A does not exceed ₹ 2,50,000. 12.4 TIME SCHEDULE FOR TDS Nature of Activity Time Frame Time of Deduction Salary: At the time of payment Others: When income paid or credited to the account including “payable” or “suspense” account whichever is earlier. Time of deposit of tax (a) If the income is credited on the date the accounts are made, it (Other than on behalf of must be credited within two months of the end of the month in Government) which the revenue is credited. 175 CU IDOL SELF LEARNING MATERIAL (SLM)

Statement (b) In all other cases, the deduction must be done within one week of the end of the month. TDS Type Form For each Quarter For all category due date of submission of quarterly returns Salary No 24Q Q1: April – June – 15th July Q2: July – September – 15th October Non-Resident No 27Q Q3: October – December – 15th January Q4: January - March - 15th May All Others No 26Q every office of the government, and the principal officer of every company, firm, whose total sales, gross receipts, or Electronic For turnover from the business or profession carried on by it exceed the monetary limits specified in clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income is credited or paid. Table 12.3 Time schedule for TDS 1. Within 7 days of the next month, copies of Form Nos. 15G and 15H received by the payer must be filed with the Chief Commissioner / Commissioner. 2. If the person in charge of deducting and paying tax fails to do so, he is considered an assessee in default and is liable to pay interest at a rate of 12 percent per annum on the amount of such tax from the date on which such tax was deductible to the date of actual payment, as well as a penalty not to exceed the amount of tax, as well as rigorous imprisonment ranging from 3 months to 7 years and a fine. The interest payment must be made before the Quarterly Return may be filed. 3. Sec. 199 – Credit for tax deducted: a) For the Assessment Year in which such income is assessable, credit will be given. b) Where such income is assessable in the hands of any other person, credit shall be given to such other person. c) When any security, property etc. is jointly owned by two or more persons not constituting partnership, credit for TDS on income there from shall be given to such persons in the proportion in which the income is distributed. 4. A payee whose income is subject to TDS must provide his PAN to the tax deductor. In the TDS Certificate and TDS return, the tax deductor must include the payee's PAN [Sec. 139A]. 5. TDS/TCS quarterly statements must include TAN/TDCAN section 203A(ba). 176 CU IDOL SELF LEARNING MATERIAL (SLM)

6. The notified deductors and collectors are exempt from the obligation of obtaining and quoting a TAN under section 203A of the Act [Amended by Finance Act, 2015]. 7. Only if the assessee's total income is less than the threshold limit can he file a declaration for non-deduction of tax under section 197A. If the tax on their expected total income is likely to be zero, senior citizens can file a declaration. 8. Disallowance due to non-deduction: If tax deductible under sections 193, 194A, 194C, 194H, 194J, and 195 is not deducted/paid by the required dates, the relevant expenditure ordinarily admissible in computing the payer's Total Income will be disallowed under section 40(a)(i) (ia). In the year in which TDS is paid, the deduction will be allowed. 9. Salary TDS: TDS by Employer:In the case of any perquisite not covered by a monetary payment, the Employer may, at his discretion, pay tax on the entire or a portion of such income without making any deductions. Tax shall be estimated on the basis of the average of income-tax computed on the basis of the rates in place for the financial year, on the income chargeable under the head \"Salaries\" for the purpose of paying tax as specified. Simultaneous employment / Successive employment: the employee may furnish to one of the many or successive employers such details of the income under the head “Salaries” due or received by him from the other employer or employers, the tax deducted at source there from and such other particulars and thereupon such employer shall take into account the details so furnished for the purposes of making the TDS. Relief Under Section 89(1):If a government employee or an employee of a company, co- operative society, local authority, university, institution, association, or body is entitled to relief under section 89(1), he may provide such information to the employer, who may then compute the relief and factor it into the TDS. Other Income: Employee has any income chargeable under any other head of income for the same financial year, not being a loss under any such head other than the loss under the head “Income from House Property”, he may send to the Employer the particulars of— a) such other income, as well as any taxes deducted in accordance with any other provision of this Chapter. b) the loss, if any, under the head “Income from House Property”, and thereupon the Employer shall take— i) such other income and tax, if any, deducted thereon; and 177 CU IDOL SELF LEARNING MATERIAL (SLM)

