The Hindu Business Line : Arrears engineering for tax rebate

I AM A software engineer. My annual salary income is Rs 3.54 lakh. I got arrears of salary of Rs 7.46 lakh during the year. I wish to apply for relief under Section 89. With arrears my gross total income is more than Rs 5 lakh, thus denying me tax rebate. Am I eligible for tax rebate when Section 89 formula is applied? - T. Saikrishna, Guntur

The arrears presumably relate to more than one financial year. If this is indeed so, the arrears would be spread over the respective years to which they relate. Section 89 relief is to guard against excess tax on account of bunching. You have not mentioned the years to which the arrears relate. Nevertheless to answer your query, one has to, while spreading over the arrears, apply the law and rates prevailing in those years.

Thus, while you would certainly not qualify for tax rebate on the current combined income, you would get something on the current income sans arrears.

Co-op benefit

WHY a co-operative bank is not required to deduct tax at source from interest on term deposits of a member? - Radheyshyam Rathore, Shimla

Section 194A(3)(v) exempts a co-operative society from the requirement of deducting tax at source if interest is payable to a member thereof or to any other co-operative society. So much so, it is common to find depositors in co-operative banks becoming its members as well. Ownership of even a single share will do to qualify as a member.

Timing difference

OUR company does job work. When we receive payment, our debtors deduct tax at source. For the jobs done, we immediately account for the same following the accrual principle. Problem arises when job is done in one previous year and payment received in another.

Are we required to account for TDS also on accrual basis? If yes, there would be a problem. We would have claimed that tax has been deducted at source whereas in truth it would have been deducted only next year. Kindly state the correct position. - Anand Kumar, Bangalore

When you raise a bill for job done, you debit the debtor and credit labour charges or some other revenue account. It is only at the time of receipt of the payment against the bill, TDS will be debited. There is no need for debiting the TDS account at the time of raising of bill because that would have the wrong effect of pruning down the dues from the debtor. Indeed, that would not be appropriate.

It is true that tax will have to be paid on the revenue ahead of receipt of payment if such payment as you say is received next year given the adoption of accrual system. But that would be in the form of advance tax or self-assessment tax and not by way of TDS.

It is simply not possible to debit the TDS account ahead of receipt of payment against bill raised because TDS is referrable to receipt.

In case payment has been received and TDS debited alongside but TDS certificate has not been received till the time of filing of return, then, obviously the assessing officer (AO) will not give any credit for the same. That is, to that extent tax would be deemed to have not been paid.

But according to Section 155(14), a rectification order will be passed and the amount refunded if such certificate is produced within two years from the end of the assessment year.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

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