TDS (Tax Deducted at Source)

Overviewof TDS

TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

Who shall deduct taxat source?

Every person responsible for making payment of nature covered by TDS provisions of Income Tax Act shall be responsible to deduct tax.

However in case of payments made under sec. 194A, 194C, 194H, 194I and 194J in respect of individual and HUF, only if the turnover or professional receipt exceeds sum of Rs. 40 lakh or Rs. 10 lakh respectively (the limits will be Rs.60 Lakh or Rs. 15 Lakh respectively w.e.f. 01.07.2010) in previous year, he is required to deduct tax at source.

These persons are mainly:

- Principal Officer of a company for TDS purpose including the employer in case of private employment or an employee making payment on behalf of the employer.

- DDO (Drawing & Disbursing Officer), In case of Govt. Office any officer designated as such.

- In the case of "interest on securities" other than payments made by or on behalf of the Central govt. or the State Government, it is the local authority, corporation or company, including the Principal Officer thereof.

Such person is called Deductor while the person from whom the tax is deducted is called Deductee.

Tax must be deducted at the time of payment in cash or cheque or credit to the payee's account whichever is earlier. Credit to payable account or suspense account is also considered to be credit to payee's account and TDS must be made at the time of such credit.

What adeductor must do?

1. Obtain TAN

Every deductor is required to obtain a unique identification number called TAN (Tax Deduction Account Number) which is a ten digit alpha numeric number e.g.DELH90468K.

This number has to be quoted by the deductor in every correspondence related to Income Tax matters concerning TDS.

2. He/She should obtain PAN of the deductee.

3. He/She should deduct the tax at correct rate.

4. The tax deducted has to be deposited in the designated banks within specified time. (Govt. deductors shall transfer the tax deducted through book entry in Government account).This is detailed below:

▬ By or on behalf of the Government  : on the same day,

▬ By or on behalf of any other person : before the 7^th of the following month.

However, if the amount is credited in the books on 31^st March then the tax should be remitted by 31^st May.

Note: w.e.f., 01.04.2008 electronic payment of tax has to be done by all corporate assesses and all persons whose cases are auditable under section 44B.

5. Use challan no. 281 for depositing TDS amount.

6. File statements of tax deduction in the prescribed time.

The due dates for filing of TDS/TCS statement are :

15^th of July for Quarter 1,

15^th of October for Quarter 2,

15^th of January for Quarter 3 and

15^th June for last Quarter however for TCS statements the due date is 30^th April.

7. Use correct form to file TDS/TCS Returns. They are:

Form 24Q        for salaries

Form 26Q        for non salaries

Form 27EQ      for TCS

Form 27A/27B Control sheet for electronic TDS/TCS

It may be noted that the following persons have to compulsorily file e-TDS /e-TCS statements

• All government offices/Departments
• All companies /corporations
• All persons whose cases are auditable
• All persons whose TDS statements contain more than 50 deductees.

Dos & Dont's forfiling TDS Returns

Dos

• Ensure that TDS return is filed with same TAN against which TDS payment has been made & TDS certificate is issued.
• Ensure that correct challan particulars including CIN and amount is mentioned.
• Correct PAN of the deductee is mentioned.
• Correct section is quoted against each deductee record.
• Correct rate is quoted against each deductee record.
• File correction statement as soon as discrepancy is noticed
• Retain the original FVU file to enable future corrections
• Make use of free of charge RPU provided through TIN-NSDL.com
• Download details of challan from challan status enquiry (TAN based view) from TIN-NSDL.com
• Registration for TAN enables you to avail additional facilities from Tax Information System.
• Always verify status of TDS returns from Tin NSDL to ascertain the discrepancy, if any, and/or whether your TDS return stands accepted or rejected by the system.

Dont's

• Don't file late returns as it affects deductee tax credit
• Don't quote incorrect TAN vis-à-vis TDS payments

 The process of filing of e-TDS /e-TCS returns is available in detail at following websites www.incometaxindia.gov.in orhttp://tin-nsdl.com.

8. Issue TDS certificates as per existing procedure and within the time prescribed as stated below:

The certificate should be issued within one month from the end of the month in which the income is credited however for credit entries made on 31^st March, due date is 7^th June,  except in the case of salary where the certificate has to be issued by 30^th of April of the following financial year in which the income was credited.