ii) the loss under the heading \"Income from House Property,\" if any, also taken into consideration when generating the TDS. After considering such other information there should be no reduction in TDS from Salary, exceptreduction on account of loss from “House Property” head. PF, Superannuation Trusts : The trustees the fund at the time an accumulated balance due to an employee is paid, make there from the deduction provided in rules. Salary payable in foreign currency: The value of such a salary in rupees shall be computed using the prescribed exchange rate. Income payable “net of tax”: If the tax chargeable on any income subject to TDS is to be borne by the person to whom the income is payable, such income shall be increased to such amount as would, after deduction of tax at the rates in effect for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. [Sec. 195A] Procedure for TDS i) To obtain Tax Deduction and Collection Account Number (TAN) by applying in Form No. 49B [sec. 203A and Rule 114A] ii) To deduct tax at source as per provisions. TDS should be at an appropriate time and at appropriate rate. iii) To deposit tax in the Government treasury within the time in proper challan. iv) To submit quarterly TDS statements. 12.5 CONSEQUENCE OF NON-COMPLIANCE OF TDS PROVISIONS: Sr. Section Default Consequence No. or Section Effect Chapter 1 197A Delay, no submission of no 272A(2)(j) ₹ 100 per day / Max. Tax Amount TDS declarations on Decleration 2 Chapter TDS is not deducted in its 271C(1)(a) A fine equivalent to the amount of XVII - B entirety or in part. TDS not deducted will be imposed. 3 200 Delay in payment of TDS 201(1A) Interest @ 1% p.m 4 200 Delay, no submission of 272A(2)(k) ₹ 100 per day / Max. Tax Amount Quarterly TDS Statement or of TDS in of Quarterly TDS correction statement Statement 5 203A Default in the matter of TAN 272BB Penalty ₹ 10,000 178 CU IDOL SELF LEARNING MATERIAL (SLM)

Table 12.4 Consequence of non-compliance of TDS provisions Improving compliance with provisions of quoting PAN through the TDS regime [Section 206AAJ] [W.e.f. 1-4 2010] In order to strengthen the PAN mechanism, the Act has made amendments in the Income Tax Act to provide that any person whose receipts are subject to deduction of tax at source i.e. the deductee, shall mandatory furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates: i) The rate prescribed in the Act. ii) At the rate in force i.e., the rate mentioned in the Finance Act; or iii) At the rate of 20%. Even if the taxpayer files a declaration in form 15G or I5H (under section 197A) but does not disclose his PAN, TDS would be deductible at the above-mentioned rates. Furthermore, the Assessing Officer will not provide a certificate under section 197 unless the application includes the applicant's PAN. TDS is deductible on payments or credits made to non-residents, thus these provisions will apply to them as well. It is also provided for mandatory quotation of the deductee's PAN by both the deductor and the deductee in all communications, bills, and vouchers exchanged between them to ensure that the deductor is aware of the proper PAN of the deductee. Processing of statements of tax deducted at source [Section 200A] 1. When a person deducting any sum (hereinafter referred to in this section as deductor) makes a statement of tax deduction at source or a rectification statement under section 200, such statement shall be handled in the following manner: — a) After making the following changes, the sums deductible under this Chapter are computed: — i) any arithmetical error in the statement; or ii) an incorrect claim, apparent from any information in the statement. b) If there is any interest, it will be calculated on the basis of the deductible sums as computed in the statement. c) If there is a fee, it will be calculated in accordance with section 234E. d) After adjusting the amount computed under clauses (b) and (c) against any amount paid under section 200, section 201, or section 234E, and any amount paid otherwise by way of tax, interest, or fee, the sum payable by, or the amount of refund due to, the deductor shall be determined. 179 CU IDOL SELF LEARNING MATERIAL (SLM)

e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, the deductor under clause (d); The deductor will receive the amount of return owed to him or her as a result of the determination made under clause (d). Provided, however, that no intimation under this sub-section shall be sent after one year has passed after the end of the financial year in which the statement was filed. Explanation. —For the purposes of this sub-section, \"an incorrect claim apparent from any information in the statement\" means a claim made on the basis of an entry in the statement— of an item that is inconsistent with another entry of the same or another item in such statement; in respect of the rate of tax deducted at source that is not in accordance with the provisions of this Act. 2. For the purpose of processing statements under sub-section (1), the Board may devise a method for centralised processing of tax deducted at source statements in order to assess the tax payable by, or the rebate due to, the deductor as quickly as possible. Providing time limits for passing of orders under section 201(1) holding a person to be an assessee in default The Income Tax Act currently does not stipulate a time limit for passing an order under section 201(1) declaring a person to be an assessee in default. In the absence of such a deadline, conflicts occur when these proceedings are started or completed after a significant amount of time has passed. No order under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India shall be made after the expiry of seven years from the end of the financial year in which payment or credit is given, according to the newly substituted sub-section (3) of section 201 by the Finance (No.2) Act, 2014. Furthermore, the Explanation to Section 153 on the exclusion of certain periods (such as a court injunction) from the calculation of the time limit shall apply when computing the aforesaid time limit. Similarly, there will be no time limit in effect as a result of or to give effect to any finding or direction contained in an order under section 250, 254, 260A, 262, 263 or 264 or order of a Court, just as there will be no time limit in effect as a result of or to give effect to any finding or direction contained in section 153(3). To provide pending cases enough time, the Act stipulates those proceedings for financial years beginning on January 1, 2007, and prior years must be concluded by March 31, 2011. However, there are no time constraints for orders made under section 201(1) where— 180 CU IDOL SELF LEARNING MATERIAL (SLM)

