TDS & Advance Tax

Obligation of compliance of TDS provisions

It is to be noted that the provisions for presumptive taxation override only sec 28 to 43C and not the provisions of TDS. Therefore, the assessee declaring income u/s 44AD, 44ADA, or 44AE is liable to deduct TDS e.g. Every person is required to deduct TDS u/s 192 if the estimated salary exceeds the maximum amount not chargeable to tax. Any individual paying salary of Rs. 8,50,000 p.a. would be required to deduct TDS even though he is declaring income u/s 44AD.

Further, sec 194A, 194C, 194H, 194I, and 194J have been amended by Finance Act, 2020.

Now, individual or HUF having turnover/ gross receipts of more than Rs. 1 crore in case of business and more than Rs. 50 Lakh in case of the profession during the preceding financial year shall be required to deduct TDS under the above sections. Earlier in sec 194A, 194H, 194I, and 194J, it was mentioned that if the turnover/ receipts exceed the monetary limits specified u/s 44AB in the preceding financial year. In sec 194C, it was if individual or HUF was liable for audit under clause (a) or (b) of section 44AB in the preceding financial year.

Effect of amendment: The persons having turnover of more than Rs. 1 crore but less than Rs. 2 crores and declaring income u/s 44AD would be required to deduct TDS under the above sections.

Example:

Mr. A has a turnover of Rs. 1,25,00,000 in the P.Y. 2018-19. In F.Y. 2019-20, he paid interest of Rs. 25,000. Whether Mr. A has to deduct TDS u/s 194A if he declares income u/s 44AD?

Yes, Mr. A will be required to deduct TDS u/s 194A as his turnover in the preceding F.Y. is above Rs. 1 crore. The interest amount is above Rs. 5,000. Hence, Mr. A will be required to deduct TDS even if income is declared u/s 44AD otherwise he will be deemed as assessee in default as per sec 201. However, he does not deduct TDS, no disallowance of the expense will be made as per sec 40(a).

EXAMPLE: In case of the eligible assessee being a Firm that offers income under the presumptive income scheme and does not maintain books of accounts, where it is liable to deduct TDS from interest, contract work, salary, etc. then whether it has to deduct tax at source at the time of payment only?

Ans: A firm doing eligible business under section 44AD though not maintaining books is fully covered under the provisions of TDS like section 194A, 194C, etc. and is liable for deducting tax at the time of credit to the account of the payee (liability to pay arises) or payment thereof to the payee whichever is earlier.

Obligation of compliance of Advance Tax provisions

Further, since the presumptive taxation regime has been extended for professionals also, the eligible assessee is now required to pay advance tax by 15th March of the financial year.

Section 211(1)(b): an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be, to the extent of the whole amount of such advance tax during each financial year on or before the 15th March:

Section 234B: The provisions of sec 234B(1) are as:

Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety percent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one percent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Interest u/s 234B is charged if an assessee fails to deposit at least 90% of the total tax liability as advance tax. If advance tax is not deposited up to 31st March of P.Y. interest is charged @ 1% p.m. or part thereof up to the date of payment of such tax.

Section 234C(1)(b): The provisions of sec 234C(1)(b) are as

an assessee who declares profits and gains in accordance with the provisions of sub- section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be, who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one percent on the amount of the shortfall from the tax due on the returned income

If the advance tax in case of assessee covered u/s 44AD and 44ADA is not paid up to 15th March, the assessee shall be liable to pay interest u/s 234C @1%.

Proviso to 211(1) says any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day.

Note: As per section 208: advance tax shall be payable if the tax liability is Rs. 10,000 or more.

Example: Dr. Deepak is a cardiologist having gross receipts of Rs. 45,00,000 for the P.Y. 2019-20. He declares his income u/s 44ADA. Compute his advance tax liability and interest u/s 234B and 234C if (a) he deposits advance tax on 20th March (b) if he does not deposit advance tax.

The tax payable by Dr. Deepak is Rs. 5,07,000 which is more than Rs. 10,000. Hence, he is required to deposit his entire advance tax liability on or before 15th March 2020. If he deposits 90% or more of his advance tax liability before 31st March of the P.Y., no interest u/s 234B would be charged. However, if advance tax is not deposited up to 31st March of P.Y. interest is charged @ 1% p.m. or part thereof up to the date of payment. Interest u/s 234C will be charged @1% if advance tax is not deposited on or before 15th March of the P.Y.

In case (a) he deposited advance tax on 20th March 2020, no interest will be charged u/s 234B. However, interest u/s 234C will be charged @ 1% of Rs. 5,07,000 = Rs.5,070

In case (b) he has not deposited advance tax. Interest u/s 234C will be charged @1% of Rs. 5,07,000 = Rs. 5,070. Interest u/s 234B will be charged @ 1% p.m. or part thereof up to the date of payment. Suppose, return is filed and tax is paid on 20th July 2020, interest u/s 234B will be Rs.20,280(1% p.m. for four months, Rs.5,07,000*1% * 4 months).