9. File e-TBAF (In case of Govt. DDO's where TDS is credited in Central Govt. account through book adjustments)

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Maharashtra VAT Registration Procedures

WHY TO OBTAIN REGISTRATION 
1 - Obtaining of registration certificate is statutory obligation of every dealer, who is liable to pay tax under the Act.
2 - It empowers the dealer to collect tax.
3 - A registered dealer gets the benefits of set off (input tax credit)
4 - Business without registration invites penalty/prosecution. 
5 - Nobody would like to buy goods from unregistered dealer.
Who should apply for the registration
The dealer who attains or crosses prescribed turnover of purchase or sale should apply for registration under VAT Act within 30 days from the date on which turnover crossed the  prescribed limit.
Note: Once a dealer exceeds the prescribed turnover and fulfils the conditions as mentioned in table below, then the liability to pay taxes under the Act commences from the time of transaction by which the turnover exceeds the prescribed limit.
What happens if not applied in time for registration?
When a dealer does not apply within 30/ 60 days from the date of exceeding the prescribed turnover of purchases or sales than certificate of registration will be issued with effect from the date of uploading of the application. Therefore, from the date of starting of business till the date of uploading of the application, the dealer will be treated as unregistered.
Provisions of Penalty for un-registered dealers:
If dealer does not apply in time and remains unregistered, it is an offence under the Act.
Benefits of Registration:
i. He can claim set off of tax paid on the purchase if eligible to get any.
ii. He can  issue various declarations prescribed C.S.T. Acts like Form  C etc.
iii. Registered dealers are preferred while awarding the government contracts.  The above mentioned benefits are denied to an unregistered dealer.

Disadvantages of non registration:
1 - Unregistered dealer is liable to pay tax on the sales effected by him but he can not collect tax.
2 - He cannot claim any set off or refund of the tax paid by him. 
3 - Purchases at concessional rate of tax not available to him. He cannot issue forms or declarations like Form C etc.
4 - No authenticity in the market as majority of dealers purchases goods from registered   dealers only.
5 - Possibilities of non consideration for awarding the government contract.
6 - Imposition of penalty and prosecution for remaining unregistered.

REGISTRATION & PROCEDURAL ASPECTS.
TURNOVER LIMITS FOR REGISTRATION SECTION 3(2) & 3(4):
CLASS OF DEALER TURNOVER OF SALES TO EXCEED
Importer – Sale or purchase of taxable goods should be Rs.10,000 or more. Rs. 1,00,000
Others (including manufacturers and resellers)- Sale or purchase of taxable goods should be Rs.10,000 or more. Rs. 5,00,000
Section 3(5) - Following items specifically covered for registration limits:
a - Turnover of all items, whether taxable or tax free is to be considered.
b - To include turnover on own account as well as on accounts of principal, whether disclosed or not.
c - In case of auctioneer turnover should include turnover of goods, price of which is received by him.
d - In case of agent of non-resident dealer, sales of such non resident dealer.
a - Section 3(8) contains provisions to make successor in business liable to tax.
b - Change in constitution or change in ownership - Time limit for application is 30 days.
c - Change in ownership due to death – Time limit is 60 days.
d - Section 3(9)- Dealers under voluntary registration scheme- No Basic deduction- liable from date of registration.
FEES FOR REGISTRATION:
Under Voluntary Registration Scheme (VRS): Registration fess of Rs. 5,000/- is required for VAT TIN and Rs. 25 for CST TIN.  With effect from 16-08-2007, dealer applying under VRS is also required to deposit Rs. 25,000 as an advance payment of tax [proviso to Section 16(2)]. Such advance payment of tax can be adjusted against tax liability, interest or penalty for first and second financial year.
New Registration in case of Shifting of Business:
New Registration Certificate was required on shifting of place of business, if place of business is shifted from one pin code number to other pin code number. However, from 1-6-2006 change of place of business does not require new registration. An application on letterhead alongwith proofs of new address is sufficient. An application is required to be made to the registration branch within the jurisdiction of new place of business. TIN will remain the same.
A new proviso has been inserted in Section 16(6) which empowers the department to cancel the registration granted to a dealer who has opted for voluntary registration, if the department is satisfied, after giving the dealer a reasonable opportunity of being heard, that the person has not commenced business within six months from the date of registration.
New Registration- when change of Constitution:     
New registration certificate is required if there is a change in constitution of business, For eg. change in constitution from partnership to proprietorship   or proprietorship to Private Limited Co. etc. Application is to be made within 30 days form the date of change.
Advantages of Central Sales Tax Registration:

A dealer registered under C.S.T Act can purchase goods from outside the state of Maharashtra at a concessional rate of tax @ 2% against declaration in Form `C'.
Scheme of Voluntary Registration: 
Certificate of registration can be obtained without  exceeding  the turnover  limit  as  per voluntary registration  Scheme.  However fees of Rs. 5000/- and an advance payment of Rs. 25,000/- is payable in such case. Such payment is to be made in by way of handing over the Demand Draft or Pay Order alongwith chalan in Form 210 to the registration officer. Demand draft or pay order is required to be prepared in favour of “Bank of Maharashtra – A/c. MVAT” in case of Mumbai region and “State Bank of India – A/c. MVAT” for other regions.
IImportant Points to Remember:

i. Any dealer having  more than  one place of business in  different locations within the State is required to make a single application in  respect  of  all  such places..
ii. Whenever   dealer adds any other place of business or godown  etc. he  has to  inform the registration branch about it within 60 days and get his registration certificate amended to that effect. There is no specific form for making an application for amendment in TIN certificate. An application on letterhead alongwith the specified proof of addition is sufficient.
iii. When dealer starts dealing in different commodities which are not mentioned in registration certificate, he should inform the registration branch about it within  60 days and   get   his TIN certificate amended to that effect.
iv. Any dealer  opening  a  new place of  business is  entitled  to  get additional copy  of TIN certificate at no extra cost.
v. Every  dealer is  required  to  furnish  a declaration  stating the name of the person who shall be deemed to be Manager in relation to the business in the State of Maharashtra.  
WHEN AND WHERE TO APPLY?
On exceeding the limit of the turnover of sales or purchase, a dealer   becomes liable for registration certificate.   An application is to be made in Form 101 (Under VAT Act)  and Form A (Under C.S.T. Act) before registration branch within 30 days of exceeding the prescribed turnover.
RREQUIREMENTS FOR VAT REGISTRATION
1 - Two  passport  size  recent photographs  of proprietor/ any one  partner  or director. Such partner/ director or proprietor is required to attend before the registration officer for photo signature. Proprietor or director can appoint some other person as a power of attorney to attend before the registration officer on his behalf.
2 - Partnership Deed in case of partnership firm and Memorandum & Articles, in case of 
company.

3 - Rent  receipt or electric bill  &  copy thereof of place of  business  &  consent letter of the owner if  the  rent receipt or electricity bill is not in the name  of  firm,  company  or proprietor.
4 - Rent receipt or electric bill  & copy thereof of residence of all  partners  or directors  or proprietor and consent letter of the owner, if rent receipt or electricity bill is  not  in the name of the partner or director or proprietor.
5 - Ration cards of all partners/director/proprietor with photocopy of first and last   
pages.

6 - Books of Account.(Cash book, Ledger, Purchase and Sale  Register and purchase   
and sales bills), in case of compulsory registration.        

7 - Statement of purchase and sales with date, Bill No., name and address of parties,    
Registration number, name of item and amount. Bifurcation of purchase into tax free purchase, taxable purchase, tax amount, interstate purchase.

8 - Letter of authority duly signed.
9 - Rent receipt and consent letter for additional place or godown.
10- Detail of bank account of firm/company/ proprietory concern..
11- Profession tax enrolment number of proprietor or all partners or directors and company.                     
12- Profession tax registration number of firm, company or proprietory concern,  if salary paid to employees exceed prescribed limit.
13- Application for cancellation of existing TIN in case of change in constitution or  
change in ownership.

14- Proof of Income tax number of proprietor or firm and all partners  or company  and all directors alongwith the proof.

