Super-rich escape defaulter tag for not paying advance taxes

In the lockdown period, the government has spared even the super rich from being categorised as a defaulter for not paying advance taxes on the basis of higher surcharge made applicable for 2019-20.

In the July 5 Budget, Finance Minister Nirmala Sitharaman had raised the surcharge levied on top of the applicable income tax rate from 15% to 25% for those with taxable incomes between Rs 2 crore and Rs 5 crore, and to 37% for those earning more than Rs 5 crore. The increased rates were made applicable from April 1, 2019 for FY20.

In a clarification, CBDT has now said that if advance tax or TDS (deducted by the employer on behalf of the super rich employee) was paid prior to July 5 (when enhanced surcharge was announced), the lower deduction of tax based on applicable surcharge rate in the earlier period would not be ground to declare a "taxpayer in default" that would result in payment of interest and penalty for the period of the delay.

Such relaxation would be available if the entire advance tax or TDS for the period prior to July 5 has been completed and there is no subsequent transaction in the financial year 2019-20 from which the shortfall of tax could have been collected. The relaxation can also be claimed on the basis of timely payment and furnishing of TDS and advance certificate.

Also, if the taxpayer pays for the shortfall of tax (for the period prior to July 5) in subsequent instalments or advance tax, he/she would also get relief from payment of interest for delay in deduction as per the new surcharge rates.

"The relief from this circular would be largely to employers who would not be asked to cover for short collection of taxes as TDS on behalf of their high salaried employees who have quit the organisation before July 5. Such payment will have to be made by the employee at the time of filing returns or through higher TDS deductions by his new employer.

Also, companies will be spared of paying interest on short deduction if this is covered in subsequent TDS from their employees' salaries," said Rajat Mohan, senior partner, AM RG & Associates.

In its circular, CBDT has further clarified that if a person fails to fulfil any of the conditions as laid down by it now, such a person, with respect to short deduction/collection, will not be eligible for benefit provided under this circular.

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