A PROJECT REPORT

ON

ANALYSIS OF TAX

PROJECT WORK SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF

MASTER OF MANAGEMENT STUDIES

IN
FINANCE

SUBMITTED BY

NAME: HEMANGI PRAMOD KHILARE

UNDER THE GUIDANCE OF: PROF.ARUNA SONAWANE

AlamuriRatnamala
Institute of Engineering & Technology
Affiliated to
UNIVERSITY OF MUMBAI

Department of [Branch] Management

Academic Year – 2013 –2014

1
 DEPARTMENT OF MANAGEMENT

CERTIFICATE

This is to certify that the dissertation/project entitled

______________________________ submitted by Mr. /Ms.

___________________ bearing Pin No._______________ on this ___

Day of______ 20__ in partial fulfillment of the requirements for the

award

Of the Degree of Master of Management Studies of University Mumbai,

is

Abonafide work to the best of my/our knowledge and may be placed

Before the Examination Board for their consideration.

_____________________ ____________________
Mr. / Mrs. _______________ Mr. / Mrs. _______________
Internal Examiner External Examiner

______________________ _________________
Mr.
NishantKaushik______________
_ Mr. _______________

Dean-Academics Director
2
 Certificate of Undertaking

I, Hemangi Pramod Khilare hereby declare that project entitled Project

Title Undertaken at AlamuriRatnamala Institute of Engineering and
Technology by Hemangi P. Khilare Seat No. 1023in partial fulfillment of
MMS (Management) degree (Semester III) Examination, is my original
Work and the Project has nor formed the basis for the award of any
Degree, associate ship, fellowship or any other similar titles, either in
Mumbai University or any other University of India.

(Signature of the Student)

NAME OF THE STUDENT

3
 ACKNOWLEDGEMENT

I express my sincere thanks to my project guide of prof. “Aruna

Sonawane”

Coordinator at ARMIET College for M.M.S section who has

been guiding

Force to my project on “ANALYSIS OF TAX”

I am also thankful to my all professors to their Support and

encouragement in finding out the appropriate data for this
Project report, without their thankless support and efforts,
making this support would have been impossible for me.

I would also thanks the whole respondent who Provide me

the best knowledge and for their help and cooperation
throughout the project.

4
 INDEX

Sr. Content Page

no. no.
1. History Of VAT
2. Necessity And Implementing Method
3. Benefits Of VAT
4. Slab Rates
5. Business Liable For Vat And How Is It Charged
6. Procedures Of VAT
7. Obligation For Registration
8. Criticism
9. Variants Of VAT
10. Tax Exemption Of VAT System
11. Different Goods And Services And Their Vat Rate
12. VAT Invoice
13. Rates Of Taxes
14. Merits And Demerits Of VAT
15. Vat In Indian Context
16. Central Value Added Tax
17. Role Of Chartered Accountant Of VAT
18. Audit
19. Methods Of Computation Of VAT
20. Icai’s Role Of VAT
21. Tax-Payer’s Identification Number
22. Bank Reconciliation
23. Procedure Of E-Filling Of TDS
24. Challan Correction Mechanism
25. New Procedure Of Challan Correction By Bank
26. NSDL E-TDS/TCS Return Preparation Utility (Rpu)
27. E-Return Intermediary
28. Income Tax Return
29. ITR Forms
30. TDS - Procedure For Deduction/Challan/Return/Certificates
31. What Is Customer Identification Number
32. Paper Filling
33. E-Payment Of Taxes
34. Assessment
35. Penal Provision
36. Authorized Signatories To The Return Of Income
37. Role Of Accounting Profession Evolving

5
 History of VAT

The Value Added Tax system was first introduced by Von Siemens in
1951.Ever since 1954, when the tax on value added was introduced in
France it has spread to a large number of countries. This tax was
proposed for the first time by Dr. Wilhelm von Siemens for Germany in
1919as improve turnover tax in 1921, VAT was suggested by Professor
Thomas s. Adams for the United States of America who recommended
“sales tax with credit refund for taxes paid by the producer or dealer (as
purchaser) on goods bought for resale or for necessary use in the
production of goods for sales.”

VAT was also recommended by the shoup mission for the reconstruction
of the Japanese economy in 1949. However the tax was not introduced
by any country till 1953. France led the way in 1954 by adopting a VAT
that covered the industrial sector alone and the tax was limited up to the
wholesale level. The tax was limited to the boundaries of France until the
fifties.

VAT has however been spreading rapidly since the sixties. The Ivory
Coast followed France by adopting VAT in 1960. The tax was introduced
Senegal in 1961 and by Brazil and Denmark in 1967. The tax gathered
further momentum as it was made a standard form of sales tax required
for the countries of the European Union (European Economic
Community) in 1968, France extended VAT to the retail level while the
federal republic of Germany introduced in its tax system. The Netherland
and Sweden imposed this tax in 1969 while Luxemburg adopted in 1970,
Belgium in 1971, in 1972 Ireland and Italy, UK and Australia in 1973,
many other European countries have adopted VAT. Similarly many
countries in the north and South America, Africa, Oceania have
introduced VAT.

VAT has been spreading in the Asian region as well. The republic of
Vietnam adopted VAT briefly in 1973 (VAT was abolished soon but it
was reintroduced in 1999 in Vietnam). In Asia South Korea was the first
Asian country, which in 1977 with the help of International Monetary fund
(IMF), succeeded to implement the VAT in its taxation system, China in
1984, Indonesia in 1985, Taiwan in 1986, Philippines in 1988, Japan in
1989, Thailand in 1992, and Singapore in 1994, while Magnolia has
been implementing this tax since 1998.

6
In the South Asian Association for regional co-operation (SMRC) region,
VAT has been considered in great depth in India. In 1986, India
introduced VAT in a different way under the name of Modified Value
Added Tax (MODVAT) unlike the VAT system of other countries. The
Indian MODVAT system was designed to cover manufacturing of goods
by giving credit of excise duty paid in inputs. The scope of MODVAT has
been extended over the years and since been renamed as Central Value
Added Tax (CENVAT) which covers services also.

Pakistan adopted VAT in 1990, Bangladesh in 1991,and Nepal in 1997,

and Sri-lanka in 1998 as VAT is less distortive and more revenue
productive it has been spreading all over the world, today about 130
countries have adopted the same.

Meaning :

Value Added Tax (VAT) is a modern and progressive form of sales tax. It
is charged and collected by dealers on the price paid by the customer.
VAT paid by dealers on their purchases is usually available for set- off
against the VAT collected on sales. VAT in the form of CENVAT (Excise)
is already in force in India for quite some time. Tax is one of the
important sources of government revenues. Stability and continuity of
the flow of tax collection, play an important role in the government
planning’s for providing variety of the required public services in different
areas.

Change and reformation of national economy and, as a result, changes

in the style of production and distribution of wealth and income; requires
rethinking of the existing taxes and their methods of tax collection all
over the world, shows the efficiency and acceptability of this new kind of
taxation in providing a reliable source of incomes for
governments. Implementation of the VAT with a fixed rate makes the
forecast of government incomes possible resulting in possibility of better
planning. On the other hand, the short term characteristic of collection of
the tax, guarantees the continuity of the flow of income into the
government's treasury.

The Definition Of the Value Added Tax

Value Added Tax is not only a simple taxation system, but also is the
most common model used in the world today. So, before anything else,

7
we should know the meaning of value added and Value Added Tax.
From economic point of view, the value added is the difference between
the worth of outputs and inputs. But in compilation of the law, it is
defined according to the accounting standards and by relaying on
invoice method. By considering the above point, the value added is
defined as the difference between the value of the goods and services
supplied and value of the goods and services bought by a person in a
specific period of time.

By considering the above definition, the value added tax is a kind of

multiphase tax, which is calculated and collected according a
percentage of value added of the goods and services produced
and supplied in the process of production and distribution cycle. This tax
in fact, is a kind of tax on multiphase sales, which exempts the
purchase of intermediate goods and services from tax payment.

