Direct And Indirect Taxation: Tax liability And TDS

Question: 1

The introduction:

Tax liability:

Income tax payable is a type of account in the curreincome and brings within its scope all the taxable income, profits or gains of an assessed which fall outside the scope of any other head. Therefore, when any income, profit or gain does not fall precisely under any of the other specific heads but is chargeable under the provisions of the Act, it would be charged under this head.

Casual Income:

Casual income means income in the nature of winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, gambling, betting etc. Such winnings are chargeable to tax at a flat rate of 30% under section 115BB.

Conditions:

• a. No expenditure or allowance can be allowed from such income.
• b. Deduction under Chapter VI-A is not allowable from such income.
• c. Adjustment of unexhausted basic exemption limit is also not permitted against such income.

Any sum of money or value of property received without consideration or for inadequate consideration to be subject to tax in the hands of the recipient [Section 56(2)(x)]

In order to prevent the practice of receiving sum of money or the property without consideration or for inadequate consideration, section 56(2)(x) brings to tax any sum of money or the value of any property received by any person without consideration or the value of any property received for inadequate consideration.

Sum of Money: If any sum of money is received without consideration, and the aggregate value of which exceeds ₹ 50,000, the whole of the aggregate value of such sum is chargeable to tax.

Immovable property:

• I. If an immovable property is received
  • A. Without consideration, the stamp duty value of such property would be taxed as the income of the recipient if it exceeds ₹ 50,000.
  • B. For a consideration, which is less than the stamp duty value of the property by an amount exceeding ₹ 50,000, the difference between the stamp duty value and the consideration shall be chargeable to tax in the hands of the assesse as “Income from other sources”.
• II. Value of property to be considered where the date of agreement is different from date of registration: Taking into consideration the possible time gap between the date of agreement and the date of registration, the stamp duty value may be taken as on the date of agreement instead of the date of registration, if the date of the agreement fixing the amount of consideration for the transfer of the immovable property and the date of registration are not the same, provided whole or part of the consideration has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system (ECS) through a bank account on or before the date of agreement.
• III. If the stamp duty value of immovable property is disputed by the assessee, the Assessing Officer may refer the valuation of such property to a Valuation Officer. In such a case, the provisions of section 50C and section 155(15) shall, as far as may be, apply for determining the value of such property.

As per section 50C, if such value is less than the stamp duty value, the same would be taken for determining the value of such property, for computation of income under this head in the hands of the buyer.

Movable Property:

If the movable property is received

1. Without consideration, the aggregate fair market value of such property on the date of receipt would be taxed as the income of the recipient, if it exceeds ₹ 50,000.
2. For a consideration which is less than the fair market value of the property by an amount exceeding ₹ 50,000, and the difference between the aggregate fair market value and such consideration exceeds ₹ 50,000, such difference would be taxed as the income of the recipient.

The conclusion:

The Income Tax Act is a comprehensive statute that focuses on the different rules and regulations that govern taxation in the country. It provides for levying, administering, collecting and recovering income tax for the Indian government. It was enacted in 1961.

The Income Tax Act contains a total of 23 chapters and 298 sections according to the official website of the Income Tax Department of India. Income tax in India is a tax you pay to the government based on your income (and profit, in the case of companies). The government uses this tax money for various purposes including public services, infrastructure development, defence spending and subsidies among other options.

Question: 3

The introduction:

TDS:

TDS is basically a part of income tax. It has to be deducted by a person for certain payments made by them. In this article, we will discuss in detail about the TDS provisions under the Income Tax Act.

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.

Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made by you.

The recipient of income receives the net amount (after reducing TDS). The recipient will add the gross amount to his income and the amount of TDS is adjusted against his final tax liability. The recipient takes credit of the amount already deducted and paid on his behalf.

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

However, in case of rent payments made by individuals and HUF exceeding Rs 50,000 per month, are required to deduct TDS @ 5% even if the individual or HUF is not liable for a tax audit. Also, such Individuals and HUF liable to deduct TDS @ 5% need not apply for TAN.

Concepts and application:

The applicability of TDS provision:

TDS stands for 'Tax Deducted at Source'. It was introduced to collect tax at the source from where an individual's income is generated. The government uses TDS as a tool to collect tax in order to minimise tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date.

TDS is applicable on the various incomes such as salaries, interest received, commission received, dividends etc.

TDS is not applicable to all incomes and persons for all transactions. Different TDS rates have been prescribed by the Income Tax Act for different payments and different categories of recipients. For example, payment of redemption proceeds by a debt mutual fund to a resident individual is not subject to TDS but for a Non-resident Indian is subject to TDS.

TDS works on the concept that every person making specified type of payments to any person shall deduct tax at the rates prescribed in the Income Tax Act at source and deposit the same into the government's account.

The person who is making the payment is responsible for deducting the tax and depositing the same with government. This person is known as 'deductor'. On the other hand, the person who receives the payment after the tax deduction is called 'deductee'. Form26AS is a statement which shows the amount of tax deducted and deposited in a person's name/PAN in a particular financial year. An individual can, therefore, view/check the TDS from incomes paid to him by viewing this Form 26AS. Each deductor is also duty bound to issue a TDS certificate certifying how much amount is deducted in the deductee's name and deposited with the government.

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The entity making a payment (which is subject to TDS) deducts a certain percentage of the amount paid as tax and pays the balance to the recipient. The recipient also gets a certificate from the deductor stating the amount of TDS. The deductee can claim this TDS amount as tax paid by him (i.e. the deductee) for the financial year in which it is deducted.

The deductor is duty bound to deposit the TDS with the government. Once deposited this amount reflects in the Form 26AS of individual deductees on the TRACES website linked to the income tax department's e-filing website.

TDS only applicable above a threshold level:

One must remember that TDS on specified transactions is deducted only when the value of payment is above the specified threshold level. No TDS will be deducted if the value does not cross the specified level.

Different threshold levels are specified by the Income Tax department for different payments such as salaries, interest received etc. For example, there will be no TDS on the total interest received on FD/FDs from a single bank if it is less than Rs 40,000 in a year from that bank. For senior citizens, TDS on interest received on FD will be applicable if it crosses Rs 50,000 in a single financial year. Tax Deducted at Source (TDS) was introduced by the government to crack down on the tax evaders. TDS is basically collecting tax at source. TDS can also be considered a prepayment of tax. As per the TDS concept, if the payment exceeds a defined threshold, then a company or a person making the payment (deductor) must deduct tax while making a payment. The deductor must then deposit the tax deducted into the account of the central government on behalf of the recipient of income.

Correct Answer & Interpretation:

A. Explain and examine the applicability of TDS provision:

As per section 192 of income tax act 1961 tax is required to be deducted on payment of income chargeable under the head income form salaries.

In computation of total income employer may consider loss form house property of employee if employee furnished first detail to employer.

B. Compute total tax liability and monthly deduction for TDS:

Computation of total tax liability

Particulars Amount

Income from salary head 750000

Less: Set off losses from house property

1. Let out house property (360000)
2. Self occoupied property (200000) Total : 560000
3. Subject to maximum : 200000 (200000)

Total income 550000

Add: income from Fixed deposit 150000

Total income 700000

Tax liability

Not tax up to 300000

Tax @ 5 % (500000 – 300000) 10000

Tax @ 20% (700000 – 500000) 40000

50000

Add: Health and education cess 2000

Total tax liability 52000

Computation of monthly Tax deduction at source under section 192: 52000 / 12 = 4333.33 per month