Liability to pay advance tax in case of non deduction of Tax - Sec 209.

[Ramasamy]

Till last financial year , the amount of advance tax payable is computed after reducing the amount of  TDS that would be deductible on the estimated annual income. However, in a case where TDS is not deducted, tax is directly payable by the income receiver. In the past various court held that interest on delay in payment of advance tax is not chargeable in cases where tax is not deducted at source from income nor advance tax is paid.

The finance Act 2012,  amended the above position such that only tax already deducted at source will be allowed as a credit against tax payable while computing advance tax. Therefore, while estimating annual advance tax, tax deductible at source on estimated income cannot be claimed as credit for the computation of advance tax unless already paid.

While the amendment was aimed to correct the position as far as interest payable on advance tax was concerned, the wording is not good. A technical interpretation of this amendment would mean that even a salaried employee who earlier was not required to pay advance tax (as full amount of tax would be deducted from his salary) would be required to pay advance tax in respect of salary income pertaining to current FY but not  received on or before 31st March 13.

The impact is that interest will become payable in case advance tax is not paid in respect of salary income to be received. We would have to see whether any clarifications will be issued by CBDT in this behalf.

[satyanveshi]

I think the queriest missed a point in the amendment . For the sake of clarity the amendment made is as under-

Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.

If the second part of the above mentioned proviso is analysed it is clear that  the deductor should pay the the entire income without deducting tax and receipient should receive the entire income and then only he cannot claim that he is under bonafide bellief that tax will be deducted by the deductor. In the case of narrated facts, it is mentioned that "would be required to pay advance tax in respect of salary income pertaining to current FY but not  received on or before 31st March 13".  Please note the  very important and pertinent point here which is "but not received". Once it is not received then the proviso is not applicable and only the provisions of sec. 209(1)(d) are applicable and accordingly the receipient can claim that he is under bonafide belief that required tax will be deducted from the amount to be received from the deductor and therefore he need not pay advance tax to escape from interest chargeable under 234B and 234C. Is it not correct. ..............................

[JB]

well as far as actual receipt is concerned, there is not much problem except in cases of running accounts where the payee is not certain as to amount is received without deduction or after deduction. The problem may arises in cases where the amount is credited to the account of payee or debited to the account of buyer. Certainty in such caes will be difficult on the part of the payee as the amount may be remitted to him after a time gap depending upon the credit limit enjoyed by the payer.

[Ramasamy]

As per section 15, employee has to pay tax on salary income on due or receipt whichever is earlier basis. So, tax liability arise even if salary actually not received but due in current financial year. However, employer required to deduct TDS u/s 192 only at that time of making salary payment. If employee get his march salary in the month of April, his employer deduct tax only in April month not in March month though employer created salary accural in his books .  As far as advance tax computation purpose, earlier employee not required to pay any advance tax on salary income as full amount of tax would be deducted from his salary but as per the amended provision it says that assessee can considred only tax deducted or tax already paid amount while comuting his advance tax liability.

[Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.].

Please correct me if my understanding is wrong.