Necessity of Implementing Value Added Tax

As mentioned above, tax is one of the main sources of government's

incomes, which is collected under different names. The tax incomes
make an important portion of the government's budget. In democratic
countries where the tax system is supported by a lawful and participatory
system; more than of 60% of the government's income in the budget
come from tax incomes.

Implementation Method of the Value Added Tax

According to the Value Added Tax system, every seller, at the time of
selling of goods and services, will add the relevant tax on the invoice
and collects it together with the price of goods and services from the
buyer. The first seller pays the tax in whole to the government, but in the
next stages, each seller pays to the State Tax Organization only an
amount equal to difference (collected tax after deducting the tax which
he has paid previously). This will take place within two month period
according to the proposed bill. To clarify the procedure of the VAT, one
should pay attention to the following paragraph:

A car manufacturing company for producing its cars buys its required
parts from domestic market (part producers) and from external market
(import). If we suppose that the value of internal supplied parts is 10
million Rials and the value of importing parts is 6 million Rials, and if we
suppose that the value added tax rate is 10%; this company should pay

8
 (10,000,000*10%= 1,000,000) when he buys from internal market and
should pay (5,000,000*10%= 500,000) when he imports parts as value
added tax to the State Tax Organization. Also, if this company sells its
cars at 4o million Rials, when he prepares the invoice, must calculate the
value added tax and is obliged to receive it from the buyer when he
prepares the invoice ( 40,000,000 *10%= 4,000,000) . It is obvious that
the price of the car for the buyer will be 44,000,000 Rials. The car
manufacturing company must deduct its payment of tax in previous
stages (tax paid on buying from internal market and importation (which
was 1,500,000 Rials) from the tax collected (4,000,000 Rials), and pay
the remaining amount which is 2, 5000,000 Rials with the tax declaration
(return) form to the State Tax Organization.

Tax received – (tax paid to internal part producer + tax paid on import)
=VAT payable

4,000,000 - (1,000,000 + 500,000) = 2,500,000

As we can see, total value added tax paid to the State Tax Organization
is 4,000,000 Rials which is the sum of (1,500,000 + 2,500,000).

Benefits of VAT

 It is simple, transparent and progressive.

 Business friendly system of taxation

.
 Reduction in the effective tax rate for many good

 Elimination of “Tax on Tax’’ existing in the sales tax system.

 Full set- off available for VAT paid on most business purchases
simplification of tax forms and procedures

 Greater reliance on self assessment and voluntary compliance by

dealers.

 Value Added Tax is a methodology and way of thinking which shows a

positive experience for many decades in different countries, and
9
 is recommended by majority of the economic and financial experts of the
World Bank and International Monetary Fund.

 In many countries which have used this kind of taxation model, the VAT
used as a new source of income generator for governments and resulted
in more social equity than the other tax models , without any negative
effects on investment and production motivation.

 Due to the fact that value added tax model is a self control system, which
every tax payer plays the role of tax collector; the cost of tax collection is
minimum.

 Due to the fact that in VAT, the tax payers, for getting the tax credit,
are required to present invoice; the situation for automatic recognition of
the amount of tax payers transactions will be prepared, and as a result a
comprehensive information system including all the transactions will be
generated which, in addition to transparency of transactions between
business units, will facilitate implementation of other taxes such as tax
on

 Value Added Tax is a reliable, consistent, and at the same time, flexible
source of income.

 Due to the fact that VAT has a fixed rate, the time period for the tax to
become definite is very short and it hasn't the difficulties of long time
period of becoming definite in the cases of the tax on income and
wealth.

 Due to the fact the VAT is a new and modern model, its implementation
results in improvement of technology, productivity of taxation system and
taxation

10
 SLAB RATES

For Senior Citizen (Above 60 years)

Income Slabs Rateof Tax

Up to Rs. 2,50,000 Nil

Rs.2,50,001 toRs.5,00,000 10%

Rs.5,00,001 to Rs.10,00,000 20%

Above Rs.10,00,000 30%

For Senior Citizen (Above 80 years)

Income Slabs Rate of Tax

Up to Rs.5,00,000 Nil

Rs.5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

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For Women (Below 60 years)

Income Slabs Rate of Tax

Up to Rs.2,00,000 Nil

Rs.2,00,001 to Rs.5,00,000 10%

Rs.5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

For Other Men

Income Slabs Rate of Tax

Up to Rs.2,00,000 Nil

Rs.2,00,001 to Rs. 5,00,000 10%

Rs.5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

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 Types of Business Are Liable For VAT

 Importers
 Manufacturers
 Distributers
 Wholesalers
 Retailers
 Works Contractors
 Lessors

How Is VAT Charged?

All registered dealers, regardless of where they are in the chain of

manufacture and production must charge VAT on their sales of taxable
goods and collect it from their customers. Registered dealers must issue
a tax invoice to other registered dealers showing the VAT amount being
charged as a separate amount. Registered dealers who pay VAT on
their purchases can normally claim a “set-off for the VAT paid to their
suppliers. As a result, VAT is not a cost to the dealers. Dealers must
ensure that tax is charged separately in their purchases invoice in order
to be eligible to claim set-off.

Certain dealers who sell mainly to customer at retail level can opt for a
simplified system of VAT calculation and payment under a composition
schemed. Under the composition scheme, dealers will not issue a tax
invoice or show VAT as a separate amount on a bill or cash
memorandum.

VAT PROCEDURES:

Registration:

Registration is the process of obtaining Certificate of Registration (RC)

from the authorities under the VAT acts. A dealers registered under the
VAT acts is called a registered dealer. Any dealer, who intend to carry
on the business of purchase and sale, of goods in the state and is liable
to pay tax, cannot carry on the business unless he is registered and
holds a valid registration certificate under the act.

13
Eligibility for Registration

As per the provision contained in the white paper, registration of dealers

with gross annual turnover above Rs.5 lakh will be compulsory. There
will be provision for voluntary registration. All existing dealers will be
automatically registered under the VAT act. A new dealer will be allowed
30 days time from the date of liability to get registered. An application for
registration should be made to the VAT commissioner.

The white paper specifies that registration under the VAT act will not be
compulsory for the small dealers with gross annual turnover not
exceeding Rs. 5 lakhs. However, the empower committee of state
finance ministers subsequently allowed the states to increase the
threshold limit for the small dealers to Rs. 10 lakhs with the condition
that the concerned state would bear the revenue loss, on account of
increase in limit beyond Rs. 5 lakhs.

Generally a dealers means any person, who consequent to, or in

connection with, or incidental to, or in the course of his business, buys or
sells goods for a consideration or otherwise.

All sales or purchases of goods made within the state except the
exempted goods would be subjected to VAT.

Compulsory Registration:

If an assessee fails to obtain registration under the VAT act, he may be

registered compulsorily by the commissioner. The commissioner may
assess the tax due from such person on the basis of evidence available
with him. In this event the assessee shall have to forth with pay such
amount of tax. Further, failure to get registered shall result in attracting
default penalty and forfeiture of eligibility to set off all input tax credit
related to the period prior to the compulsory registration.

Voluntary Registration:

A dealer otherwise not eligible for registration may also obtain

registration if the commissioner is satisfied that the business of the
applicant requires registration. The commissioner may also impose any
terms or condition that he thinks fit.

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 Cancellation of Registration:

The registration can be cancel on:

1. Discontinuance of business; or
2. Disposal of business; or
3. Transfer of business to a new location; or
4. Annual turnover of a manufacturer or a trader dealing in
designated goods or services falling below the specified amount.

Obligation Of Dealers Registered For VAT?

Dealers who are to be registered for VAT must:

 Charge and collect VAT on their sales of taxable goods

 Issue proper tax invoices
 Keep proper records and books of accounts
 Calculate the VAT due to government base on VAT charge on sales
LESS any VAT available as a set-off on business purchases.
 File VAT return on a regular basis declaring their VAT liability.
 Pay any amount of VAT due to the Government with the VAT return

Criticism:

Opponents of VAT claim VAT is regressive and is paid by all consumers

whether they are rich or poor, young or old. The poorest also spend a
higher proportion of their disposable income on VAT than
richest. An Office for National Statistics report showed that in 2009/10
the poorest 20% spent 8.7% of their gross income on VAT whereas the
richest 20% spent only 4.0% of their gross income on VAT. Similarly, the
poorest 20% spent 9.7% of their disposable income on VAT whereas the
richest 20% spent only 5.2% of their disposable income on
VAT. Supporters of VAT claim VAT is progressive as consumers who
spend more pay more VAT.