NOTE: All the above requirements are required in original and photocopies. Photocopies are to be submitted along with an application form. The same are kept on record. Originals are to be shown at the time of hearing.
CHANGE IN BUSINESS (SECTION 18) INFORMATION TO BE FURNISHED
Sec. 16(9) & Sec 18 of the Act requires dealer to furnish information regarding:
1 - Sale or disposal of his business or any part thereof or any change  in ownership thereof.
2 - Closure of business or opening or closing of any place of business.
3 - Change in the nature or name of business.
4 - In  the  case of manufacturer, change in the class of  goods  sold  or bought by him.
5 - Entering into partnership or other association.
6 - Holding or application for the grant of patent or trade mark in respect of any goods, method etc. or  
         becomes entitled to use any patent or  trade mark.
7- Opening or closing of bank accounts of business.
Such information is to be furnished to the registration officer within 60 days from the date of such change. Likewise in the case of death of a dealer or dissolution or change in constitution of firm; the legal heir or executor, administrator  or the partner as the case may be shall inform the registration officer if  such death, dissolution or change as the case may be.

REGISTRATION CERTIFICATES TO CONTINUE IN CERTAIN CIRCUMSTANCES
Act provides that registration authorisation etc. shall continue in the circumstances mentioned below and  fresh registration is not required to be obtained i. e. it provides for exception for the action  of cancellation  of registration certificates held by the dealer  in  certain circumstances. On receipt of information as provided in Section 18, the registration, authorisation  etc.  shall  be  amended  accordingly.  Such circumstances are as under:
1 - Change in the name or nature of business;
2 - Change in the constitution of firm without dissolution thereof;
3 - Change in trustees of any trust or
4 - Change in the guardian of any Ward.
5 - Shifting of place of business within the same pin code number.
6 - In  the case of conversion of Pvt. Ltd. into the public Ltd. Co.   Vis-à-vis   no separate registration is required as there is no change   in constitution of the Company.

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TAX AUDIT

Tax Audit   In view of the coming Tax audit due date or rather the ongoing tax audit season, I would like to present my first article on audit under section 44AB of the Income Tax Act, 1961. Section 44AB of the Income Tax Act, 1961 specifies the provisions relating to tax audit.   Tax Audit is compulsory for the following: 
1.    A person carrying on business, if the total sales, turnover or gross receipt in business for the accounting year or years relevant to the assessment year exceed or exceeds Rs. 60 lakh. (Increased to Rs.1 crore in F.Y 2012-13)    
2.    A person carrying on profession, if his gross receipts in profession for an accounting year or years relevant to any of the assessment year exceeds Rs. 15 lakh. (Increased to Rs.25 Lacs in F.Y 2012-13)   3.    A person whose income is assessed on a presumptive basis under section 44AE, 44BB or 44BBB. Where such an assessee declares an income lesser than presumed under the sections 44AE, 44BB or 44BBB, they are required to get their accounts audited in accordance with section 44AB. (44AE – business of plying, hiring or leasing goods carriages, 44BB – business of exploration etc. of mineral oils, 44BBB - foreign companies engaged in the business of civil construction, etc in certain turnkey power projects.)   
4.    A person whose income is assessed on a presumptive basis under section 44AD (w.e.f. 01.04.10). Where such an assessee declares an income lesser than presumed under the sections 44AD, they are required to get their accounts audited in accordance with section 44AB. Unlike the persons specified in the 3rd point, the persons specified here are only required to their accounts or books audited if their income exceeds the basic exemption limit.     

The said section 44AD has been reproduced hereunder: -   Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an eligible assessee (Ind., HUF, part. Firm – resident but excluding LLP) engaged in an eligible business (any business except the business of Section 44AE and whose turnover does not exceed Rs.60 Lacs), a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and 

Audit: Tax audit should be done by a practicing chartered Accountant. The tax audit report should be signed by the CA in practice mentioning the name of the firm, name of the member signing, Membership no. and Registration number of the firm(w.e.f 01.04.10) ·         

Form: Tax audit report is required to be submitted in form 3CA in case of corporate assessees and in form 3CB in case of other assessees which should be accompanied by the Statement of particulars required u/s. 44AB in Form 3CD.   ·        

 Due – date for submission: Due  date for filing the return of income for persons liable to Tax Audit is 30th September of the year succeeding the relevant financial year.   ·         

Non-Compliance: Non compliance of the said section attracts penalty under section 271B of the Income Tax Act 1961.  The amount of penalty shall be ½% of the turnover/ gross receipts or Rs.150,000/- whichever is lower. The penalty was increased from Rs. 1 Lac to Rs. 1.5 Lacs by the Finance Act 2010 w.e.f. 01.04.11. However, no penalty in case of reasonable cause for the failure.   ·        

Some additional points to be considered: