TDS, TCS, Advance Tax, Returns and Tax Computation — Practice

Question 1

State the TDS section, rate and who deducts for: (a) a company paying professional fees of ₹80,000 to a consultant; (b) an individual buyer purchasing a flat for ₹75 lakh from a builder; (c) a company paying rent of ₹40,000 per month for office premises.

Accepted Answer

Item (a) falls under section 194J, fees for professional or technical services, and the rate for professional services is 10%, deducted by the company making the payment, that is the payer generally, which is the ordinary structure for TDS. Item (b), the purchase of immovable property, falls under section 194-IA, and the rate is 1% of the consideration, provided the consideration exceeds the prescribed threshold, which 75 lakh does; the deductor here is specifically the transferee, that is the buyer, not the seller and not any professional intermediary, which is the point most candidates get backwards, since in every other common TDS section it is simply the party making the payment in the ordinary commercial sense, whereas here the statute specifically designates the buyer of property regardless of who else might be involved in the transaction. Item (c), rent for office premises, being land or building rather than plant, machinery or equipment, falls under section 194I at the rate of 10%, deducted by the company paying the rent, subject to the annual threshold below which no deduction is required if total rent for the year does not exceed the prescribed limit.

Question 2

Mr. Sarin's assessed tax for the year is ₹3,00,000. He has paid advance tax of ₹2,40,000 during the year and the balance is paid on 15 July following the end of the financial year. Compute interest under section 234B, stating the trigger and the rate.

Accepted Answer

Section 234B imposes interest for default in payment of advance tax where the advance tax actually paid during the financial year is less than 90% of the assessed tax. Ninety per cent of Mr. Sarin's assessed tax of 3,00,000 is 2,70,000, and his actual advance tax payment of 2,40,000 falls short of that threshold, so section 234B is triggered. Interest is computed at 1% per month, or part of a month, on the shortfall, running from 1 April of the assessment year until the date the balance is actually paid or the date of determination, whichever governs. The shortfall for this purpose is the assessed tax less the advance tax actually paid, that is 3,00,000 less 2,40,000, giving 60,000. The balance is paid on 15 July, which is three and a half months from 1 April; part of a month is counted as a full month for this purpose, so the period runs April, May, June and July, that is 4 months. Interest is 1% of 60,000 for each of those 4 months, that is 600 per month, giving a total of 2,400. Note that section 234B interest is computed on the shortfall from the assessed tax as a whole, once the 90% threshold test is failed, rather than on a month-by-month tracking of instalment percentages, which is instead the concern of the separate section 234C.

Question 3

Mr. Talwar's total advance tax liability for the year is ₹5,00,000. He pays ₹40,000 by 15 June, ₹1,20,000 (cumulative) by 15 September, ₹3,00,000 (cumulative) by 15 December, and the balance by 15 March. Compute interest under section 234C for each instalment where a shortfall exists against the required cumulative percentage.

Accepted Answer

Section 234C tests actual cumulative payment against the required cumulative percentage at each instalment date separately, and imposes interest on any shortfall at 1% per month for a period specific to that instalment — three months for shortfalls at the June, September and December dates, and one month for a shortfall at the March date. At 15 June, the required cumulative amount is 15% of 5,00,000, that is 75,000; Mr. Talwar has paid only 40,000, a shortfall of 35,000, attracting interest at 1% per month for 3 months, that is 3% of 35,000, giving 1,050. At 15 September, the required cumulative amount is 45% of 5,00,000, that is 2,25,000; he has paid a cumulative 1,20,000, a shortfall of 1,05,000, attracting interest at 3% of 1,05,000, giving 3,150. At 15 December, the required cumulative amount is 75% of 5,00,000, that is 3,75,000; he has paid a cumulative 3,00,000, a shortfall of 75,000, attracting interest at 3% of 75,000, giving 2,250. At 15 March, the required cumulative amount is 100%, that is 5,00,000; assuming he pays the full balance by this date, reaching 5,00,000 cumulative, there is no shortfall at the final instalment and no interest arises for March. Total section 234C interest is 1,050 plus 3,150 plus 2,250, that is 6,450. The lesson worth extracting is that interest accrues separately at each instalment date on that date's own shortfall, so reaching 100% by the year end does not erase liability for having lagged the required percentage earlier in the year.

