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CBDT proposal on advance estimates of tax liability irks industry
September, 21st 2017

A draft notification by the Central Board of Direct Taxes (CBDT) has not gone down well with the industry, which said it would increase compliance burden on them at a time when they are already struggling to cope with issues related to the goods and services tax (GST) regime. However, some of them said that the notification is aimed at bringing about transparency.

The CBDT had proposed that companies and taxpayers, who have to get their accounts audited, will be required to submit their income estimates and tax liability for six months of the financial year 2017-18 to the I-T department by November 15.

It had come out with a draft notification seeking stakeholders' comment on the filing of Form 28AA by giving details of income and advance taxes paid.


Naveen Wadhwa of Taxmann says currently taxpayers are struggling with compliance burden after the introduction of GST, the Income Computation and Disclosure Standards (ICDS) norms and Indian Accounting Standard (Ind-AS). "Such reporting will put additional compliance burden on taxpayers," he said.

Also, businesses have to specify the reason for any reduction in advance tax payment compared to preceding financial year.

Also in cases where the total income has declined by Rs 5 lakh or 10 per cent, whichever is higher, compared to the previous financial year, taxpayers will have to furnish a similar statement of income and tax liability for the April-December period by January 31.

Sanjay Sanghvi of Khaitan & Co says this is an onerous task, as compliance is being imposed on businesses and taxpayers, which seems to be going overboard. In addition to the GST filings and four instalments of advance tax (including for individual taxpayers), this new obligation will put too much of pressure.

The Rs 5-lakh threshold for this new obligation also seems to be quite low, he said, adding this is rather a very harsh and onerous obligation being cast upon taxpayers and needs reconsideration.

It may be noted that small taxpayers opting for presumptive taxation scheme are also liable to pay advance tax in one go.

However, they have been exempted from disclosing their estimated income in Form 28AA.

However, these disclosures are voluntary in nature.

"It is proposed to create a mechanism for self-reporting of estimates of current income, tax payments and advance tax liability by certain taxpayers viz-a-viz companies and tax audit cases, on voluntary compliance basis," CBDT said.

Frank D'Souza of PwC says given that the filings are voluntary, it remains to be seen how active the participation by taxpayers would be. "One also needs to factor in the additional compliance burden that this would impose on the taxpayers," he says.

The draft, if finalised, will help the tax department to get an idea about the trend of income of the entity on an almost real-time basis.

Neha Malhotra of Nangia & Co says the move is in line with government's efforts to bring more transparency in tax administration. "It will help make advance tax payment a more formalised process," Malhotra says.

However, Malhotra is of the view that it increases the compliance burden on taxpayers at a time when businesses are still struggling with GST-compliance.

"Now more questions would be asked if there is a variation between computation filed at the time of advance tax payment and tax filed at the time of income tax return," she says.

Under the present mechanism, taxpayers have to only pay an advance tax to the CBDT on income tax payable for the full financial year in four instalments. These instalments can be advanced on the 15th of June, September, December and March. They need not provide the I-T department estimates of income.

The CBDT plans to insert Rule 39A in the Income Tax Rules wherein companies and those assessees who have to get their accounts audited will have to submit Form 28AA, giving details of income and tax paid.

Such taxpayers are further liable to pay interest for deferment of advance tax, in case any quarterly instalment of advance tax paid falls short of the prescribed percentage of the total advance tax paid.

"It is of utmost importance for such taxpayers to arrive at a reasonably accurate estimate of their current income and advance tax liability so that the additional burden on account of interest for default or deferment of advance tax can be avoided," the CBDT said.

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