The zero rating of food and allowing businesses to reclaim input VAT
means that the government in effect subsidies the food industry. Critics
also argue that VAT is double taxation as consumers pay for goods and
services using income that has already been taxed. It is also argued that
VAT is an inefficient tax due to the numerous exemptions and
concessions.

15
 It could also be argued that, compared to its predecessor Purchase Tax,
VAT has encouraged the "throwaway society". Purchase Tax imposed
high rates on new goods (especially luxury goods) but did not apply to
repair services. VAT has increased the cost of repairs and encouraged
consumers to replace goods rather than have them repaired. VAT also
covers second-hand goods (which Purchase Tax did not) and has
discouraged the re-use of goods through the second-hand market.

Variants of VAT

Gross Product Income Variant Consumption

Variant Variant

Tax is levied on all Tax is levied on all Tax is levied on all

sales and deduction sales with set-off for sales with deduction
for tax paid on inputs tax paid on inputs for tax paid on all
excluding capital input and only business inputs
is allowed depreciation on (including capital
capital goods goods).

Gross Product Variants:

It allows deduction for taxes on all purchases of raw materials and

components, but no deduction is allowed for taxes on capital inputs.
That is, taxes on capital goods such as plant and machinery are not
deductible from the tax base in the year of purchase and tax on the
depreciated part of the plant and machinery is not deductible in the
subsequent years. Capital goods carry a heavier tax burden as they are
taxed twice. Modernization and upgrading of plant and machinery is
delay due to this double tax treatment.

16
Income Variant:

The income variant of VAT on the other hand allows for deduction
purchases of raw materials and component as well as depreciation on
capital of goods. This method provides incentives to classify purchases
as current expenditure to claim set-off. In practice, however, there are
many difficulties connected with the specification of any method of
measuring depreciation, which basically depends on the life of an asset
as well as on the rate of inflation.

Consumption Variant:

Consumption variant of VAT allows for deduction on all business

purchasing including capital assets. Thus, gross investment is deductible
in calculating value added. It neither distinguished between capital and
current expenditure nor specifies the life of assets or depreciation
allowances for different assets. This form is neutral between the
methods of production; there will be no effect on tax liability due to the
method of production (i.e. substituting capital for labor or vice versa).
The tax is also neutral between the decision to save or consume.

Among the three variants of VAT, the consumption variant is widely used
several countries of Europe and other continents have adopted this
variant. The reasons for preference of this variant are:

Firstly, it does not affect decision regarding investment because the tax
on capital goods is also set-off against the VAT liability. Hence, the
system is tax neutral in respect of techniques of production (labour or
capital-intensive).

Secondly, the consumption variant is convenient from the point of

administrative expediency as it simplifies tax administration by obviating
the need to distinguish between purchases of intermediate and capital
goods on the one hand and consumption goods on the other hand.

In practice, therefore, most countries use the consumption variant. Also,

most VAT countries include many services in the tax base. Since the
business gets set-off for the tax on services, it does not cause any
cascading effect.

17
 Tax Exemptions in Value Added Tax System

In general, some goods and services are exempted from taxation due to
the following reasons:

1. Decreasing the regressive virtue of the Value Added Tax

2. Deceasing the effects of inflation and supporting low income groups

3. Decreasing the tax implementation and collection costs

Different Goods and Services - And Their VAT Rate

The following sections list different goods and services that are reduced-
rated, zero-rated, exempt or outside the scope of VAT. These rates may
only apply if certain conditions are met, or in particular circumstances,
depending on some or all of the following:

 who's providing them or buying them

 where they're provided

 how they're presented for sale

 the precise nature of the goods or services

 whether you obtain the necessary evidence

 whether you keep the right records

 whether they are provided with other goods and services

How to Find the Right VAT Rate for Particular Goods and Services

It's important that you know the right VAT rate for the goods and
services that you buy and sell. In some cases, the correct rate of VAT
depends not just on the goods or services themselves, but also on other
conditions and the circumstances of the sale. For some trade sectors
there are special rules about how much VAT to charge or reclaim in
particular circumstances

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VAT Invoice:
Invoice is a document listing goods sold with price, tax charged and
other details as may be prescribed and issued by a dealer authorized
under the act.
The whole structure of the VAT with input tax credit is founded on the
documentation of a tax invoice, a cash memo or a bill. The white paper
mainly provides for the following provisions, which are mandatory, and
failure to comply with these attracts penalty:

1. Every registered dealer whose turnover of sales exceeds the

specified amount shall issue to the purchaser a serially number
tax invoice, cash memo or bill with the prescribe particular.
2. The tax invoice shall be dated and sign by the dealer or his
regular employee, showing the required particulars.
3. The dealer shall keep a counterfoil or duplicate of such tax invoice
duly signed and dated.

Importance of VAT Invoice (Tax Invoice)

Invoices are crucial documents for administering VAT. In the absence of

invoices VAT paid by the dealer earlier cannot be claimed as set off.
Invoices should be preserved with full care. In case any original invoice
is lost or misplaced, a duplicate authentication copy must be obtained
from the issuing dealer.

1. A VAT invoice helps in determining the inputs tax credit.

2. It prevents cascading effect of taxes
3. Facilitates multi-point taxation on the value addition
4. Promoted assurance of invoices
5. Assists in performing audit and investigation activities effectively
6. Checks evasion of tax

Contents of VAT Invoice:

VAT legislation of all states provide for the contents of the tax invoice.
By and large there would be no need for a separate tax invoice;a
regular invoice can also be termed as tax invoice if it has the prescribed
contents. Generally, the various legislation provides that the tax invoice
should have the following contents:

1. The words ‘Tax Invoice’ in a prominent place.

2. Name and address of the selling dealer.

19
3. Registration number of the selling dealer.
4. Name and address of the purchasing dealer.
5. Registration number of the purchasing dealer (may not be
required under all VAT legislation).
6. Pre-printed or self – generated serial number.
7. Date of issue.
8. Description, quantity and value of goods sold.
9. Rate and amount of tax charged in respect of taxable goods.
10. Signature of the selling dealer or his regular employee duly
authorized by him for such purpose.

Other Invoices:

Normally, a dealer is expected to indicate the rate of tax and the

amount of tax charged in the invoice issued. However, in case of
small dealers or if the sale is to end consumer, other invoices are
permitted without the details of tax. Such invoices should contain the
following particulars:

1. Name and address of the selling dealers

2. Registration number of the selling dealer
3. Name and address of the purchasing dealer
4. Registration number of the purchasing dealer
5. Pre-printed or self generated serial number
6. Date of issue
7. Description, quantity and value of goods sold
8. Signature of dealer or his /her representative

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Format of Tax Invoice

Tax Invoice

Original-Buyers Copy

Seller’s Name………............ Tax Invoice No. …………...

Address ……………………. Date:…………

…………………………………..

Challan No. And Date

Phone No. Buyer’s Name And Address ………………...

VAT Registration No. Buyer’s VAT Registration No., If Any ………

CST Registration No.

S No. Quantity Description Price Value VAT Tax Total

Of Goods Per (Rs.) Rate Amt (Rs.)
Unit

Total
Rupees In Figure
E & O.E Signature

(Of Selling Dealer Or His Authorized Employee)

21
 Rates of Tax:

There are currently three rates of VAT: standard (20%), reduced (5%)
and zero (0%). In addition some goods and services are exempt from
VAT or outside the VAT system.