Question 4

State the category of assessee specifically exempted from paying advance tax, and the alternative advance tax schedule available to a presumptive taxation assessee, explaining the reasoning behind each relaxation.

Accepted Answer

A resident senior citizen not having any income from business or profession is specifically exempted from the obligation to pay advance tax altogether, regardless of the amount of tax otherwise payable. The reasoning is that a senior citizen without business income typically has income from pension, interest or similar sources that is either already subject to TDS at source or is comparatively predictable and modest, and requiring quarterly instalment estimation and payment from a retired individual with no business cash flow to manage against was considered an unnecessary compliance burden; the qualifying condition, no business or professional income, exists because a senior citizen actively running a business does have the kind of variable, self-managed income stream the advance tax regime is designed for, so the exemption is withdrawn in that case. The alternative schedule for a presumptive taxation assessee under section 44AD or 44ADA permits the entire advance tax liability to be paid in a single instalment on or before 15 March of the financial year, rather than the ordinary four-instalment schedule spread from June through March. The reasoning here is administrative simplification consistent with the presumptive scheme's whole design: since profit is presumed at a fixed percentage of turnover or receipts rather than tracked through detailed running accounts, such an assessee is less likely to have a clear, reliable running estimate of the year's tax liability early in the year in the way a business maintaining full books might, so the compliance burden of quarterly instalment tracking is relaxed into a single year-end payment.

Question 5

State the return filing due date under section 139(1) for: (a) a salaried individual with no audit requirement; (b) a private limited company; (c) a partner of a firm whose accounts require audit; (d) an assessee required to furnish a transfer pricing report under section 92E.

Accepted Answer

Item (a), a salaried individual with no audit requirement, must file by 31 July of the assessment year, the standard due date applicable to individuals, HUFs and other assessees not covered by any of the extended categories. Item (b), a private limited company, must file by 31 October of the assessment year, companies being required to have their accounts audited under the Companies Act regardless of turnover, which brings them within the extended due date category applicable to assessees whose accounts require audit. Item (c), a partner of a firm whose accounts require audit, must also file by 31 October, since the extended due date extends not only to the audited entity itself but to a partner of such a firm, on the reasoning that the partner's own return commonly depends on figures, such as the partner's share of firm profit, that are not finalised until the firm's own audited accounts and computation are complete. Item (d), an assessee required to furnish a report under section 92E in respect of international or specified domestic transactions, that is a transfer pricing case, has the latest of the standard due dates, 30 November of the assessment year, in recognition that transfer pricing documentation and the accompanying report require additional time to prepare and finalise before the return itself can be completed.

Question 6

Mr. Uttam files his original return of income after the due date under section 139(1), as a belated return. Six weeks later, before the assessment year ends, he discovers an error in that belated return. Advise on whether he may correct it, and state the common deadline that governs both the original belated filing and any correction.

Accepted Answer

Mr. Uttam may file a revised return correcting the error, and the ability to do so is not restricted merely because the return being revised was itself a belated return rather than one filed within the original due date. Section 139(5) permits a revised return to correct any omission or wrong statement in a previously filed return, and this facility is available whether the return being revised was filed within the due date under section 139(1) or was itself a belated return filed under section 139(4); a return does not need to have been timely in the first instance to be eligible for later revision, which is a point candidates sometimes assume incorrectly, treating revision as available only to on-time filers. Both the belated return under section 139(4) and any revised return under section 139(5) share a common outer deadline: either may be filed at any time up to three months before the end of the relevant assessment year, or before completion of the assessment, whichever is earlier. So Mr. Uttam's revised return must itself be filed within that same window, and if the three-months-before-year-end date, or an earlier completion of assessment, has already passed by the time he wishes to revise, the opportunity to file either a further belated return or a revision is lost. It is worth noting separately that a belated return, unlike a return filed within the section 139(1) due date, attracts late filing fees under section 234F and forfeits certain reliefs such as the carry-forward of business loss.

Question 7

Mr. Vaidya, a resident individual not having business or professional income, has Total Income of ₹52,00,000, computed under the applicable rate regime, on which tax at slab rates is ₹13,50,000. The surcharge rate applicable at this income level is 10%, before considering marginal relief; no rebate under section 87A is available given the income level. Compute total tax liability, including cess, and state the purpose of marginal relief in general terms.

