- Withholding tax and its payment to the Government is a transaction-based activity. For its compliance, a decision is required to be taken by the person paying any amount to a vendor / employee after taking into account the following aspects:
- Characterisation of payment
- Whether withholding tax needs to be deducted; if so, at what rate, at what point in time and when it would become payable to the Government.
- Making appropriate entry in the books of account.
To achieve this, the client’s personnel who are responsible for making payments have to be in touch on a regular basis with the dedicated person of the service provider for guidance on the action to be taken before making payment or debiting the sum payable to vendors, etc. This perpetual activity is to be undertaken in respect of domestic transactions as well as international transactions. PAN of all the payees must be obtained before making payments. TDS Returns are required to be filed quarterly during the year. After entering the details of tax deduction as per the prescribed format, the TDS returns are to be uploaded within the specified time limit. In case of any inadvertent defect, it is to be rectified and reloaded in the system. This exercise is required to be done for each quarter and is a perpetual exercise which can only be achieved through regular coordination between the person responsible for making payments by the client and the dedicated person of the service provider. In a similar way, the annual return of TDS is required to be uploaded within the statutory time limit.
- Advance tax is payable by companies in four instalments on the due dates during the year in which income is earned. Following are the requirements:
- Projection of the income of the current year.
- Computation of income and the tax on it after considering all deductions / exemptions available under the law. (format can be decided)
- After applying appropriate tax rates, the total tax payable is to be arrived at.
- An estimate of the TDS credit available is required to be made.
- If any MAT credit etc is available in the current year based on tax paid during earlier years, it is to be worked out.
- On or before due dates, the required percentage of tax payable, worked on total tax payable as reduced by TDS credit, MAT credit etc, is to be paid to the Government in the prescribed form.
- Evidence of payment is to be preserved at designated place.
- After finalization of accounts and its audit, Tax Audit is required to be done within the statutory time limit. To achieve this, coordination is required between the person of the client, the dedicated person of the service provider, and the tax auditors. Based on discussions, the tax audit report is finalized by tax auditors in the prescribed format. Similarly, transfer pricing report, if required in respect of international transactions, is to be prepared in the specified format. These reports are to be uploaded within the specified statutory time limits. Any variance on account of a cross-border transaction with related parties, as per law, is to be taken into account for computation of income, and based on the variance, subsequent years transactions with related parties are required to be done to minimize the tax impact on Transfer Pricing issues.
- Filing of Income Tax Return:
Before filing the tax return, a draft computation of income is required to be prepared for discussion among the client, the service provider, and the experts, if need be. Tax issues emerging from the proposed computation are required to be discussed. Opinion of experts is to be taken as and when required, and based on it, a management decision by the client is to be taken considering the risk analysis in terms of interest payable etc. in a situation where adverse view is adopted by the Tax Department. Thereafter, the appropriate return form is required to be filled up and uploaded either by the service provider or the client, as the case may be. Before such uploading, additional self-assessment tax payable, if any, is to be paid, details of which are incorporated in the return of income.
Intimation received from the Tax Department is required to be stored in the database after verifying the correctness of the computation of tax by the tax department. In case of variance, the reason for the same is to be examined, and in case of any mistake on any account, an appropriate rectification process is to be followed to correct the outcome of processing by the tax department.
In case of issuance of a notice by the tax department for commencing scrutiny of the tax return, the proceedings are to be pursued by the client’s “tax consultant” who shall interface with the tax department. The service provider can help the “tax consultant” by providing all documents and details required to be filed with the tax department. Subsequent details and submissions are required to be prepared by the tax consultant with the help of the person of the client, who is invariably the person associated with accounts and tax computation. In case of any legal issues arising during assessment proceedings, legal opinion can be organized by the service provider. After completion of assessment proceedings, the assessment order is required to be scanned and stored in the data bank of the particular assessment year for reference in the future.
In case of any mistakes apparent from the records, a rectification application is required to be filed (electronically) and pursued by the “Tax Consultant.” In such a case, help can be provided by the service provider.
In case reassessment proceedings are initiated by the tax department, steps required to be followed are similar to those followed at the time of filing the original return and steps subsequent thereto.