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Income tax refunds are running at 40% of the collections, which shows that advance tax and TDS rules have turned into a farce. Amazingly, not following TDS and advance tax rules attracts draconian penalty
Corporate tax refunds as of 15 September 2011 have reached an all-time high of Rs48,426.20 crore defeating the purpose of tax deduction at source (TDS). The gross collection of corporate tax for this period stood at Rs118,489 crore and net collection after refunds at Rs70,062.80 crore. This means that as much as 44% of the money collected as income-tax was wrong!
Now we know where the collections are mainly coming from - advance tax and tax deducted at source. The government has ruled that businessmen, employers and corporate entities and even individuals doing business should do the work of tax collectors by getting them to pay in advance (advance tax) and also deduct tax at source (TDS) and pay it into the government account.
But, clearly, the government is not able to hold on to a lot of the tax collected through this means. And since the refunds are made on a large scale, the administrative cost and effort put in by the private sector tax collectors are a total waste. Clearly, the whole conept of advance tax and TDS are a farce and must be addressed immediately.
Corporate tax collection as of 15 September 2011 (in Rs crore)
* Collection for 1 April 2011 to 15 September 2011
** The refunds given in the 1 April 2011 to 15 September 2011 period relate to collections of the previous year.
Source: I-T Department
If this problem is allowed to grow unchecked, it will be found that the income in the previous year for the government is inflated on the high tax collections, extracted through midless provisions of advance tax and TDS, but when the tax refund is made the government has a large outflow - throwing budegetary calculations out of gear.
Remember, this senseless tax collection and refund activity entails considerable administrative expense - something that ought be government expenses but has been put on the shoulders of the citizens and corporations.
Astonshingly, these the punishment for such senseless rules (violation of TDS rules and advance tax) is draconian.
The failure to deduct tax at source can entail a penalty equal to the tax amount deductible that has not been deducted. The interest penalty in case of delay is 1% per month of tax deductible.
The failure to deposit tax deducted at source can invite a penalty equal to the tax amount not deposited. If the individual responsible for deposit of TDS is prosecuted, the punishment is rigorous imprisonment for a period not less than three months and which can be extended up to seven years with a fine.
Failure to apply for the tax deduction at source account number has a penalty of Rs10,000. The severity of the punishment is defeated by the extent of refunds.
Advance tax is payable by every corporate assessee in the course of the year as 15% of the tax by June 15, 45 % by September 15, 75% by December 15, and the total 100% by March 15. If advance tax paid by an assessee is less than 90 per cent of the total tax payable by 31st March or no advance tax is paid, then interest u/s 234B is calculated on the amount of difference between the assessed tax and the advance tax paid and it is charged @1% per month or part of the month from 1st April of assessment year (for the relevant previous year) till the date of payment of tax.
Clearly, it is high time that the rules of TDS and advance tax are amended to make them realistic.