Accepted Answer

Applying the fixed sequence, tax on Total Income at slab rates is given as 13,50,000, no rebate under section 87A is available since Total Income of 52,00,000 exceeds any threshold at which that rebate applies, so the figure remains 13,50,000 before surcharge. Surcharge at the stated rate of 10% would ordinarily be 10% of 13,50,000, that is 1,35,000, taking tax plus surcharge before cess to 14,85,000; whether the full 10% actually applies or is reduced by marginal relief depends on comparing this figure against the outcome at the surcharge threshold itself, and a full marginal relief computation would require knowing the precise threshold and the tax payable at exactly that threshold, which is not given here, so the answer proceeds on the stated rate as applicable after any such check, giving tax plus surcharge of 14,85,000. Health and Education Cess is then computed at 4% on the aggregate of income tax and surcharge, that is 4% of 14,85,000, giving 59,400. Total tax liability is therefore 14,85,000 plus 59,400, that is 15,44,400. On marginal relief generally, its purpose is to prevent an anomaly at the threshold itself: without it, a taxpayer whose income crosses a surcharge threshold by even a small amount could see total tax plus surcharge rise by more than the amount of extra income earned, so that earning a little more actually leaves the taxpayer with less after-tax income than someone earning just below the threshold. Marginal relief caps the incremental tax and surcharge attributable to income above the threshold at the amount of that incremental income itself, ensuring the additional tax burden from crossing the threshold never exceeds the additional income that caused it to be crossed.

Question 8

Explain the default position under section 115BAC, and the difference between an assessee with and without business or professional income in their ability to switch between the old and new tax regimes across years.

Accepted Answer

Section 115BAC establishes the new tax regime as the default regime for individuals, Hindu undivided families and certain other assessees, applying automatically with its own slab rates and a restricted set of deductions and exemptions unless the assessee affirmatively opts out of it in the prescribed manner and within the prescribed time, in favour of the old regime with its generally higher rates but broader availability of deductions and exemptions. The flexibility to move between the two regimes differs materially depending on whether the assessee has business or professional income. An assessee without income from business or profession, typically a salaried individual or one with only investment-type income, may choose between the new regime and the old regime afresh every year, simply indicating the choice at the time of filing that year's return, with no restriction carried forward from a prior year's choice. An assessee having income from business or profession is treated differently: once such an assessee exercises the option to opt out of the new regime in favour of the old regime, restrictions generally apply to switching back to the new regime in later years, reflecting a concern that unrestricted year-by-year switching would let a business assessee cherry-pick whichever regime happens to minimise tax each year based on that year's specific mix of income and deductible business expenditure, in a way considered less appropriate to permit for an ongoing business than for an individual's comparatively stable salary and investment income pattern.

Question 9

Explain how Tax Collected at Source mirrors Tax Deducted at Source, giving two examples of transactions attracting TCS, and state how the buyer eventually obtains credit for tax collected from them.

Accepted Answer

TCS is the structural mirror of TDS: where TDS requires a payer to withhold tax from a payment made to a payee and remit it to the government, TCS requires a seller to collect tax from a buyer at the point of a specified receipt and similarly remit it, so that in both cases tax is captured at the transaction itself rather than waiting for the recipient to separately compute and pay it later. Examples of transactions attracting TCS include the sale of specified goods such as scrap, certain minerals and timber, where the seller collects tax at a prescribed rate on the sale consideration from the buyer at the time of sale; and remittances under the Liberalised Remittance Scheme and payments for overseas tour packages, where an authorised dealer or tour operator collects tax from the remitter or traveller at prescribed rates and thresholds specific to that category. In both categories the amount collected is deposited by the seller or collector with the government within the prescribed time, exactly as a TDS deductor must deposit deducted tax. The buyer, having had this amount collected from them, obtains credit for it against their own final tax liability in exactly the same way a TDS deductee obtains credit: the collected amount is reflected in the buyer's Form 26AS and can be claimed as a credit when the buyer files their own return of income and computes their final tax payable, reducing that liability by the amount already collected and remitted on their behalf.

Question 10

A company fails to deduct TDS on a payment of professional fees to a resident consultant. Explain the three separate consequences that can follow, and how they interact with each other.

