Payments under the I-T Act

This is a time when the tax payers across India would be planning for their taxes and to plan for saving taxes. Often one observes tidy sums of money being doled out to the winners of realty shows or ‘man of the match' prize moneys and a stray thought would have run across their minds about the tax element.

Income tax Act provides for payment of taxes at two different points of time. One is pre assessment taxes and post assessment taxes.

There are three pre assessment taxes: Tax deducted at source (TDS); Advance tax and Self-Assessment tax. The only post assessment tax is the regular tax.

There are different sections dealing with deduction of income tax at source. The Act provides for different rates of TDS on different types of payment such as commission, contract payments, interests, salaries, payment of rent, payment of professional fees, winning from horse racing, game shows, etc.

TAX DEDUCTED AT SOURCE

The Act casts a responsibility on the payer to deduct income tax at source while making the payment under the above heads. Non-compliance with the provisions renders the entire expenditure to be added back while computing total income.

Section 115 bb slaps a flat 30 per cent tax on winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever,

Further, Section194 reads as under: “The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle [or card game and other game of any sort] in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force…”

The above two provisions require income tax to be deducted at source at 30 per cent on such winnings. The words “…….shall, at the time of payment thereof, deduct income-tax thereon at the rates in force” require that the TDS be deducted at the time of payment. It is common to see the hosts handing over the full winning amount (even cash in certain circumstances) to the winners of game on the television in public gaze. This is merely on stage. There should be a mechanism off stage for TDS to comply with the provisions of law, failing which, it tantamount to non compliance with these provisions of law.

Similarly, when payments are made to classes of people covered by Section194, the onus is on the payer to deduct the TDS and remit it to the credit of the Central Government before the due dates. The payee has to include the gross value while computing the total income. However, law allows for claiming credit for all the TDS in computing the total income.

If a professional is paid Rs 100,000 for professional services, the TDS is deductible @10.3 per cent on Rs.100,000 (10 per cent TDS on payments for professional services and 3 per cent thereon being education and higher education cess). Cash payout would be Rs 89,700. The balance of Rs.10,300 is the TDS and shall be deposited by the payer with the central Government to the credit of the assessee.

The payer is obliged to file the quarterly returns of TDS with the Income Tax department indicating the details of the payees, nature of payment and the permanent account number. Based on the return so filed, the credit will appear in the name of the payee, which shall be the basis for the department to determine the taxes due or the refunds due to the assessee. There is a facility to the assessee to register with the department and check the TDS credit to his account on a regular basis. The professional shall consider Rs 1.00 lakh to be income and can claim Rs 10,300 as deduction from the tax liability.

ADVANCE TAX

Every assessee whose tax liability exceeds Rs.10,000 in any assessment year, is required to pay income tax during the year itself. This liability stems out of the concept of “pay as you earn”.

The due dates and the amount of advance tax is as under:

The assessee should have paid the above percentage of taxes on the tax determined payable. Since the above is on an estimated basis and considering certain events occurring after the date of Balance sheet, law provides that the advance tax so paid shall be not less than 90 per cent of the total tax determined payable. Penal provisions become operative if there is a deferment or default in the above slabs of payment.

TDS shall be considered as a part of the advance tax for the above computation. The assessee shall pay only the balance of amount after setting off the TDS to the credit of his account.

SELF ASSESSMENT TAX.

This is the last pre assessment tax payable at the time of filing the income tax return. The assessee shall make his own assessment and determine the total tax payable by him. He can set off the TDS and advance tax already paid and pay only the balance of tax at the time of filing of the return of income. If there is a shortfall or deferment of advance tax, interest u/s. 234 B and C would be payable. He should compute these interests and pay the self assessment tax.

REGULAR TAX

The assessing officer determines the tax payable after deducting the pre assessment taxes already paid by the assessee and issues a notice to the assessee to pay the balance of tax as regular tax, which shall become payable within 30 days from the date of serving of the assessment order and the demand notice.