When it comes to money, it pays to be tactical, and doubly so during a crisis. Even the smallest of steps can help. Take, for instance, utilising Section 197 of the Income-Tax (I-T) Act to prevent deduction of excess tax. Tax deducted at source (TDS) is collected by the deductor and is remitted into the government’s account. The deductee, from whose income TDS has been deducted, is entitled to credit for the amount deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
According to Rahul Garg, senior partner, tax & regulatory, PwC India, “TDS rates are prescribed under the law. These are general rates. So, TDS deduction sometimes leads to excess tax deduction, compared to the actual I-T payable by a taxpayer.”
This has a couple of consequences. First, the taxpayer’s cash gets blocked. Says Gopal Bohra, partner, N.A. Shah Associates: “Section 197 was introduced to avoid blockage of cash flow if a taxpayer’s actual tax liability is lower than the TDS. TDS is deducted on gross receipt, whereas tax is levied on taxable income computed after claiming eligible deductions or exemptions. In such a scenario, his/her tax liability may be lower than the TDS, which results in blockage of funds until the I-T department issues a refund while processing his/her tax return.”
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