Accepted Answer

Three distinct consequences can follow a TDS default, and they operate alongside rather than instead of one another, meaning a defaulting deductor can face all three simultaneously on the same default. First, interest is payable for the failure to deduct, and separately at a different rate for a failure to deposit tax that was actually deducted, reflecting that withholding a payee's money and then not remitting it to the government is treated as a more serious default, carrying a higher effective cost, than simply failing to make the deduction in the first place. Second, section 40(a) disallows the corresponding business expenditure for income-tax purposes where tax deductible was not deducted, or having been deducted was not paid within the prescribed time: for a payment to a resident, such as this professional fee, 30% of the expenditure is disallowed, meaning the company loses the tax deduction for that portion of the expense in computing its own business income, though this disallowance is reversed and the deduction restored in a later year if the default is subsequently cured by deducting and depositing the tax then. Third, a penalty may additionally be levied for the failure to deduct, over and above the interest charged and the expenditure disallowance, since interest is compensatory in nature for the delay in the government receiving its due, while a penalty is a separate punitive consequence for the underlying default itself. A company facing a TDS default should therefore expect to address interest, a partial loss of its own expense deduction, and potential penalty exposure as three separate and cumulative consequences of the single failure to deduct.

Question 11

Ms. Uberoi's assessed tax for the year is ₹5,00,000, of which ₹1,80,000 has been paid as advance tax by 15 March and the balance settled through self-assessment tax paid on 20 August following the year end. Determine whether section 234B applies, compute the interest if so, and state why advance tax and TDS are both relevant to the 90% test even though only advance tax is mentioned in the facts.

Accepted Answer

Section 234B is triggered because the advance tax actually paid, 1,80,000, falls well short of 90% of assessed tax; 90% of 5,00,000 is 4,50,000, and 1,80,000 is far below that threshold. Interest under section 234B is computed at 1% per month, or part of a month, on the shortfall between assessed tax and advance tax paid, running from 1 April of the assessment year until the date the balance is paid or determination is made, whichever governs; the shortfall is 5,00,000 less 1,80,000, that is 3,20,000. The balance is paid on 20 August, which counting from 1 April is April, May, June, July and August, that is 5 months, with part of a month counted as a full month. Interest is 1% of 3,20,000 for 5 months, that is 16,000. Although the facts here mention only advance tax paid, the 90% test for section 234B purposes is properly applied against advance tax paid together with any tax deducted or collected at source and credited to the assessee, not against advance tax alone; TDS and TCS amounts, once deducted or collected during the year, are treated as tax paid by the assessee for this purpose in the same way advance tax instalments are, since from the government's perspective both represent tax genuinely collected during the year rather than after it. Had Ms. Uberoi's facts included a TDS credit, that credit would have been added to the 1,80,000 advance tax before testing against the 4,50,000 threshold, potentially reducing or eliminating the section 234B shortfall and the resulting interest.

Question 12

Explain what self-assessment tax is, when it must be paid, and the consequence of filing a return without discharging the full self-assessment liability.

Accepted Answer

Before filing the return of income, the assessee is required to compute the tax payable on the basis of the return being prepared, taking into account credit for TDS, TCS, advance tax already paid, and any relief or rebate the assessee is entitled to claim, and to pay the balance of any tax so found due, together with any applicable interest under sections such as 234A, 234B and 234C, as self-assessment tax before furnishing the return. Self-assessment tax is therefore the final reconciling payment that brings the assessee's total tax payments for the year, across advance tax, TDS, TCS and this last payment, up to the full amount actually due on the income being returned, and it must be paid before, or contemporaneously with, the filing of the return itself rather than left to be settled after filing on the basis of a subsequent demand. A return filed without discharging this self-assessment liability in full is treated as a defective return: the return is technically accepted for filing but is regarded as suffering from a defect, and the assessee is given an opportunity to rectify the defect, typically by paying the outstanding self-assessment tax, within a specified period; if the defect is not rectified within that period, the return may be treated as if it had never been validly filed at all, exposing the assessee to the consequences of non-filing, including the loss of benefits that depend on timely filing such as loss carry-forward eligibility discussed in the previous chapter.

