PENALTY ON TDS NON COMPLIANCE
Clause 26 related to section 43B of Income Tax Act, 1961 has two sub clauses. The payment if any made during the period till the due date of tax audit is deducted from the same date. In many cases the assessee has made ex-tax payments which cannot be termed as payment. The auditor should check the date of actual payments, not the date on which a cheque for the same was prepared. The Auditor should be careful while checking the date as date of payment, and the amount if any paid till thedue date to file income tax return. The auditors should also check that the amount paid is not set off or written off.
fORM 3 CD Clause 26, Section 43B Most Important
1. What Clause 26 says:-
For any sum referred to in section 43B (a), (b), (c), (d), (e) or (f), the liability for which:-
(A) Pre-existed on the first day of the previous year, but was not permitted in any previous year's assessment and
(A) paid the previous year;
(B) Unpaid the previous year;
(B) Incurred in the previous year,
(A) paid on or before the due date for the return of the previous year under section 139(1); Tax audit guidance under section 44AB of the Income Tax Act, 1961
(B) Unpaid on or before that date.
(State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cessation, tax, etc.)
Analysis: Section 43B of the Income Tax Act, 1961 has two sub-clauses.
Subclause (A) talks about liabilities on the first day of the previous year.
To prepare this clause, unpaid amounts under subclause A & B are clubbed together. And the payment if any during the period until the tax audit date is deducted from the same.
Note: Don't consider payments made in the year considered last year.
Subclause (B) we consider the preceding year provisions. And deduct the amount, if any, paid to file income tax returns until the due date.
-- Important note: it should be noted that for payment we should check the actual payment date, not the date on which the check was prepared.
-- Many companies make checks and consider the date of payment. Auditor should be careful checking the same.
Payments covered by Section 43B
1. Tax payments
2. Employer Contribution to employees
3. Employee bonus / commission payable
4. Interest in any loan or borrowing or advance from any Public Financial Institution or State Financial Corporation or Industrial Investment Corporation or a scheduled bank.
5. Leave Encashment provision.
6. Payment to Railways.
Earlier set-off / write-off provisions / liability analysis?
Section 43B uses "actually paid" The set-off or write-off can not be called payment.
Income tax treatment: In many cases, the assessee made excess provision in the previous year and is written off in the current year. In the year it is written back, we consider the same as payment, i.e. we allow the expense written off under section 43B of income tax act.
-- Entry for provision creation: (b) Set-off entry
Dr. Liab Bonus Provision
To Provide Liab Bonus
Entry (a)
Expense is booked in account books.
Same is disallowed as income tax expenditure. Means the same amount of provision under income tax act.
Now entered (b)
Account books recognize income.
Now if the amount written off / set off is not considered expense, double taxation on the amount set off will result.
As the same was taxed in the year the provision was made, we are now taxing it again in the year the amount is set off.
To avoid double taxation, we consider the set-off amount as payment under section 43B.
fORM 3 CD Clause 26, Section 43B Most Important
1. What Clause 26 says:-
For any sum referred to in section 43B (a), (b), (c), (d), (e) or (f), the liability for which:-
(A) Pre-existed on the first day of the previous year, but was not permitted in any previous year's assessment and
(A) paid the previous year;
(B) Unpaid the previous year;
(B) Incurred in the previous year,
(A) paid on or before the due date for the return of the previous year under section 139(1); Tax audit guidance under section 44AB of the Income Tax Act, 1961
(B) Unpaid on or before that date.
(State whether sales tax, customs duty, excise duty or any other indirect tax, levy, cessation, tax, etc.)
Analysis: Section 43B of the Income Tax Act, 1961 has two sub-clauses.
Subclause (A) talks about liabilities on the first day of the previous year.
To prepare this clause, unpaid amounts under subclause A & B are clubbed together. And the payment if any during the period until the tax audit date is deducted from the same.
Note: Don't consider payments made in the year considered last year.
Subclause (B) we consider the preceding year provisions. And deduct the amount, if any, paid to file income tax returns until the due date.
-- Important note: it should be noted that for payment we should check the actual payment date, not the date on which the check was prepared.
-- Many companies make checks and consider the date of payment. Auditor should be careful checking the same.
Payments covered by Section 43B
1. Tax payments
2. Employer Contribution to employees
3. Employee bonus / commission payable
4. Interest in any loan or borrowing or advance from any Public Financial Institution or State Financial Corporation or Industrial Investment Corporation or a scheduled bank.
5. Leave Encashment provision.
6. Payment to Railways.
Earlier set-off / write-off provisions / liability analysis?
Section 43B uses "actually paid" The set-off or write-off can not be called payment.
Income tax treatment: In many cases, the assessee made excess provision in the previous year and is written off in the current year. In the year it is written back, we consider the same as payment, i.e. we allow the expense written off under section 43B of income tax act.
-- Entry for provision creation: (b) Set-off entry
Dr. Liab Bonus Provision
To Provide Liab Bonus
Entry (a)
Expense is booked in account books.
Same is disallowed as income tax expenditure. Means the same amount of provision under income tax act.
Now entered (b)
Account books recognize income.
Now if the amount written off / set off is not considered expense, double taxation on the amount set off will result.
As the same was taxed in the year the provision was made, we are now taxing it again in the year the amount is set off.
To avoid double taxation, we consider the set-off amount as payment under section 43B.
