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The farce of TDS and advance tax exposed through huge refunds

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)

  Gross collection*      1,18,489.00
  Less refunds**      48,426.20
  Net collection      70,062.80

* 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.

User

COMMENTS

K B Patil

5 years ago

Basically, Indian governments are anti middle class. That can be the only reason why people who use two wheelers for their daily work pay through their nose for petrol while fat cats use diesel for their Mercs and other such cars. Similarly, middle class retired people depend on bank deposits to augment their earnings and which faces TDS. The rich tend to invest in equities. In equities, the long term capital gains is zero. Of course, our inventive genius PC (now HM but earlier FM) introduced Securities Transaction Tax apart from service tax on the brokerage. So, throughout a bad year, the hapless investor will pay the government, tax for the privilege of trading though he himself may not earn a paisa. Our FM also introduced service tax on many items but not on lawyers though he and his wife are lawyers. The government is openly immoral in it's taxation policies. Just mention the word HASAN ALI and any honest tax paying Indian's blood will boil.

REPLY

mary

In Reply to K B Patil 5 years ago

i agree with you, brother kbPatil. however, kindly permit me to add that the govt is incompetent too.

Rajesh Kothari

5 years ago

In fact, it would be interesting to find out how much of TDS collected by Govt has not been claimed for refund by the deductee.

In terms of number of people, I'm sure it would be very large number. And in terms of amount, it may a moderate amount. But these figures would represent number of people who have paid Income tax by way of TDS and have not claimed/got refund of same.

Corporates have got tax machinery at their disposal to get back the TDS paid; but what about small time investors? They are hapless people, looted of their hard earned money by the mind-less machinery of Income tax dept. by dubious means of TDS.

Another point is that Income tax dept has publically admitted in June 2010 through a press release that TDS data is in a mess. TDS returns in Paper and Challan data submitted by Banks are just not possible to reconcile, leading to total confusion.

It's high time a movement is started to abolish TDS along with its draconian interest and penalty provisions.

REPLY

Nagesh Kini

In Reply to Rajesh Kothari 5 years ago

You are absolutely right.
The amounts of taxes deducted from incomes of a large number of small earners like elders, pensioners,middle class in value may not be so large but in terms of numbers, it is substantial. They find it not worth their while to file a return to obtain the refund that takes ages to come about. A tax practioner ha to be be appointed to file the return and the person who comes with the refund order will not hand it over unless he is bribed which is not less than 10%. I know of demands from Charitable trusts with no taxable incomes having to beg for refunds.
It is true that all corporates have a separate taxation department to chase the refunds.
The babu has the audacity to ask you why you have come 'so late, you file is not traceable', so much so I had to apply to the Income Tax Ombudsman when normal channels didn't work.
There is a very strong case to totally do away with the tedious TDS on interest income that is more of a nuisance both for the tax payer and the banks who as unpaid tax collectors merrily prefer to err on the safer side by deducting tax and asking you to claim refund.
They are also harassed for not filing the quarterly and annual TDS returns in time.A penalty for doing a free task!

mukesh

5 years ago

SYSTEM OF TDS & ADVANCE TAX - AS PER HUMAN CONCEPTUAL THINKING IS A GROSSLY WRONG PRACTICE, ESPECIALLY FOR AN INDIVIDUAL!

WHEN NOBODY KNOWS IF THE PERSON IS EVEN GOING TO BE ALIVE AT THE TIME OF FILING RETURNS, TO COLLECT TAX IN ADVANCE IS A RIDICULOUS IDEA ITSELF! IF AT ALL, FOR COMPANIES, ADVANCE TAX MAY BE TAKEN AS THEY WONT DIE / DISAPPEAR IN A YEAR!

COLLECTING TONS OF MONEY OVER THE YEAR & THEN REFUNDING IT IS A STUPID PRACTICE CAUSING ENORMOUS NATIONAL WASTAGE OF EFFORT, MAN-HOURS, ALL RESOURCES INCLUDING PAPER, POWER, TIME & ABOVE ALL, MONEY ITSELF!

ABOLISH THE PRACTICE OF TDS & ADVANCE TAX.

OUT OF ABOUT 65 ODD TAXES INDIAN GOVT. GOBBLES UP IN VARIOUS FORMS, ALL OF THEM MAY BE GOTTEN RID OFF & ONLY A 2% TRANSACTION TAX FOR ANYTHING & EVERYTHING IN ALL CITIES / STATES WILL GET MORE REVENUE THAN ALL THESE TAXES WHICH GET SWALLOWED BY THE MONSTEROUS GOVT. SYSTEM!

pantulu

5 years ago

It is not clear why the meagre interest on Bank Deposits is taxed at source. Only Retired people and people who do not get any pension save in Banks because they have atleast some security. Many of them will not have any other income which qualifies for tax deduction. People who have abnormal incomes do not save in banks. It is high time this deduction is discontinued to facilitate both the Bank and the customer.

Nagesh Kini FCA

5 years ago

Both advance tax and TDS provisions need to be revisited either in the DTC and/or Finance Bill 2012. The CBDT needs to review de novo the large refunds as well as shortfall in collections. I really wonder how the minds work - the mandarins in the North Block that houses the MOF.

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