Question 13

Explain the mechanism of the rebate under section 87A, distinguishing it from a deduction or an exemption, and state to whom it is available.

Accepted Answer

The rebate under section 87A operates on the tax payable itself rather than on income, which is what distinguishes it structurally from both a deduction and an exemption. A deduction, such as those under Chapter VI-A, reduces the income on which tax is subsequently computed, so its benefit is worth the deduction amount multiplied by the assessee's marginal tax rate. An exemption similarly removes an item from the tax base entirely before any rate is applied. The section 87A rebate, by contrast, is computed and applied after tax on total income has already been worked out at the applicable slab rates: it is a direct reduction of the tax payable itself, computed as the lower of the tax payable on total income and a specified statutory ceiling, so that for an assessee whose total income does not exceed the specified threshold, tax liability is effectively reduced to nil once the rebate is applied, regardless of what marginal rate would otherwise have applied to the last rupee of that income. The rebate is available to a resident individual only, and not to a non-resident individual, a Hindu undivided family, a firm, a company or any other category of assessee, reflecting its policy purpose of relieving genuinely lower-income resident individual taxpayers of any net tax burden up to the specified income threshold. The precise threshold and the ceiling amount of the rebate differ between the old and the new tax regime, so a candidate must apply the figures corresponding to whichever regime the individual has adopted for that year.

Question 14

Explain the purpose of section 194N, distinguishing it from ordinary TDS provisions on payments for services or income, and state why it imposes a higher rate on a person who has not filed returns for specified prior years.

Accepted Answer

Section 194N requires TDS to be deducted on cash withdrawals from a bank or post office account exceeding specified annual thresholds, and it differs fundamentally in character from ordinary TDS provisions such as those on salary, professional fees or rent, all of which withhold tax on a payment that is itself a form of income or a business expense of the payer, anticipating an eventual tax liability of the payee on that receipt. A cash withdrawal from one's own bank account is not income at all, and the account holder withdrawing their own money owes no tax on the withdrawal as such; section 194N is therefore not an ordinary revenue-collection provision in the way the other TDS sections are, but a deliberate compliance-enforcement and cash-economy-discouragement mechanism, designed to make large cash withdrawals costly enough to push transactions toward traceable banking channels and to catch, at the point of withdrawal, at least some tax from persons who might otherwise use large cash sums to transact outside the reach of ordinary income reporting. The rate steps up for a person who has not filed income tax returns for specified prior years precisely because non-filing is itself a signal of poor compliance, and a heightened TDS rate on such a person's cash withdrawals is intended both to recover a larger provisional amount against whatever undisclosed tax liability that non-filing history suggests, and to create a strong additional incentive for habitual non-filers to bring their return filing up to date in order to access the lower rate available to compliant taxpayers.

Question 15

Explain the role of Form 26AS and the TDS certificate in enabling a deductee to claim credit for tax deducted at source, and what a deductee should do if the two do not match.

Accepted Answer

Form 26AS is a consolidated statement, accessible to the taxpayer through the income tax department's systems, that records tax deducted at source, tax collected at source, and advance tax or self-assessment tax paid, as reported by deductors, collectors and the taxpayer themselves, effectively serving as the government's own running record of what tax has been paid on the taxpayer's behalf or by the taxpayer directly during the year. The TDS certificate is a separate document that the deductor is required to issue directly to the deductee, evidencing the specific amount deducted and deposited in respect of that deductee for a given period, such as Form 16 for salary or Form 16A for other payments. Together the two serve complementary verification purposes: the deductee relies on the TDS certificate as direct evidence from the deductor of what was withheld, while Form 26AS independently confirms, from the government's own records populated by the deductor's TDS returns, that the amount was actually deposited and credited against the deductee's PAN. When claiming credit for TDS in a return of income, a deductee should reconcile the two, since a discrepancy, most commonly where the certificate shows an amount deducted that does not appear, or appears at a different figure, in Form 26AS, typically indicates that the deductor has either not filed the corresponding TDS return correctly or has not deposited the tax as required; in that situation the deductee should follow up with the deductor to correct the filing, since credit is generally allowed only to the extent reflected in Form 26AS regardless of what the certificate independently states, making prompt reconciliation and correction important before the return is filed.

Practice — TDS, TCS, Advance Tax, Returns and Tax Computation

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