Standard (20%) Reduced Zero (0%). Exempt From Outside

(5%) VAT The VAT

Alcoholic drinks Children's Aircraft Bicycle & Antiques, Goods &

Biscuits car seats motorcycle works of art or services
(chocolate Electricity, helmets similar sold
covered only) gas, heating Biscuits Burial or outside the
Bottled water oil & solid Books, maps & cremation EU
(inc. mineral fuel charts (human) Goods &
water) (domestic/re Bread, rolls, baps Commercial services
Calendars & sidential/char & pita bread land & supplied
diaries ity non- Brochures, leaflets buildings by
Carbonated business) & pamphlets (selling/leasing unregistere
(fizzy) drinks Energy Building services /letting) d supplier
CDs, DVDs & saving for disabled people Cultural Statutory
tapes materials Cakes) events fees &
Cereal bars (permanently Canned & frozen operated by services
Chocolate installed in food ,Cereals public bodies (MOT
Clothes & residential/ch Chilled/frozen (museums, art testing,
footwear (not arity ready meals, exhibitions, congestion
for children premises) convenience foods zoos & charge etc)
under 14) Maternity Clothes & footwear performances) Tolls for
Confectionery/s pads (for children under Education, bridges,
weets Mobility aids 14 only) vocational tunnels
Delivery for the Construction & training, and roads
charges elderly sale of new research (operated
(postage & Sanitary domestic buildings Financial by public
packaging) protection Cooking oil services authorities)
Electrical goods products Donated goods (money Voluntary
Electricity, gas, Smoking sold at charity transactions, donations
heating oil & cessation shops loans/credits, to charity
solid fuel products Eggs savings/deposi
(business) Equipment for ts,
Food & drinks disabled people shares/bonds)

22
supplied for (inc. blind/partially Funeral plan
consumption on sighted) insurance
the premises (at Fish (inc. live fish) Gambling
restaurants, Fruit & vegetables (betting,
cafes etc) Live animals for gaming, bingo,
Hot take-away human lottery)
food & drinks consumption Health
(inc. burgers, Meat & poultry services
hot dogs, Milk, butter, (doctors,
toasted cheese dentists,
sandwiches) Newspapers, opticians,
Ice cream magazines & pharmacists &
Fruit juice & journals other health
other cold Nuts & pulses (raw professionals)
drinks (not milk) for human Insurance
Nuts (shelled, consumption) Medical
roasted/salted) Prescription treatment &
Potato crisps medicine care
Prams & Protective boots & Membership
pushchairs helmets (industrial) subscriptions
Road fuel Public transport Postage
(petrol/diesel) fares (bus, train & stamps
Salt (non- tube) Postal
culinary) Salt (culinary) services
Stationery Sandwiches (cold) (Royal
Taxi fares Sewerage Mail/other
Tolls for (domestic & licensed
bridges, tunnels industrial) operators)
& roads Shipbuilding ,Tea, Sports
(priVATely coffee & cocoa activities &
operated) Transport in a physical
Water vehicle, boat or education
(industrial) aircraft TV license
Water (household)

23
Merits and Demerits of VAT

 Merits:

1. No Tax Evasion:
It is said that VAT is a logical beauty. Under VAT, credit of duty
paid is allowed against the liability on the final product
manufactured or sold. Therefore, unless proper records are kept in
respect of various inputs, it is possible to claim credit hence,
suppression of purchases or production will be difficult it will lead
to loss of revenue.

2. Neutrality:
The greatest advantage of the system is that it does not interfere in
the choices of decision for purchases. The system is neutral with
regard to choices of production techniques as well as business
organization. All other things remaining same, the issue of tax
liability does not vary the decision about the source of purchase.

3. Certainty:
The VAT is a system base simply on transaction. Thus there is no
need to go through complicated definition like sales, sales price,
turnover of purchases and turnover of sales. The tax is also broad-
based and applicable to all sales in business leaving little room for
different interpretation. Thus, this system brings certainty to great
extent

4. Better Accounting Systems:

Since the tax paid in an earlier stage is to be received back, the
system will promote better accounting systems.

5. Effect On Retail Price :

A persistent criticism of the VAT form has been that since the tax
is payable on the final sale price, the VAT form increases the
prices of the goods However ,VAT does not have any inflationary
impact as it merely replaces the existing equal sales tax. It may
also be pointed out that with the introduction of VAT; the tax
impact on raw material is to be totally eliminated. Therefore, there
may not be any increases in the prices.

24
6. Better Revenue Collection And Stability:
The government will receive its due tax on the final consumer/
retail sale price. There will be a minimum possibility of revenue
leakage, since the tax credit will be given only if the proof of tax
paid at an earlier stage is produced. This means that if the tax
evaded at one stage, full tax will be recoverable from the person at
the subsequent stage or form a person unable to produce proof of
such tax payment. Thus, in particular, an invoice of VAT will be self
enforcing and will induce business to demand invoices from the
suppliers. Another attribute of VAT is that is an exceptionally stable
and flexible source of Government revenue.

7. Transparency:
Under a VAT system the buyer knows, out of the total
consideration paid for purchase of material, what is tax
component. Thus, the system ensures transparency also. This
transparency enables the state governments to know as to what is
the exact amount of tax coming at each stage. Thus, it is a great
aid to the government while taking decisions with regard to rate of
tax etc.

 Demerits:

1. The merits accrue in full measure only under a situation where

there is only one rate of VATand VAT applies to all commodities
without any question of exemption whatsoever. Once
concession likes differential rates of VAT, composition
schemes, distortion are bound to occur and fundamental
principle that VAT will totally eliminate cascading effects of
taxes will also be subject to qualification.

2. In the federal structure of India in the context of sales tax, so

long as central VAT is not integrated with the state VAT, it will
be difficult to put the purchases from other states at par with the
purchases. Therefore, the advantage of neutrality will be
confined only for purchases within the state.

3. For complying with the VAT provisions, the accounting cost will
increase. The burden of this increase may not be
commensurate with the benefit to traders and small firms.

4. Another possible weak point in the introduction of VAT, which

will have an adverse impact on it, is that, since the tax is to be
25
 imposed or paid at various stages and not on last stage, it
would increase the working capital requirement s and the
interest burden on the same. In this way it is considered to be
non-beneficial as compared to the single stage-last point
taxation system.

5. VAT is a form of consumption tax. Since, the proposition of

income spent on consumption is a larger for the poor than for
the rich, VAT tends to be regressive. However, this weakness is
inherent in all the forms of consumption tax. While it may be
possible to moderate the distribution impact of VAT by taxing
necessities at a lower rate, it is always advisable to moderate
the distribution consideration through other programmed rather
than concession or exemption, which create complication for
administration

6. As a result of introduction of VAT, the administration cost to the

state can increase as the number of dealers to be administered
will go up significantly

VAT In Indian Context:

The Indian union is a federal structure under the constitution of India.

The central government and the state government derive their powers
through the instrumentality of the union list, the state list and the
concurrent list. So far as powers of taxation are concerned there are
clearly specified areas over which the central government and the states
can exercise their jurisdiction

While income tax, excise duty and customs duty constitute the major
source of tax revenue to the central government, the states government
substantially depends on sales tax as the main source of revenue. The
central government undertook a series of reforms in indirect taxes, the
major among which was the introduction of modified VAT, which is
currently in operation as CENVAT. However, in view of the constitutional
constraints, CENVAT applies to goods and services but not to sales tax
and state-level VAT.

26
Central Value Added Tax (CENVAT):

At the central level, at the time of independence, India inherited a

system of commodity taxes in which excise duties were levied on about
dozen articles yielding a small proposition of total tax revenue to the
center. Following independence, the rates were brought into its net.
Over time, there was a speedy extension of excise duties. It was not only
levied on finished goods but also covered raw.

Role of Chartered Accountant in VAT:

1. Record Keeping :
VAT required proper record keeping and accounting. Systematic
records of input credit and proper utilization is necessary for the
success of VAT. Chartered accountants are well equipped to
perform such tasks

2. Tax Planning:
In order to establish an efficient plan for purchases and sales, a
careful study of VAT is required. A chartered accountant is
competent to analyze the impact of various alternative sand choose
the most optimum method of purchases and sales in order to
minimize the tax impact.