a) The deductor has deducted but not paid the tax deducted at source, as this would be a case of defalcation of Government dues, b) Under section 192(1A), the employer has failed to pay the tax in full or in part since the employee would not have paid tax on such perks. c) Because it may not be possible to reclaim the tax from a non-resident, if the deductee is a non-resident. These amendments shall be effective from 1-4-2010. Accordingly, it will apply to such orders passed on or after the 1-4-2010. Meaning of “person responsible for paying” Section 204(iia) [W.e.f. A.Y. 2013-14] As per existing clause (iia) of section 204, in the case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 and any rules made thereunder is the person responsible for paying. The words “authorized dealer” mentioned above shall be substituted by the words “authorized person”. “Authorized person” shall have the meaning assigned to it in section 2(c) of the Foreign Exchange Management Act, 1999. Section 206AA not applicable in respect of payment of interest on long-term infrastructure bonds [Section 206AA (7)] [w.e.f. 1.6.2013] As per section 206AA, the deductee shall furnish his Permanent Account Number to the person responsible for deducting the tax at source, failing which tax shall be deducted at the higher of the following rates, namely: — i) at the rate specified in the relevant provision of this Act; or ii) at the rate or rates in force; or iii) at the rate of twenty per cent. The above provisions of section 206AA shall not apply in respect of payment of interest, on long-term bonds, as referred to in section 194LC, to a non-resident not being a company, or to a foreign company. 12.6 SUMMARY  Any person responsible for making payment of certain category of incomes is liable to deduct tax at source at an appropriate occasion. 181 CU IDOL SELF LEARNING MATERIAL (SLM)

 Threshold Limit: payments in a year up to this limit are not liable for TDS. If the amount of payment exceeds threshold limit, then provisions of TDS will apply.  Rate of TDS is prescribed by the Finance Act (FA) that is applicable during the year when TDS is to be made.  Tax deduction at source is a method of collecting taxes on behalf of the Government at the time of payment or credit.  To ease the computation of TDS, the Act has removed surcharge and education Cess & SHEC on tax deducted on any payment made to resident taxpayers except in case of salary. 12.7KEYWORDS  TDS- Tax deducted at source  TCS- Tax collected at source  SHEC- Secondary ang Higher Education cess  FA – Finance Act 12.8LEARNING ACTIVITY 1. Govt has given relaxation in the rate of TDS to be deducted due to COVID 19 pandemic prepare a chart containing general rates and reduced rates of TDS ___________________________________________________________________________ ___________________________________________________________________________ 12.9UNIT END QUESTIONS A. Descriptive Question Short Questions 1. What is the meaning of the term professional services in the context of Section 194J of Income Tax Act 1961? 2. Discuss briefly about the provisions relating to Section 197 of Income Tax Act 1961 relating to certificate for deduction of TDS at a lower rate? 3. State the consequences of non-compliances relating to TDS provisions. 4. ABC Ltd. makes the following payments to Mr. X, a contractor, for contract work during the P.Y.2020-21– ₹ 20,000 on 1.5.2020 ₹ 25,000 on 1.8.2020 ₹ 28,000 on 1.12.2020 182 CU IDOL SELF LEARNING MATERIAL (SLM)

On 1.3.2021, a payment of ₹ 30,000 is due to Mr. X on account of a contract work. Discuss whether ABC Ltd. is liable to deduct tax at source under section 194C from payments made to Mr. X. 5 What are the various due dates for payment and filing of returns for TDS? Long Questions 1. Examine the TDS implications under section 194A in the cases mentioned hereunder– (i) On 1.10.2020, Mr. Harish made a six-month fixed deposit of ₹ 10 lakh@9% p.a. with ABC Co-operative Bank. The fixed deposit matures on 31.3.2021. (ii) On 1.6.2020, Mr. Ganesh made three nine months fixed deposits of ₹ 3 lakheach, carrying interest@9% with Dwarka Branch, Janakpuri Branch and Rohini Branch of XYZ Bank, a bank which has adopted CBS. The fixed deposits mature on 28.2.2021. (iii) On 1.10.2020, Mr. Rajesh started a six months recurring deposit of ₹ 2,00,000 per month@8% p.a. with PQR Bank. The recurring deposit matures on 31.3.2021. 2. Discuss the provisions relating to applicability of TDS for professional and technical services in detail. 3. Certain concessions are granted to transport operators in the context of cash payments u/s 40A (3) and deduction of tax at source u/s 194-C. Elucidate. 4. Examine the applicability of TDS provisions and TDS amount in the following cases: (a) Rent paid for hire of machinery by B Ltd. to Mr. Paramasivan ₹ 2,80,000 on 27.9.2020. (b) Fee paid on 1.12.2020 to Dr. Vijay Prasad by Sathya (HUF) ₹ 40,000 for surgery performed on a member of the family. (c) DAC and Co. Ltd. paid ₹ 19,000 to one of its directors as sitting fees on 01-01- 2021. 5. Explain the provision introduced in order to improve the compliance of quoting PAN under the Income Tax Act, 1961. B. Multiple choice Questions 1. What is the applicable rate of TDS for Fee for Professional and Technical services a. 10% b. 2% c. Both a and b d. None of these 2. What is the threshold limit of Rent paid by individuals or HUF for deduction of TDS is Rs? 183 CU IDOL SELF LEARNING MATERIAL (SLM)

a. 30,000 b. 50,000 c. 10,000 d. None of these 3. When the Advance Tax-payable by any person exceeds Rs. _________ for the AssessmentYear immediately following the financial year the liability to pay advance Tax arises. a. 10,000 b. 15,000 c. 20,000 d. None of these 4. Under section 194BB, tax is to be deducted at source, if the winnings from horse races exceed a. 10,000 b. 15,000 c. 20,000 d. 25,000 5. Advance tax amount payable by a corporate assessee on or before 15th December of the respective year is a. 15% of advance tax payable b. 30% of advance tax payable c. 75% of advance tax payable d. None of these Answers 184 1-c 2-b 3-a 4-a 5-c 12.10REFERENCES CU IDOL SELF LEARNING MATERIAL (SLM)

