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Tax Deduction
at Source
General
Under
the provisions of the Income Tax Act, an employer has
an obligation to deduct, at the time of payment of income
under the head Salaries, tax at source, on income of
each employee chargeable to tax during the financial
year, at the applicable rates.
The
obligations as prescribed, in this respect cover matters
relating to the manner of deduction of tax, deposit
of tax, issue of tax deduction certificates and filing
of return/forms relating to such deductions. Default,
in respect of any such obligation, attracts penal consequences
like levy of interest, penalty and / or in certain circumstances
prosecution. Strict care, as such is required to be
taken, in compliance of the provisions as prescribed.
The
salient provisions of Rules dealing with the obligation
of employers in connection with deduction of tax at
source are outlined below :
Ddeduction
of Ttax at Source Out of Income
From
salary an employer is liable to deduct tax at the time
of payment, on the amount of taxable salary as computed
under the Income-Tax Act.
Income
Tax is required to be deducted at an average rate, every
month, based on the estimated taxable income of the
employee and tax liability thereon, for a financial
year. For the purpose, the employer needs to estimate
total income and compute tax liability thereon, in the
manner as explained under "Computation of Total
Income' ( See
Chapter B , Part C )
It
is permissible for an employer, at the time of making
payment of tax, to increase or reduce the amount to
be deducted, for the purpose of adjusting any excess
or deficiency arising out of any other income earned
during the financial year. Failure to deduct tax at
an average rate, however, attracts penal interest.
Deposit
of Tax Deducted
The
tax is to be deposited with the Reserve Bank of India,
State Bank of India or any other bank authorised for
the purpose, alongwith the challan within one week from
the date of deduction of tax.
Filing
of Forms, Returns and Issue of Certificates
By
the Employer:
- Tax
Deduction Account Number (TAN):
- TAN
is to be applied for, by the employer with the
Income-Tax Officer within one month from the end
of the month in which tax is first deducted. The
application is to be filed in Form No. 49B, as
prescribed by the Income Tax Rules, 1962, with
thelocaltaxauthorities. TAN is to be quoted on
all documents while communicatingwith the tax
department in connection with any matter relating
to tax deduction at source.
- Filing
of Annual Return
- In
respect of deduction of Income Tax at source,
out of income from salary, the employer has to
submit annual return with the designated tax officer
in Form no. 24, by the end of the month of May,
following the financial year in which tax was
deducted.
- CertificateforDeductionofTax
- The
employer has to issue a tax deduction certificate
to each employee certifying the amount of tax
deducted from his salary during a financial year.
The certificate is to be issued within one month
from the expiry of the relevant financial year,
in Form No.16, as prescribed by Income Tax Rules,
1962.
By
the Employee:
- Filing
of Return/Claim of Rrefund by the Employee
- Refund
of tax deducted at source as deposited by the
employer, which is in excess of the tax liability
of the employee could be claimed by filing income
tax return. The return is to be filed by the employee
in the manner as already explained ( Chapter
D ). As per the provisions of the Income Tax
Act, return is to be filed in the prescribed Form
before the due date as prescribed. However, a
belated return could be filed within one year
from the end of the relevant assessment year (i.e.
two years from the last day of the relevant financial
year). A copy of Form 16, as an evidence of tax
payment, is to be filed along with the return.
Steps
to be taken for Deduction of Tax at Source
- Estimate
likely period of stay of employee in India
- In case
the stay of employee is less than 183 days but more
than 90 days explore possibility of claiming exemption
under DTA between India and the country of residence
of the employee
- If the
foreign employee does not fall in the exempted category,
provide particulars of remuneration payable, in and
outside India including all allowances, benefits &
perquisites to be provided, specimen format for employment
particulars as required is enclosed, mark
Annexure
"E1"
- In
case a person was earlier employed in India, it is
necessary to take into account, particulars of his
remuneration from previous employer.
- Seek
computation of taxable income of the foreign technician
liable to income tax for the financial year;
- Deduct
/ pay taxes as per computation, on an average basis,
every month;
- Provide
information, in respect of changes, if any, in the
particulars originally
provided for enabling adjustment of deduction of tax
- Ensure
filing of annual returns
- Issue
certificate for deducting of tax, in the form prescribed
within
the prescribed time.
- File
income tax return within specified period.
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