3. Negotiation With Suppliers To Reduce Price :

VAT credit alters cost structure of goods supplied as inputs. A
chartered accountant will ensure that the benefits of such cost
reduction are passed on by the suppliers to his company. However,
if the buyers of his company make the similar demand, he must be
ready with full data to resist the claims.

4. Handling The Audit By Departmental Officers:

There will be audit wing in department and certain percentage of
dealers
Will be taken up for audit every year on scientific basis. Chartered
accountant can ensure proper record keeping so as satisfying the
departmental auditors. The professional expertise of a chartered
accountant will help him in effectively replying audit queries and
sorting out audit objections.

5. External Audit Of s Records :

Under VAT system, trust has been reposed on tax payers as there
will be no regular assessment of all VAT returns but only few
27
 returns will be scrutinized. In other cases, returns filed by dealer
will be accepted. Thus, a check on compliance becomes
necessary. Chartered accountants can play a very vital role in
ensuring tax compliance by audit of VATaccounts.VAT laws of
some states provide for audit by outside agencies. In Karnataka,
audit report is required if turnover exceeds rs.25 lakhs. Andhra
Pradesh VAT act provides for audit by chartered accountant, if
audit is ordered by commissioner. Maharashtra VAT laws provide
for audit chartered accountant if turnover exceeds Rs. 40 lakhs.
Other states may also prescribe external audit, once they see the
utility of audit reports finished by chartered accountant in ensuring
tax compliance.

Audit:

In the VAT system considerable weight age is placed on audit work in

place of routine assessment work.

Correctness of self- assessment will be checked through a system of

departmental audit. A certain percentage of the dealers will be taken up
for audit every year on a scientific basis. If, however, evasion is detected
in the course of audit, the previous record of the concerned dealers may
be taken up for audit.

Authorized officers of the department will visit the business place of the
dealer to conduct the audit. The auditors will examine the correctness of
the returns vis-à-vis the books of account of the dealer or any other
information available with them. They will be equipped with the
information gathered from various agencies such as suppliers, income
tax department, and excise and customs department, banks etc. officers
of the higher rank will supervise to ensure that the audit work is done in
a free, fearless and impartial manner.

Audit Provisions under VAT:

Like majority of the developing economics our country is also facing the
problem of lack of education and awareness about tax laws, more
particularly amongst the trading community. Further, theVAT system of
taxation is new to them. Since the trading community is not educated
enough and equipped to understand the implication of the VAT system
of taxation immediately, there is every possibility that they may not be in
a position to arrange their business affair to fall in line with the

28
requirement of the state-level VAT and calculate and discharge their
exact tax liability under the VAT laws. On the other hand, the tax
administrator i.e. the authorities in the taxation department also find
themselves devoid of sufficient resources to educate the tax payers and
inform them about the procedural and accounting changes that are
necessitated by the implementation of VAT system.

Further, under the VAT system a major thrust is to be laid on the ‘self
assessment’ i.e. the tax liability, calculated and paid by the tax payers
through their periodical returns, will be accepted by and large and the
tax payers will not be called to substantiate the tax liability shown by
them in the return by producing books of account will be an exception.

Therefore, there is a strong need to see that the tax payers discharge
their tax liability properly while filling the return. This can be ensured only
when the particularly furnished by the tax payers are verified by an
independent auditor in minute details by:

 Going through the books of account and

 Analyzing and interpret the provisions of the state-level VAT laws
and
 Reporting the under-assessment, if any, made by the dealer
requiring additional payment or
 Reporting any excess payment of tax warranting refund to the tax
payers.

In most of the countries tax evasion is rampant under the existing tax
system. In India too, evasion of excise and sales-tax is estimated to be
very high. If no audit is prescribed under VAT law, the chances of
evasion of VAT tax will increase causing revenue leakage for the
government. It is therefore, essential that the audit of the proposed VAT
system is attempted on a regular basis. However, it is not possible to
conduct the audit of all the VAT dealers. Therefore, the criteria for audit
can be the amount of turnover or the class of dealer dealing in specified
commodities.

The concept of audit is popular even in foreign countries where the

system of VAT is in practice since long in the field of indirect taxation. In
countries like France and Korea the audit has proved to be an effective
tool to check the evasion of tax, which was mostly done by producing
fake invoices etc.

29
Since VAT is a new concept, some of the states want to keep the
procedural formalities to the minimum. Hence, at the initial stage their
law makers refrain from keeping any audit provision in their act and
rules. Perhaps, this may be due to the initial stage of introduction of
VAT. But most of the states, keeping in mind the importance of audit;
have incorporated the audit provision since inception.

Some states like the state of Maharashtra and state of Kerala have
provided detailed particulars to be furnished by various dealers in
respect of their VAT assessees.

Methods Of Computation Of VAT

ADDITION INVOICE METHOD

METHOD
Deducting tax on SUBSTRACTION
Aggregating all the METHOD
factor payments and inputs from tax on
profit sales

DIRECT SUBSTRACTION METHOD INTERMEDIATE

Deducting aggregating value of SUBSTRACTION METHOD
purchase exclusive of tax from the Deucting tax inclusive value of
aggregate value of sales exclusive of tax purchases from the sales and taxing
difference between them

Addition Method:

This method aggregates all the factor payments including profit to arrive
at the total value addition on which the rate is applied to calculate the tax
this type of calculation is mainly used with income variants of VAT.
Addition method does not easily accommodate exemption of

30
intermediate dealers. A drawback of this method is that it does not
facilitate matching of invoices for detecting evasion.

Invoice Method:

This is the most common and popular method for computing the tax
liability under VAT system. Under this method, tax is imposed at each
stage of sales on the entire sale value and the tax paid at the earlier
stage is allowed as set off. The most important aspect of this method is
that at each stage, tax is to be charged separately in the invoice. This
method is very popular in western countries. This method is also called
the ‘Tax Credit Method’ or ‘Voucher Method’.

Subtraction Method:

While the above –stated invoice or tax credit method is the most
common method of VAT, another method to determine the liability of
taxable person is the cost subtraction method, which is also a simple
method. Under this method, the tax is charged only on the value added
at each stage of the saleof goods. Since, the total value of goods sold is
not taken into account, the question of grant of claim for set- off or tax
credit does not arise. This method is normally applied where the tax is
not charged separately. Under this method for imposing tax, ‘value
added’ is simply taken as the difference between sales and purchases.

ICAI’s Role in VAT:

The ICAI has rendered pioneering service in evolving the necessary

accounting guidelines both for CENVAT as well as state level VAT. It
has brought out guidance notes for accounting for CENVAT as well as
state level VAT. These guidance notes address all the accounting issues
in regard to CENVAT and state level VAT in India. Further the institute
has brought out a comprehensive study on state on level VAT in India. It
contains an elaborate discussion of the various general principles of
VAT and state level VAT. These general principles have been
incorporated in the various state level VAT legislations.

Tax- Payer Identification Number:

TIN number, you may hear this first time when you newly into business
or otherwise you can know it from someone who already doing business

31
within India. By reading this post, you can know that what TIN Number
is? Who needs it and How to apply for TIN?

What Are T.I.N No, CST No. and VAT NO.?

TIN stands for Tax-Payer Identification Number, is unique number

allotted by Commercial tax department of respective State. It’s an eleven
digit number to be mentioned in all VAT transactions and
correspondence.

TIN number is used to identify dealers registered under VAT. First two
digits of TIN indicate the issued state code. However, Other 9 digit of
TIN creation may differs by state governments.

TIN is applied for both sales done within a state or between two or more
states. Tin is also being used to identify dealers in the same way like
PAN, to identification of assesses under income tax act.

The registration number allotted to the dealers is popularly known as TIN

i.e. Taxpayer Identification Number. This is an eleven digit number to be
quoted in all VAT transactions and correspondence.

The Tax Payer’s Identification Number (TIN) is new unique registration

number that is used for identification of dealers registered under VAT. It
consists of 11 digit numerals and will be unique throughout the country.
First two characters will represent the State Code as used by the Union
Ministry of Home Affairs. The set-up of the next nine characters may,
however, be different in different States.

