Personal Taxation

Ways to Discharge Income Tax Liability

An individual can discharge their income tax liability in either or all of the options mentioned below:

  • Advance Tax
  • Tax Deducted at Source (TDS)
  • Self Assessment Tax

Advance Tax

Advance Tax means the payment of tax before the end of the year. An individual has to estimate their total income for that particular financial year and discharge tax liability in four installments during the year itself, i.e., 15%, 45%, 75%, and 100% of the tax liability, which is due by 15 June, 15 September, 15 December, and 15 March of that year.

However, an individual is liable to pay Advance Tax only under the following conditions:

  • The tax liability is more than INR 10,000
  • The above liability of INR 10,000 is arrived at after considering TDS (if any) has been deducted by taxpayers who have paid income to such a person

For individuals with salary as the sole source of income, Advance Tax would not be applicable as the entire tax liability would be taken care of by the employer by way of TDS.

Furthermore, no Advance Tax is payable by a senior citizen if their total income does not include income from business or profession.

Tax Deducted at Source (TDS)

TDS refers to the portion of a payment that is deducted by the taxpayer before making payment of the net amount to the payee. The TDS rate would depend on the nature of the income earned by the individual. For example, TDS from professional fees would be 10% while that from contractual payments would be 2%. The TDS collected by the taxpayer is required to be deposited with the tax authorities within prescribed time limits.

It is crucial to keep in mind that TDS is only a part payment of tax. The final tax liability would be arrived at based on the slab rates applicable to the individual.

For non-residents, TDS is applicable on any sum paid to them. For example, if a foreign individual receives a certain sum from an Indian company, and such amount is taxable in India, then the Indian company is liable to deduct tax at the applicable rates and deposit the same with the authorities within the prescribed time limits.

Self Assessment Tax

In case the Advance Tax paid by the individual and the TDS is not adequate to cover the entire gross tax liability for the year, then the same can be discharged by the individual himself before the tax return is filed. Such tax paid would be regarded as Self Assessment Tax.

Aadhar-related Compliances

In pursuit of promoting ease of compliance, the interchangeability of Permanent Account Number (PAN) and Aadhaar has been permitted for filing of income tax returns and mandatory quoting in prescribed transactions with effect from 1 September 2019.

Currently, it is mandatory for an individual to obtain an Aadhaar number (unique identification number) and link the same with their PAN (Indian tax registration number) of the individual. It is mandatory to quote the said Aadhaar number in the tax return, or the enrollment ID of the Aadhaar application is required to be quoted on the income tax return.

The requirement of linking of PAN and Aadhar needs to be carried out to avoid inactivation of PAN. A penalty of INR 10,000 is levied in case of non-compliance with provisions of quoting of PAN/ Aadhar.

New Incentivized Deductions for Interest on Loans

  • Deduction up to INR 150,000 is eligible on loan interest for purchase of an electric vehicle, subject to the fulfillment of prescribed conditions.
  • To boost the investment in affordable housing, a deduction up to INR 150,000 is eligible on the interest on the loan taken from a financial institution for acquiring residential house property, whose stamp duty value does not exceed INR 4.5 million, subject to the fulfillment of prescribed conditions.
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Maulik Doshi
Senior Executive Director
Transfer Pricing and Transaction Advisory Services

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