 V.K. Singhania,DirectTaxes,Taxman Publication (P)Ltd.,Delhi,Latestedition.  Lakhotia R.N., Income Tax Planning Handbook, Vision Books, New Delhi, Latestedition.  H.C. Mehrotra–IncomeTaxLaw&Practice.  Bhagwati Prasad: LawandPracticeofIncomeTaxinIndia  H.P.Ranina:CorporateTaxation: AHandBook(Taxmann).  V.S.Datey:IndirectTaxes–LawandPractice(TaxmannPublicationsLimited).  V.S.Datey:IndirectTaxes–LawandPractice(TaxmannPublicationsLimited). 185 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 13: ADVANCE PAYMENT OF TAX STRUCTURE 13.0 Learning Objectives 13.1 Introduction 13.2 Computation of Advance tax 13.3 Instalments of Advance tax and Due dates 13.4 Interest for non-payment of advance tax 13.5 Interest for deferment of advance tax 13.6 Summary 13.7 Keywords 13.8 Learning Activity 13.9 Unit End Questions 13.10 References 13.0 LEARNING OBJECTIVES After studying this unit students will be able:  State who is liable to pay advance tax  Calculate the advance tax payable  Explain when Advance Tax is to be paid  Realise the consequences for not paying the advance tax 13.1 INTRODUCTION Tax is payable in advance during any financial year in respect of an assessee's current income, i.e., the total income of the assessee that would be chargeable to tax for the assessment year immediately succeeding that financial year, in accordance with the requirements of sections 208 to 219. [Section 207]. The need to pay advance tax arises under section 208 in any case where the advance tax payable is ₹ 10,000 or more. Note - An assessee who is liable to pay advance tax of less than ₹ 10,000 will not be saddled with interest under sections 234B and 234C for defaults in payment of advance tax. The repercussions under section 234A regarding interest for late submission of a return, on the other hand, would be attracted. 186 CU IDOL SELF LEARNING MATERIAL (SLM)

In case of senior citizens who have passive source of income like interest, rent, etc., the requirement of payment of advance tax causes genuine compliance hardship. Therefore, in order to reduce the compliance burden on such senior citizens, exemption from payment of advance tax has now been provided to a resident individual- i. not having any income chargeable under the head “Profits and gains of business or profession”; and ii. of the age of 60 years or more. Such senior citizens do not have to pay advance tax and can pay self-assessment tax to satisfy their tax burden (other than TDS). 13.2 COMPUTATION OF ADVANCE TAX (1) An assessee has to estimate his current income and pay advance tax thereon. He need not submit any estimate or statement of income to the Assessing Officer, except where he has been served with notice by the Assessing Officer. (2) Where an obligation to pay advance tax has arisen, the assessee shall himself compute the advance tax payable on his current income at the rates in force in the financial year and deposit the same, whether or not he has been earlier assessed to tax. (3) If the Assessing Officer believes that a person who has previously been assessed by way of a regular assessment in respect of the entire income of a previous year is due to pay advance tax, he may serve an order under section 210(3) compelling the assessee to pay advance tax. (4) For this purpose, the total income of the most recent previous year for which the assessee has been assessed by way of regular assessment, or the total income returned by the assessee in any subsequent previous year's return of income, whichever is higher, shall be used to compute the advance tax payable. (5) The Assessing Officer may serve the aforementioned order at any time during the financial year, but not later than the end of February. (6) If the assessee furnishes a return relating to a later previous year or an assessment is completed in respect of a later return of income after receiving the above notice but before the 1st March of the financial year, the Assessing Officer may amend the order for payment of advance tax on the basis of the computation of the income so returned or assessed. (7) If the assessee believes that his own estimate of advance tax payable is less than the one provided by the Assessing Officer, he may file an estimate of his current income and the advance tax due on it. (8) If the advance tax payable on the assessee's estimate is greater than the tax estimated by the Assessing Officer, the advance tax must be paid on the higher amount. 187 CU IDOL SELF LEARNING MATERIAL (SLM)