TIN is being used for identification of dealers in the same way like PAN
is used for identification of assesses under Income Tax Act. All the
dealers seeking for new registration under VAT or Central Sales Tax will
be allotted new TIN as registration number, however every State
Commercial Tax Department have made provisions to issue new TIN to
their existing dealers replacing old registration/ CST number.

So In brief there is no difference in VAT number, TIN or CST number,

now only one number is required for all type of sales i.e. TIN it may be
called VAT number as it is used intra state sales and may be called CST
number as same is required for CST number .TIN is being issued to all
new dealers whether required for intra or interstate sales but for old

32
 dealer (interstate) CST number will be changed with TIN in phased
manner and method adopted by each state is different.

Who Needs TIN Number?

Tin number registration is must for Manufacture/Traders

/Exporters/Dealers. It comes to new registration under VAT or Central
sales tax will be allotted new TIN as registration number. However, all
state commercial tax department of India has stipulation to provide new
TIN to existing Manufacture/Traders /Exporters/Dealers to replace their
old registration / CST number.

So, there is no difference in VAT/CST/TIN because these days only one

number is needed for all type of sale you made. TIN number is called
VAT number when it used for intra state sales. The same TIN number is
being consider as CST number when it required.

Which Documents Required Applying For TIN Number?

1. ID Proof / Address proof / PAN card of proprietor with 4 to 6 number of

photographs

2. Address proof of Business premises;

3. 1st Sale / Purchase Invoice, copy of LR/GR & payment/collection proof

with bank statement.

4. Surety/Security/Reference.
Please check the applicability of each state

How to Apply For TIN Number?

Gone are the days standing in long queues to submit an application to

Government Department. E- Government as swept all over India. This
can be done by online.

Need Help?

Are you looking someone to help you to apply TIN number and
calculating your Tax and file it behalf of you? Then, Reach Accountant is

33
the right choice to do it with. Reach our Customer support @ 0-86955
94333 or [email protected]

Bank Reconciliation

Meaning:

The cash Book and Pass Book are prepared separately. The
Businessman prepares the Cash Book and the Pass Book is prepared
by the Bank (here by cash book we mean three column cash Book). But
as both the books are related to one person and same transactions are
recorded in both the books so the balance of both the books should
match i.e. the balance as per Pass Book should match to balance at
bank as per cash book. But many a times these two balances do not
agree then, it becomes necessary to reconcile them by preparing a
statement which is called Bank Reconciliation Statement.

Now, Automate the Process of Reconciling Bank TransactionsDid you

know that you can now reconcile the banking transactions of your
company for each cheque issued, and even print the payment advice
and deposit slips, using

Most businesses these days prefer to receive and make payments via
their bank accounts. Typically, while transacting via the bank, an
organization prepares a deposit slip to credit the payments received into
the firm’s account, generates payment advice and tracks funds in order
to always ensure that the bank account has the minimum funds required
at all times. But as the number of transactions increase, it becomes a
challenging task for organizations to prepare a large number of deposit
slips, covering letters, and reconcile the bank ledger balance and the
bank statements. Tally.ERP 9 Release 3.0 has made life simple, it
allows you to effortlessly print cheques, reconcile the entries in books of
accounts, and generate deposit slips and payment advice, whenever
required.

Bank reconciliation explains the difference between the bank balance

shown in an organization’s bank statement and the corresponding
amount shown in the organization’s accounting records, on a particular
date.

34
How Reconcile the Bank Statement

• Go to ‘Gateway of Tally > Banking > Bank Reconciliation’

• Select the name of the required bank

The ‘Bank Reconciliation’ screen appears:

• Match every transaction with the bank statement and record the
transaction date in the

‘Bank Date’ field

Accept the screen to reconcile the bank ledgers as per the

corresponding banking statement. On successfully reconciling, the 'Bank
Reconciliation' screen appears as shown:

Tally.ERP 9 also allows you to record the un-reconciled transactions

based on the nature of transactions. Recording un-reconciled
transactions Un-reconciled transactions can be entered by clicking ‘U:
Opening BRS’ or pressing ‘Alt+U’ in the ‘Bank Reconciliation’ screen. In
this screen, the user can enter all transactions in which the cheques
were issued but not presented, or when cheques were received but not
presented. This will be useful under the following circumstances:

• When a company starts bank reconciliation in the middle of the

financial year by setting an effective date in the bank ledger.

• Or when the opening balance of the bank account having unreconciled

transactions is brought forward to the bank’s ledge recording
transactions during reconciliation, some transactions like the bank’s
charges, the interest paid by the Bank, etc., need to be recorded. These
transactions can be recorded at the ‘Banking’ screen by simply clicking
‘C: Create Vouchers’ or pressing ‘Alt+C’ in the ‘Bank Reconciliation’
screen and choosing the required voucher. Generating deposit slips you
can generate deposit slips for the payments received through cheques
or demand drafts, which can be deposited to the bank later. To generate
the deposit slip The ‘Payment Advice’ screen for the selected ledger
appears, as of the company.

35
 RECIEPT SLIP

State Bank Of India State Bank Of India

Deposited In Branch…Mulund..
Date:08/07/2013 Deposited In Branch…Mulund..
Date:15/07/2013
A/C Holders’ Name: Bhavanjibhai Gala…..
A/C Holder’s Name: Bhavanjibhai Gala…..
Account Maintained
With…Mulund…...Branch Account Maintained
With…Mulund…...Branch
Type Of Account………..
A/C Number.02459867112 Type Of Account………..
A/C Number.02459867112
Rupee: Twenty Five Thousand Rupees
Only Rupee: Fifty Four Thousand Rupees Only
.
Cheque/DD/Cash/Particulars Amount Cheque/DD/Cash/Particulars Amount
Rs. Rs.
Ps Ps
Bhavesh Patel Swapnil Ukani
Chq No.12246 Chq No.026992

Scroll No. Scroll No.

Total 25000/- Total 54000/-

Cash / Passing Officer Cash / Passing Officer

36
 RECORD SLIP

DATE CHEQU NAME OF WITHDRAWALS DEPOSITS BALANCE

E PAYEE
09/07/2013 0000001 Self 10000
13/07/2013 0000002 Telephone Bill 1500
20/072013 0000003 Rajesh Shah 5000
23/07/2013 0000004 Self 3000
29/07/2013 0000005 Self 9000

PASS BOOK

Date Cheque Particular Withdrawals Deposits Balance

no.
01/07/2013 By Cash 5000 5000 Cr.
03/07/2013 By Cash 20000 25000 Cr.
08/07/2013 12246 By Bhavesh Patel 15000 40000 Cr.
09/07/2013 0000001 Self 10000 30000 Dr.
13/07/2013 0000002 Telephone Bill 1500 28500 Dr.
15/07/2013 026992 By Swapnil Ukani 54000 82500 Cr.
20/07/2013 0000003 Rajesh Shah 5000 77500 Dr.
23/07/2013 0000004 Self 3000 74500 Dr.
29/07/2013 0000005 Self 9000 65500 Dr.
31/07/2013 Interest Credit 360 65860 Cr.

How to Prepare a Bank Reconciliation Statement

(a) Compare transactions that appear on both Cash Book and Bank
Statement
(b) Update Cash Book from details of transactions appearing on Bank
Statement
(c) Balance the bank columns of the Cash Book to calculate the revised
balance

complete a Bank Reconciliation Statement

37
(a)Enter correct date of the statement
(b) Enter the balance at bank as per the Cash Book
(c) Enter details of UN presented cheques
(d) Enter sub-total on reconciliation statement
(e) Enter details of bank lodgments
(f) Calculate balance as per Bank Statement

Definition of Bank Reconciliation Statement

BANK RECONCILIATION STATEMENT may be defined as a statement

Showing the items of differences between the cash Brook balance and
the pass Book balance, prepared on any day for reconciling the two
balances.

