Although income tax return for a specific financial year is filed in the following year, taxes must be paid within the financial year itself. These taxes are paid in the form of TDS or advance tax or self-assessment tax. Self-assessment tax is tax deposited by the taxpayer voluntarily when there is a shortfall. Advance tax is tax paid in quarterly instalments usually by businesses and freelancers. TDS is the tax which is deducted at the time of payment by the one who pays you.
The payer who deducts TDS has no idea about your total income. Except when you are salaried. A salaried employee can declare his total income to his employer who then adjusts TDS accordingly. While TDS on salary is deducted as per income tax slab rates, TDS on other heads of income is deducted at a fixed rate. For example, TDS on payments made for a property is deducted at 1% by the buyer. TDS on interest is deducted at 10% by banks.
TDS is an excellent way for the government to earn tax revenues while we earn income. However, some of these TDS rules have caused great difficulty to taxpayers, especially senior citizens. Easing TDS rules The government can look at easing some of these rules in Budget 2017 to reduce taxpayer hardship.
For one, allowing refund of TDS on property for those who invest their capital gains. When a property is sold, TDS is deducted by the buyer at 1% of the total sale price. This TDS is deposited with the government by the buyer. The seller is allowed to take credit of TDS in his tax return. But if the seller wants to invest his gains in another asset, his gains will be exempt from tax and TDS will be refunded.
Those who want to invest their gains, usually make the sale/purchase deal in quick succession. Property transactions are planned in such a way so as to immediately invest receipts. Such taxpayers have to wait to file their return to claim refund of TDS deducted by the buyer.
For instance, if you have sold a property for R1 crore, TDS on it will be R1 lakh. Even though you may have invested the gains immediately, TDS will be refunded only after your return has been duly submitted and processed by the tax department.
At the time of refund, interest is paid at 0.5% from April 1 of the assessment year where return has been filed within the due date. So your TDS earns an interest of 0.5% from April 1 of the assessment year, even though it may have been deposited by the buyer much earlier.
The income tax department should allow refund of this TDS, as soon as gains are invested. The government can seek details of investment made, similar to the format which is included in tax returns and allow refund of TDS immediately. Genuine property buyers are usually hard-pressed for funds when buying a property. Several senior citizens who sell property to invest receipts in a better house, have a long wait before TDS is refunded to them.
Such a move will bring relief and cheer to honest taxpayers.
The author is a chartered accountant and chief editor at www.cleartax.com