(9) In all cases, the tax calculated shall be reduced by the amount of tax deductible at source. (10) The amount of advance tax payable by an assessee in a financial year calculated by – (i) the assessee himself based on his estimate of current income; or (ii) the Assessing Officer as a result of an order under section 210(3) or amended order under section 210(4) is subject to the provisions of section 209(2), which requires that net agricultural income be taken into account for the purpose of calculating advance tax. 13.3 INSTALMENTS OF ADVANCE TAX AND DUE DATES (1) Common advance tax payment schedule for both corporates and non-corporates (other than assessee computing profits on presumptive basis under section 44AD(1) or section 44ADA(1)]: Due date of instalment Amount payable On or before 15th June Not less than 15% of advance tax liability On or before 15th September Not less than 45% of advance tax liability, as reduced by the amount, if any, paid in the earlier instalment. On or before 15th December Not less than 75% of advance tax liability, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments. On or before 15th March The whole amount of advance tax liability as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments. Table 13.1 Instalments of advance tax and due dates Note - Any amount paid by way of advance tax on or before 31st March shall also be treated as advance tax paid during each financial year ending on 31st March. (2) Advance tax payment by assessee computing profits on presumptive basis under section 44AD (1) or section 44ADA (1) If an eligible assessee chooses to compute profits or gains of business on a presumptive basis in respect of an eligible business referred to in section 44AD (1), or profits or gains of profession on a presumptive basis in respect of an eligible profession referred to in section 44ADA (1), he or she must pay advance tax of the entire amount in one instalment on or before the 15th of March of the Financial year. 188 CU IDOL SELF LEARNING MATERIAL (SLM)

Any advance tax paid on or before the 31st of March, however, is treated as advance tax paid for each financial year ending on the 31st of March. (3) If the last day for payment of any advance tax instalment falls on a day when the receiving bank is closed, the assessee may pay on the next immediately succeeding working day, and the mandatory interest imposed under sections 234B and 234C will not be applied. (4) Where advance tax is required as a result of the Assessing Officer's notice of demand, the entire or relevant portion of the advance tax mentioned in the notice must be paid on or before each of the due dates that fall after the date of service of the notice of demand. (5) If an assessee fails to pay an instalment by the due date, he would be considered an assessee in default for that instalment. Credit for advance tax Any amount paid by or recovered from an assessee as advance tax, other than interest or penalty, is recognised as a payment of tax for the previous year's income, and credit is granted in the regular assessment. 13.4 INTEREST FOR NON-PAYMENT OR SHORT PAYMENT OF ADVANCE TAX (SECTION 234B) (1) Interest is charged under section 234B if advance tax is not paid or if it is paid in an amount less than 90% of the assessed tax. (2) From the 1st of April following the financial year to the date of income determination under section 143(1), the interest liability would be 1% per month or part of a month. (3) The difference between the assessed tax and the advance tax paid is used to compute the interest. (4) Assessed tax is the tax calculated on total income less - tax deducted or collected at source. - any relief of tax allowed under section 89 - any tax credit allowed to be set off in accordance with the provisions of section 115JD (5) However, where the assessee pays self-assessment tax under section 140A or otherwise, interest is calculated up to the date of payment of such tax and offset against the interest due under this section by the interest paid under section 140A, if any. 13.5 INTEREST PAYABLE FOR DEFERMENT OF ADVANCE TAX (SECTION 234C) (a) Manner of computation of interest under section 234C for deferment of advance tax by corporate and non-corporate assessees: 189 CU IDOL SELF LEARNING MATERIAL (SLM)

In case an assessee, other than an assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1), who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by such assessee on its current income on or before the dates specified in column (1) is less than the specified percentage [given in column (2)] of tax due on returned income, then simple interest@1% per month for the period specified in column (4) on the amount of shortfall, as per column (3) is leviable under section 234C. Specified Date Specified percentage Shortfall in advance Period tax 15th June 15% 15% of tax due on 3 months returned income (-) 15th September 45% advance tax paid up 15th December 75% to 15th June 15th March 100% 45% of tax due on 3 months returned income (-) advance tax paid up to 15th September 75% of tax due on 3 months returned income (-) advance tax paid up to 15th December 100% of tax due on 1 month returned income (-) advance tax paid up to 15th March Table 13.2 Period for calculation of interest u/s 234c Note – However, if the assessee's advance tax paid on current income on or before June 15th or September 15th is not less than 12 percent or 36 percent of the tax due on the returning income, respectively, the assessee is not required to pay interest on the amount of the shortfall on those dates. (b) Computation of interest under section 234C in case of an assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1): If an assessee who declares profits and gains in accordance with section 44AD(1) or 44ADA(1), as the case may be, and is liable to pay advance tax under section 208 has failed to pay such tax, or if the advance tax paid by the assessee on its current income on or before 15th March is less than the tax due on the returned income, the assessee shall be liable to pay 190 CU IDOL SELF LEARNING MATERIAL (SLM)