Need and Importance of Bank Reconciliation Statement

The need and importance of the bank reconciliation statement may be

given as Follows:

1. The reconciliation process helps in bringing out the errors committed

either in cash Book or Pass Book.

2. Bank reconciliation statement may also show any undue delay in the
clearance of cheques.

3. Sometimes the cashier may have the tendency of cheating like he

may made entries in the Cash Book only but never deposit the cash into
bank. These types of frauds by the entrepreneur’s staff or bank staff may
be detected only through bank reconciliation statement. So this way
bank reconciliation statement acts as a control technique too.

Causes for Differences

A transaction relating to bank has to be recorded in both the books i.e.

Cash Book and Pass Book but sometimes it happens that a bank
transaction is recorded only in one book and not recorded
simultaneously in other book this 221causes difference in the two
balances. The causes for difference may be illustrated in detail as
follows:

38
Causes Cash Book and Pass Book

1. Cheques issued but not yet presented for payment Entry is made
Balance=Decreased No entry is made till the cheques are presented for
payment. Balance= Same as before

2. Cheques paid into the bank but not yet cleared. Entry is made
Balance=Increased No entry is made till the cheques are cleared
Balance = same

3. Interest allowed by the Bank No entry is made till the Pass Book is
checked Balance = Same Entry is made Balance = Increased

4. Interest and Expenses Charged by the Bank No entry is made till the
Pass Book is checked Balance = Same Entry is made Balance =
Decreased

5. Interest and dividends collected by Bank No entry is made till the Pass
Book is checked Balance = Same Entry is made Balance = Increased

6. Direct payments by the bank No entry is made till the Pass Book is
checked Balance = Same Entry is made Balance = decreased

7. Direct payments into the bank by a customer No entry is made till the
Pass Book is checked Balance = Same Entry is made Balance =
Increased

8. Dishonor of a bill discounted with the bank No entry is made till the
pass Book is checked Balance = Same Entry is made Balance =
decreased

9. Bills collected by the bank on behalf of the customer No entry is made

till the Pass Book is checked Balance = Same Entry is made Balance =
Increased

10. Errors committed either in Cash Back or Pass Book

Procedure for E-Filing of TDS Returns

39
1. Objective:

The basic objectives of computerization of TDS returns is to cut

down the compliance cost for deductors, to correlate deduction of
taxes made by deductors with the deposit of the deducted tax in
the Government account in a designated bank/and correlate
deduction of tax by the deductors with the corresponding credits
claimed by the deductees. In phase-I of TIN it is proposed to
receive the electronic TDS returns of corporate deductors and to
digitize the paper TDS returns of other deductors. In Phase-II of
TIN the work relating to dematerialization of TDS certificates will
be taken up so that cross verification of deduction by the
Deductors with the Claims of deductees can be carried out. Some
of the issues pertaining to this Scheme are explained in the form of
Frequently Asked Questions (FAQS) and are Available on this site.
2. Scheme For Electronic Filing Of TDS Returns:

The scheme for electronic filing of TDS returns was notified on

26.8.2003. The Board Circular No.8 dated 19.9.2003 clarifies the
procedure in this regard. The Procedure basically envisages that
corporate deductors will prepare their TDS returns in the new TDS
return Forms24, 26 or 27, according to the data structure notified
by e-Filing Administrator. The E-TDS returns in the prescribed data
structure stored on CD ROM and supported by a duly signed
control chart inform27a in paper format will be submitted to an E-
TDS Intermediary appointed by the Board.

3. E-TDS Administrator And E-TDS Intermediary:

The CBDT has appointed Director General of Income-tax

(Systems) as E-TDS Administrator. Separately, M/s National
Securities Depository Limited (NSDL), who are also the agency
hosting TIN, have been appointed as E-TDS Intermediary. During
the current financial year, NSDL will be opening their front offices
at 42 stations throughout the country, for receiving E-TDS returns
of all deductors. NSDL w.e.f. 19.01.2004 will set up their front
offices called as ‘TIN Facilitation Centre’ at 42 stations throughout
the country, for receiving. TDS returns w.e.f. 19.01.2004. NSDL
will set up their front offices at 65 stations more during the next
financial year so that they will have presence at all stations where
administrative CsIT are located.

4. Procedure For Allotment Of TAN:

40
 1) All deductors required to E-file their TDS returns have to quote
their reformatted Tax Deduction Account Numbers (TAN) in their
respective TDS returns. A large number of deductors have already
obtained these re-formatted TANs which are unique countrywide.
Wherever TAN has not been allotted or old TANs have not been
reformatted, applications in Form 49B can be filed with NSDL. All
old applications for allotment of new TAN/ reformatted TAN
pending in the Department, will be disposed at the earliest

2) NSDL has also been authorized to receive applications (form

49B)for allotment of TAN at their front offices for fee of Rs.50/- to
be paid by the applicant to them. The data in respect of such TAN
applications will be entered by NSDL and sent to National
Computer Centre (NCC) of Income-tax Department and the
respective computer centers on-line. The allotment of TAN will be
done by the IT department centers and communicated online to
NSDL who will intimate the same to the applicant.

5. Preparation Of E-TDS Returns:

1) New forms of TDS returns in Form No.24, 26, & 27 (enclosed

herewith), a control chart in Form 27Ahave been notified by the
Board vide notification dated31.7.2003 consequent upon
amendment to Rule 30 of IT Rules, 1962. The E-TDS returns have
to be prepared in these new forms and according to the data
structure prescribed by E-TDS administrator. This is necessary so
that the data structure of E-TDS returns is compatible with the
departmental application software for processing the same.
2) The prescribed data structure can be downloaded from this
website as also of NSDL (http://tin.nsdl.com) this can also be
obtained from the front offices of NSDL. While preparing the E-
TDS returns, the deduct or has to ensure that following mandatory
requirements listed in Circular No.8 of CBDT dated 19.9.2003, are
complied with :

I. Tax deduction Account Number (TAN) of the deduct or is clearly

mentioned in the TDS return as also on Form No.27A, as required
by sub-section (2) of section 203A of the Income-tax Act. However,

41
 in cases where TAN is not available the E-TDS returns will also be
accepted if the same is accompanied with an application inForm
49Bfor allotment or for reformatting.

II. Full particulars relating to deposit of tax deducted at source, in the

designated bank are correctly and properly filled in the table at
item No.6 of Form No.24 or item No.5 of Form No.26 or item No.5
of Form No.27, as the case may be.

III. The data in the E-TDS return is as per the data structure
prescribed by the e-Filing Administrator.

IV. The Control Chart in Form 27A is duly filled in all columns, signed
and enclosed in paper form with the return on computer media. (v)
The Control Totals of the amount paid and the tax deducted at
source as mentioned at item No.3 of Form No. 27A tally with the
corresponding totals in the E-TDS return in Form No. 24 or Form
No. 26 or Form No. 27, as the case may be. In case any of these
mandatory requirements are not fulfilled, the E-TDS return will not
be received by the E-TDS intermediary.

V. The deductors should prepare their E-TDS return as per the above
procedure, store the data on a CD ROM, enclose the control chart
(Form 27A in paper format) and submit these at any of the front
offices of NSDL. Although the scheme permits E-TDS returns to be
prepared on a floppy, it would be preferable that these are
prepared on a CD ROM to avoid any loss of data, viruses etc.

6. Filing of E-TDS Returns:

I. The E-TDS return can be filed at any of the TIC Facilitation

Centers offices being opened by NSDL at 42 cities. At the receipt
stage, these front offices will carry out validation checks on the E -
TDS returns to ensure compliance with above five parameters, and
a provisional receipt will be issued on successful validation.

II. Section 139A (5 B) requires that PAN of the deductees should be

mentioned in the TDS returns. Wherever PAN of deductees is not
mentioned by a deductor in his E-TDS return, this fact will be
recorded on the provisional receipt as deficiency, to be removed

42
 by the deduct or. However, in such cases, NSDL will accept the e -
TDS returns. The deficiency can be removed by the deduct or
within 7 days, failing which the E-TDS returns will be sent by NSDL
to the Department indicating the deficiency therein for appropriate
action by the concerned A.O.

