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Tax Planning Assignment

Tax Deducted at Source

Assessee pays tax in the assessment year on income earned in previous year. Due to this rule the tax collection is delayed till the completion of the previous year. Even sometimes people conceal their income and the tax is not paid at all. In order to overcome these problems, government started to deduct some amount of tax from the amount which is receivable by the assessee. The amount of tax so deducted is called as Tax Deducted At !ource or TD! in India.
TAX COLLECTED AT SOURCE

Tax collected at source is similar to TD! and is collected by every person being a seller from buyer"licensee or lessee at the time of debiting the amount to actual account of buyer . Any amount collected at source and paid to the credit of #entral government shall be deemed to be a payement of tax on behalf of the person from whom the amount has been collected. The credit shall be given to such a person for the amount so collected in a particular assessment year in accordance with the rules as may be prescribed by the board from time to time.

Advance Tax In some cases, the assessee is re$uired to ma%e a payment of advance tax. !uch taxes paid in advance are called prepaid taxes. Tax deduction is mainly done to reduce ones taxable income. In a way tax deductions can reduce the taxable income and thus provide tax relief. Tax deducted in this manner needs to be deposited in the &overnment treasury and assigned to the #entral &overnment, within a stipulated time period. Indian &overnment is adhering to the policy of TD! to broaden its tax brac%et in the country. Income gained through several sources falls under the tax deduction at source or TD! scheme. !ome of such income that is sub'ected to (Tax Deduction at !ource) is as follows* !alary. Interest. +ental fee. Interest on !ecurities. Insurance commission. Dividends from shares and ,TI"-utual .unds. #ommission and bro%erage. /ri0e money won from lotteries, horse races, etc. /ayments to non1resident sportsmen or sports associations. #ommission on sale of lottery tic%ets. .ees for professional and technical services and the li%e. #ompensation for compulsory ac$uisition. Income from units of an offshore fund. Income from foreign currency bonds or shares of Indian #ompanies 2unless specified as tax1free3.

Difference bet een TDS and !ncome Tax

4efore we dwell further on TD! and income tax, let us see what is Income Tax. 4ased on the strength of an act passed in the Indian /arliament called the Income Tax Act, anybody who earns an income in India is liable to pay an income tax. The &eographic limit or boundaries of India are not the limiting criteria to deem the income as income earned in India. !ome time even income earned outside the country can be categori0ed as Income earned in India. T"e difference bet een TDS and !ncome Tax is as follo s # 5 Although TD! is a part of the Income Tax that has to be paid by an assesse, it is deducted by a third party, basically an entity that is going to ma%e you some payment. And this entity deducts the TD! from payments due to the payee and deposits it with the Income Tax Department on behalf of the payee. 5 The income tax that is paid to the income tax department by you in person is the amount that is arrived at after assessing your total income for the financial year. This is filed with the Income Tax Department as advance Tax. 5 If TD! is less than the tax payable for the financial year, then you have to pay the tax on the additional income also, and if the TD! is more than the tax that has been made liable to you, in that case the Income Tax Department will ma%e the refund from the TD! that has already been paid in excess. 5 Income Tax has to be paid only once in the year where as TD! may have to be deducted a number of times depending on the type of payments and parties involved. 5 To file TD! we need to use challan 1 671 and in the case of Advance Tax we use challan 1 678

$"at is advance tax % The Income1tax Act has a provision wherein each assessee is re$uired to pay tax in advance if the total estimated tax for the year exceeds I9+ :,888.

!o for example for the /; if your tax on estimated income exceeds I9+ :888 for the previous year 688<187, you must pay tax in installments during 688<187. In the case of individuals, advance tax is normally suppose to be paid as follows* =8> of the estimated tax 1 1: !eptember 688<? @8> of the estimated tax 1 1: December 688<? 188> of the estimated tax 1 1: -arch 6887. In the event of you not complying with the above provision, you will be charged interest under !ection 6=A#. 9ote that there is not penalty for non1 payment.

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