simple interest at the rate of 1% on the amount of the shortfall from the tax due on the returned income. (c) Non-applicability of interest under section 234C in certain cases: Interest under section 234C shall not be levied in respect of any shortfall in payment of tax due on returned income, where the shortfall is due to an under-estimate or failure to estimate – (i) the amount of capital gains; (ii) income of nature referred to in section 2(24)(ix), i.e., winnings from lotteries, crossword puzzles, and similar activities; (iii) income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time. However, had such income been a part of the total income, the assessee should have paid the entire amount of tax payable in respect of such income referred to in (i), (ii), or (iii), as the case may be, as part of the remaining instalments of advance tax due or where no such instalments are due, by 31st March of the financial year. (d) Meaning of tax due on returned income Tax due on returned income means the tax calculated on total income declared in the return furnished by the assessee less - tax deducted or collected at source. - any relief of tax allowed under section 89 - any tax credit allowed to be set off in accordance with the provisions of section 115JD 13.6 SUMMARY  The need to pay advance tax arises under section 208 in any case where the advance tax payable is ₹ 10,000 or more.  In order to reduce the compliance burden on such senior citizens, exemption from payment of advance tax has now been provided to a resident individual- not having any income chargeable under the head “Profits and gains of business or profession”; andof the age of 60 years or more.  Where an obligation to pay advance tax has arisen, the assessee shall himself compute the advance tax payable on his current income at the rates in force in the financial year and deposit the same, whether or not he has been earlier assessed to tax.  Any amount paid by or recovered from an assessee as advance tax, other than interest or penalty, is recognised as a payment of tax for the previous year's income, and credit is granted in the normal assessment.  Non-payment of advance tax or payment of advance tax in an amount less than 90% of assessed tax attracts interest under section 234B. 13.7 KEYWORDS  Advance tax – the amount of income tax that is paid much in advance 191 CU IDOL SELF LEARNING MATERIAL (SLM)

 Self-assessment tax - any balance tax that has to be paid by an assessee on his assessed income after the TDS and advance tax have been taken into account before filing the return of income.  TDS – Tax Deducted at Source 13.8 LEARNING ACTIVITY 1. List out the details you would ask the client for calculating advance tax ___________________________________________________________________________ ___________________________________________________________________________ 13.9 UNIT END QUESTIONS A Descriptive Question Short Questions 1. Mr. A, a businessman has a net tax liability of ₹ 15,000 for the AY 2021-22. He has not paid any of the instalments of advance tax whenever it is due. Compute the advance tax liability at various due dates. No need to compute the Interest part. 2. Explain the provision of Section 234C of the Income-tax Act, 1961. 3. List out the various due dates for payment of advance tax with the amount of tax that must be paid in advance. 4. Describe the meaning of tax due on returned Income. 5. How to compute the interest u/s 234C for an assessee who opts to declare the income u/s 44AD? Long Questions 1. What is Advance Tax, who is liable to pay Advance Tax and the Due Dates for payment of Advance Tax? 2. Mr. Jay having total income of ₹ 8,70,000, did not pay any advance tax during the previous year 2020-21. He wishes to pay the whole of the tax, along with interest if any, on filing the return in the month of July, 2021. What is total tax which Mr. Jay has to deposit as self-assessment tax along with interest, if he files the return on 29.07.2021? Assume that he does not exercise the option under section 115BAC. 3. Explain the consequences of non-compliance with advance tax provisions under section 234B and 234C. 4. Discuss in detail the concept of advance tax. 5. Elaborate how advance tax is computed and the consequences of not meeting the advance tax liability within various due dates. B Multiple Choice Questions 192 CU IDOL SELF LEARNING MATERIAL (SLM)

1. When the Advance Tax-payable by any person exceeds Rs. _________ for the AssessmentYear immediately following the financial year the liability to pay advance Tax arises. a. 10,000 b. 15,000 c. 20,000 d. None of these 2. Advance tax amount payable by a corporate assessee on or before 15th December of the respective year is a. 15% of advance tax payable b. 30% of advance tax payable c. 75% of advance tax payable d. None of these 3. Interest under section 234B is attracted for non-payment of advance tax or payment of advance tax of an amount less than _______ of assessed tax. a. 90% b. 85% c. 80% d. 100% 4. The interest liability would be ______ per month or part of the month from 1st April following the financial year upto the date of determination of income under section 143(1). a. 2% b. 1.5% c. 1.25% d. 1% 5. Section 234B is applicable for a. Deferment of advance tax b. Non-payment /short payment of advance tax c. Non-filing of return d. All of these Answers 1-a 2-c 3-a 4-d 5-b 193 CU IDOL SELF LEARNING MATERIAL (SLM)

13.10 REFERENCES  V.K. Singhania,DirectTaxes,Taxman Publication (P)Ltd.,Delhi,Latestedition.  Lakhotia R.N., Income Tax Planning Handbook, Vision Books, New Delhi, Latestedition.  H.C. Mehrotra–IncomeTaxLaw&Practice.  Bhagwati Prasad: LawandPracticeofIncomeTaxinIndia  H.P.Ranina:CorporateTaxation: AHandBook(Taxmann).  V.S.Datey:IndirectTaxes– LawandPractice(TaxmannPublicationsLimited).V.S.Datey:IndirectTaxes– LawandPractice(TaxmannPublicationsLimited). 194 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 14: FILING OF RETURN STRUCTURE 14.0 Learning Objectives 14.1 Introduction 14.2 Compulsory filing of return of income 14.3 Interest for default in furnishing of return of income 14.4 Exemption from filing return of income 14.5 Return of loss 14.6 Various types of returns 14.7 Defective Return 14.8 Summary 14.9 Keywords 14.10 Learning Activity 14.11 Unit End Questions 14.12 References 14.0 LEARNING OBJECTIVES After studying this unit students will be able:  Appreciate when return filing becomes mandatory for different persons  Identify and recall the due dates for filing of return in case of such persons  Comprehend and apply the provisions relating to belated return, revised return and defective return 14.1 INTRODUCTION The Income-tax Act, 1961 contains provisions for filing of return of income. The manner in which the assessee provides information about his total income and tax payable is known as a return of income. The CBDT announces the format for filing returns by various assessee. In general, a return of income must include the details of income produced under several headings, gross total income, deductions from gross total income, total income, and tax payable by the assessee. In a nutshell, a return of income is the assessee's disclosure of income in the prescribed format. 14.2 COMPULSORY FILING OF RETURN OF INCOME (SEC 139(1)) (1) Companies and firms must file a return of income or loss for the preceding year on or before the due date in the prescribed form, according to section 139(1). 195 CU IDOL SELF LEARNING MATERIAL (SLM)

