The government wants a certain category of tax payers to pay their entire income tax liability for FY 2019-20 even before they get to know their full income and the TDS on it. This applies to all those tax payers whose self assessment tax for financial year 2019-20 exceeds Rs 1 lakh. Here’s how this anomaly has arisen.

 

As per the government notification effective June 30,2020, all tax payers with total self assessment tax liability for FY2019-20 exceeding Rs 1 lakh must pay all of it by July 31, 2020 else penal interest of 1 per cent per month under section 234A of the Income-tax Act would be levied on any short payment of this. However, the last date for banks and other deductors of tax at source such as employers etc, to file TDS returns and issue TDS certificates for last quarter of FY 2019-20 July 31 and August 15, 2020, respectively. These two deadlines were advanced from the normal due dates of May 31 and June 15, respectively, due to the Covid 19 pandemic. Individuals whose tax has been deducted at source (e.g. interest paid on cumulative fixed deposits, salary etc.) normally get to know the full amount paid to them (income) and the TDS on it, only when these figures start reflecting in their Form 26AS on the income tax website or when the deductor issues the related TDS certificates to them. However, normally these figures start to show in Form 26AS only after the deductor files it’s TDS return with the income tax department. As the last date by which deductors have to issue TDS certificates for last quarter of F.Y. 2019-20 is August 15, the earliest an individual tax payer can expect to know the income and TDS figures definitively is by July 31 which is the deadline for deductors to file their TDS returns.

 

The most common types of income on which TDS is deducted, if applicable, include interest on fixed deposits with banks, non-banking finance companies, corporates etc and salary paid by employers. Although it is possible, albeit tedious, for an individual to estimate his/her income from these sources, the exact amount paid and the TDS from those payments can only be known once these figures start to show in the Form 26AS of the individual. TDS certificates are normally issued after that.

Although some deductors have filed their TDS returns and are issuing TDS certificates, many others, such as the post office (on Senior citizen saving schemes), may not have done so because as per law they have time till July 31. The deadline to issue TDS certificates is of course even later.

 

“The result of the above situation is that individuals whose income suffers TDS to a large extent, will face problems in calculating their total income and the tax already deducted on it. Consequently, they will be unable to calculate the self assessment tax payable on their total income accurately by July 31. Therefore, paying the correct amount in full by July 31 becomes very difficult. Alternatively, they may end up paying more to avoid penal interest and have to claim a refund,” 

 

However, clearly the government wants that these individuals should pay the full self assessment tax by July 31 even though they may not be able to know their exact income and TDS by then.

In earlier years such an anomaly did not arise because the deadlines to file TDS returns for deductors and for issue of TDS certificates were May 31 and June 15, respectively. These deadlines were ahead of the normal deadline to pay full self assessment tax and file income tax returns for most individuals – i.e. July 31. Consequently, there was enough time for individuals to calculate their self assessment tax after their Form 26AS was fully updated and TDS certificates issued.

 

For FY 2019-20 the government has extended the last date for filing of income tax return to November 30, 2020. However, the last date for payment of full self assessment tax for FY2019-20 still remains July 31, 2020, for those with self assessment tax liability of over Rs 1 lakh. The above anomaly has arisen due to this situation.

 

“It seems that this aspect has been missed out by the government as a result of which the present anomaly has arisen. Till the time the government does not amend the notification, the taxpayers will have to estimate their liability and pay tax if they want to avoid payment of interest u/s 234A”, says Sachin Vasudeva, a Delhi-based practicing chartered accountant.