(2) Every person who is a resident other than not ordinarily resident in India within the meaning of section 6(6) and who is not required to furnish a return under section 139(1) must file a return of income or loss for the previous year in the prescribed form and verified in the prescribed manner on or before the due date if such person, at any time during the previous year – (a) possesses any asset (including any financial interest in any entity) located outside India as a beneficial owner or otherwise, or has signing authority over any account located outside India; or (b) is a beneficiary of any asset (including any financial interest in any entity) located outside India. An individual who is the beneficiary of any asset (including any financial interest in any entity) located outside India, on the other hand, is not required to file a return of income if the income, if any, arising from such asset is includible in the income of the person referred to in (a) above under the provisions of the Income-tax Act, 1961. Meaning of “beneficial owner” and “beneficiary” in respect of an asset for the purpose of section 139: Beneficial owner •An individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect,of himself or any other person. Beneficiary •An individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person, other than such beneficiary. Fig 14.1 Beneficial owner and Beneficiary (iii) Further, every person, being an individual or a HUF or an AOP or BOI or an artificial juridical person – − whose total income or the total income of any other person in respect of which he is assessable under this Act during the previous year − without giving effect to the exemption provisions contained in sections 54/54B/54D/ 54EC/54F/54G/54GA/54GB in respect of capital gains or deductions under Chapter VI-A − exceeds the basic exemption limit is required to file a return of his income or income of such other person on or before the due date in the prescribed form and manner and setting forth the prescribed particulars. 196 CU IDOL SELF LEARNING MATERIAL (SLM)

For the A.Y.2021-22, the basic exemption limit is ₹ 2,50,000 for individuals/HUFs/AOPs/BOIs and artificial juridical persons, ₹ 3,00,000 for resident individuals of the age of 60 years or more but less than 80 years and ₹ 5,00,000 for resident individuals of the age of 80 years or more at any time during the previous year. These amounts denote the level of total income, which is arrived at after claiming exemption under sections 54/54B/54D/54EC/54F/54G/ 54GA/54GB in respect of capital gains and the admissible deductions under Chapter VI-A. However, the level of total income to be considered for the purpose of filing return of income is the income before claiming exemption under sections 54/54B/54D/54EC/54F/ 54G/54GA/54GB in respect of capital gains and the admissible deductions under Chapter VI-A. (4) In case of a person other than those mentioned in (1), (2) & (3) above, filing of return of income on or before the due date is mandatory, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeds the basic exemption limit. (5) All such persons mentioned in (1), (2), (3) & (4) above should, on or before the due date, furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particu- lars as may be prescribed. (6) Any person other than a company or a firm, who is not required to furnish a return under section 139(1), would have to file income-tax return in the prescribed form and manner on or before the due date if, during the previous year, such person – (a) has deposited an amount or aggregate of the amounts exceeding ₹ 1 crore in one or more current accounts maintained with a banking company or a co-operative bank: or (b) has incurred expenditure of an amount or aggregate of the amounts exceeding ₹ 2 lakh for himself or any other person for travel to a foreign country: or © has incurred expenditure of an amount or aggregate of the amounts exceeding ₹ 1 lakh towards consumption of electricity: or (d) fulfils such other prescribed conditions (7) Meaning of due date: Due date means – Assessee Due date i) Where the assessee, other than an assessee referred to 31st October of the in clause (ii), is – assessment year (a) a company, (b) a person (other than a company) whose accounts are required to be audited under the Income-tax Act, 1961 197 CU IDOL SELF LEARNING MATERIAL (SLM)

or any other law in force; or © a partner of a firm whose accounts are required to be audited under the Income-tax Act, 1961 or any other law for the time being in force. ii) in the case of an assessee who is required to furnish a 30th November of the report referred to in section 92E. assessment year iii) in the case of any other assessee 31st July of the assessment year Table 14.1 Due Date 14.3 INTEREST FOR DEFAULT IN FURNISHING RETURN OF INCOME [SEC 234A] (1) Failure to file a return of income on or before the due date indicated above attracts interest under section 234A, i.e., interest is payable if an assessee files a return of income after the due date or does not file a return of income. (2) Simple interest at 1% per month or fraction of a month is due for the period beginning on the day after the due date and ending on the following dates – Circumstances Ending on the following dates Where the return is furnished after due date the date of furnishing of the return Where no return is furnished the date of completion of assessment (3) Interest is calculated on the tax on total income as determined under section 143(1) or on regular assessment as reduced by advance tax paid and any tax deducted or collected at source, tax relief allowed under section 89/90/90A/91, and tax credit allowed to be set-off in accordance with section 115JAA or 115JD. 14.4 SPECIFIED CLASS OR CLASSES OF PERSONS TO BE EXEMPTED FROM FILING RETURN OF INCOME [SECTION 139(1C)] (1) Persons required furnishing return of income: Every person who falls within the ambit of the conditions mention under section 139 has to furnish a return of his income on or before the due date specified under section 139(1). (2) Exemption from filing return of Income: For reducing the compliance burden of certain type of taxpayers, the Central Government has been empowered to notify the class or classes of persons who will be exempted from the requirement of filing of return of income, subject to satisfying the prescribed conditions. Every notification made under section 139(1C) must be laid before each House of Parliament when it is in session for a total of thirty days as soon as possible after it is issued. If both Houses agree to make a change to the notification, the notification will only take effect in that 198 CU IDOL SELF LEARNING MATERIAL (SLM)

changed form from then on. If both Houses agree that the notification should not be sent, the notification becomes null and void. Accordingly, the Central Government has, vide Notification No. S.O.2672I dated 26.7.2019, exempted non-corporate non-residents and foreign companies, having any income chargeable under the Income-tax Act, 1961 during a previous year from any investment fund set up in an International Financial Services Centre (IFSC) located in India, from the requirement of furnishing a return of income under section 139(1) from A.Y.2019-20 onwards. Exemption from filing return of income Exemption from the requirement of would be available to such notified class of furnishing a return of income would not be persons only if available to such notified class of persons Any income-tax due on the said class of If a notice under section 142(1), section persons’ income has been deducted at 148, section 153A, or section 153C has been source and remitted to the Central issued to such notified class of people for Government by the investment fund at the making a return of income for the current tax rate under section 194LBB; and assessment year indicated therein the said class of persons had no other income during the previous year for which they were otherwise required to file an income-tax return. Meaning of Investment fund any fund established or incorporated in India as a trust, a company, a limited liability partnership, or a body corporate that has been granted a certificate of registration as a Category I or Category II Alternative Investment Fund (AIF) and is regulated under the SEBI (AIF) Regulations, 2012 enacted under the SEBI Act, 1992. 14.5 RETURN OF LOSS (1) Return of loss: This section requires the assessee to file a return of loss in the same manner as in the case of return of income within the time allowed under section 139(1). (2) Compulsory filing return of loss on or before due date to carry forward and set-off certain losses: Section 80 requires mandatory filing of return of loss under section 139(3) on or before the due date specified under section 139(1) for carry forward of the following losses – (a) Business loss under section 72(1) (b) Speculation business loss under section 73(2) I Loss from specified business under section 73A (2) (d) Loss under the head “Capital Gains” under section 74(1) 199 CU IDOL SELF LEARNING MATERIAL (SLM)

I Loss from the activity of owning and maintaining race horses under section 74A (3) Consequently, section 139(3) requires filing of return of loss mandatorily within the time allowed under section 139(1) for claiming carry forward of the losses mentioned in (2) above. However, even if a return of loss has not been made by the due date, losses under the heading “Income from house property” under section 71B and unabsorbed depreciation under section 32 can be carried forward for set-off. (3) Failure to receive a notice from the Assessing Officer to file a return is not a valid excuse: A return of loss must be filed by the assessee in his own interest, and failure to receive a notice from the Assessing Officer requiring him to file the return is not a valid excuse under any circumstances. 14.6 VARIOUS TYPES OF RETURNS Belated Return [sec 139(4)] (1) Furnishing of belated return of income: Any person who has not furnished a return within the time allowed to him under section 139(1) may furnish the return for any previous year at any time – (i) before the end of the relevant assessment year; or (ii) before the completion of the assessment, whichever is earlier. Thus, belated return can be filed only in case a person has not furnished his return within the time allowed under section 139(1). Also, the belated return cannot be furnished after the end of the relevant assessment year. (2) Consequences of filing a belated return: (i) Certain losses computed under specified sections (refer to para (2) of 17.5 above) cannot be carried forward for set-off in the subsequent years. (ii) Fee under section 234F would be leviable i.e., Rs.5,000, where return is filed after the due date but on or before 31st December of the assessment year and Rs.10,000, thereafter. However, late fee shall not exceed Rs. 1,000 where total income does not exceed Rs. 5,00,000. (1) Further, as per section 80AC, deductions in respect of certain incomes under Chapter VI-A [C- Deduction in respect of certain incomes] would not be available. Return of Income of Charitable Trusts and Institutions [sec 139(4A)] (1) Person required to furnish return under section 139(4A): Every person in receipt of income – 200 CU IDOL SELF LEARNING MATERIAL (SLM)