7. Upload Charges:

Since e-filing of TDS returns will reduce the voluminous paper

work involved in filing of paper TDS returns and enclosures
thereby significantly reducing the compliance cost of deductors,
the e-intermediary i.e. NSDL have been authorized to collect
service charges in respect of the various services being rendered
by them to the deductors for upload of E-TDS returns at the
following rates: Category of E-TDS return Upload charges Returns
having records of up to 100 deductee records Rs.25/-Returns
having records of 101 to 1000 deductee records Rs. 150/-Returns
having records of more than 1000 deductee records Rs.500/-
Service tax if any will be payable by deductors in addition to the
above.

Challan Correction Mechanism

Under OLTAS (On Line Tax Accounting System), the physical challans
of all Direct Tax payments received from the deductors / taxpayers are
digitized on daily basis by the collecting banks and the data transmitted
to TIN (Tax Information Network) through link cell. At present, the banks
are permitted to correct data relating to three fields only i.e. amount,
major head code and name. The other errors can be corrected only by
the assessing officers.

43
New Procedure of Challan Correction by Banks (For Physical
Challans):

To remedy this situation, a new Challan Correction Mechanism for

physical challans has been put in place. Under this mechanism, for
income tax payments made on or after 1.9.2011, the following fields can
be got corrected through the concerned bank branch.

 Assessment Year
 Major Head Code
 Minor Head Code
 TAN/PAN
 Total Amount
 Nature of payment (TDS Codes)

The Time Window For The Correction Request By Tax Payer Is As

Follows:

S.No Correction required in Field name Period of Correction Request

(from Challan Deposit Date)

1. TAN/PAN 7 days

2. Assessment Year 7 days

3. Amount 7 days

4. Other fields (Major Head, Minor head, Nature of payment) within 3

months the time window for correction by the bank is 7 days from the
date of receipt of Correction request from the tax-payer.

NSDL E-TDS/TCS Return Preparation Utility (RPU)

Since FY 2003-04, all corporate deductors should file Income tax returns
for deduction of tax at source (TDS) only in electronic form. Further, from
FY 2004-05, in addition to corporate deductors, filing of TDS returns in
electronic form is mandatory for government deductors also.

Extending the scheme of filing of returns in electronic form to tax

collected at source (TCS), the ITD mandated that with effect from FY
2004-05, all TCSreturns filed by corporate and government collectors
should be only in electronic form.
44
 ITD has notified revised file formats for preparation of TDS and TCS
returns in electronic form. Deductors/collectors can prepare the E-
TDS/TCS returns as per these file formats using in-house software or
any other third party software and submit the same to any of the TIN-
FCs established by NSDL. Deductors/collectors can also directly upload
the E-TDS/TCS returns through NSDL-TIN website.

NSDL has developed software called E-TDS/TCS Return Preparation

Utility (RPU) to facilitate preparation of E-TDS/ TCS returns. This is a
freely downloadable MS excel based utility. Separate utilities are
available for preparation of each type of return.

RPU for Annual Returns: These utilities can be used to prepare E-

TDS/TCS returns up to FY 2004-05. These utilities can be used for
preparation of original or revised annual returns.

RPU for Annual Returns

These utilities can be used to prepare E-TDS/TCS returns up to FY

2004-05. These utilities can be used for preparation of original or revised
annual returns.

 E-TDS RPU (ver. 4.80) for Form 24

 E-TDS RPU (ver. 4.80) for Form 26

 E-TDS RPU (ver. 4.80) for Form 27

 e-TCS RPU (ver. 4.90) for Form 27E

RPU for Quarterly Returns

From FY 2005-06 onwards, TDS/TCS returns have to be filed every

quarter (i.e. quarterly statements). The following utilities can be used to
prepare regular quarterly statements:

 NSDL RPU version 3.5 for quarterly E-TDS/TCS statements from FY

2007-08 “Download RPU version 3.5”

45
 Features Of RPU 3.5

Correction Statements

Corrections required in the regular quarterly statements can be furnished

by submitting a correction statement in the prescribed format. The
following utilities can be used to prepare correction quarterly statements:

 NSDL RPU version 3.5 for quarterly E-TDS/TCS statements from FY

2007-08 “Download RPU version 3.5”

 Features of RPU 3.5

Feedback Form

Guidelines for usage of these RPUs are provided in the respective

utilities. The users are advised to read these guidelines carefully before
the utility is used to prepare the returns. Users may ensure that they
download the latest version of the utility at the time of preparation of
return.

Users must pass the E-TDS/ TCS return file generated using RPU
through the File Validation Utility (FVU) to ensure format level
accuracy of the file. This utility is also freely downloadable from NSDL
TIN website. In case the E-TDS/TCS return contains any errors, user
should rectify the same in the excel utility itself. After rectifying the
errors, user should pass the rectified E-TDS/ TCS return through the
FVU. This process should be continued till an error free E-TDS/ TCS
return is generated.

Disclaimer:

These utilities have been developed by NSDL for small

deductors/collectors and returns exceeding 20,000 deductee records
should not be prepared using this utility. NSDL does not warrant any
accuracy of the output file generated using any of these utilities. All
users are advised to use latest FVU and check the format level
correctness of the file before submitting the same to TIN-FC. In case
FVU reports any error in the file, then the users are advised to rectify the
same. Further, deductors/collectors are advised to ensure that the E-
TDS/TCS returns are filed before the last date specified by Income Tax

46
Department. Non-functioning or non availability of this utility may not be
considered as a reason for inability to file the return before the last date.

E-Return Intermediary:

Income Tax Department (ITD) has launched a new scheme for

improving interface with the taxpayers. This scheme titled "Electronic
Furnishing of Return of Income Scheme, 2007" enables authorized
intermediaries to electronically file Income Tax returns on behalf of the
taxpayers. This scheme is available to any taxpayer who is assessed or
assessable to tax.

Income Tax Department (ITD) has launched a new scheme for

improving interface with the taxpayers. This scheme titled
“Electronic enables authorized intermediaries to electronically file Income
Tax returns on behalf of the taxpayers. This scheme is available to any
taxpayer who is assessed or assessable to tax.

Under this scheme an eligible tax payer at his option furnish the income
tax return in electronic form.

Under The Scheme:

Eligible Tax Payer Means:

“An eligible tax payer being a company or a firm referred to in clause (a)
of provision to sub-rule (3) of rule 12 of the Income-tax Rules, 1962 or
any other eligible person”.

Composition Scheme:

The provision relating to tax invoice do not apply to a selling dealer who
has opted to avail the composition scheme under the respective state
VAT laws. Thus, a composition scheme dealer cannot issue a tax
invoice.

47
VAT Chain under Composition Scheme:

I. Loss to the seller:

If the composition is availed by a dealer then such dealer cannot

avail input tax credit In respect of input tax paid. Hence the dealer
will be losing the input tax credit on purchases made by him. He
will not be able to pass on the benefits of input tax credit, which will
add to the cost of the goods

II. Loss to the purchaser:

The purchaser shall not get any tax credit for the purchases made
by him from the dealer operating under the composition scheme.
Therefore, as soon as a dealer opts for the composition scheme,
the VAT chain will be broken, and the benefits of tax paid earlier
will not be passed on to the subsequent.

Records:

The following records should be maintained under VAT system:

I. Purchase record

II. Sales record

III. VAT account

IV. Separate record of any exempt sale

Further, the following records should also keep and produced to an

officer:

I. Copies of all invoices issue, in serial number

II. Copies of all credit and debit notes issued, in chronological order

III. All purchases invoices, copies of custom entries, receipts for

payment of customs duty or tax, and credit and debit notes
received to be filed chronologically either by date of receipt or
under each suppliers name

48
 IV. Details of the amount of tax charge on each sale or purchases

V. Total of the output tax and the input tax in each period and a net
total of the tax payable or the excess carried forward, as the case
may be, at the end of each month

VI. Details of goods manufactured and delivered from the factory of

the taxable person

VII. Details of each supplies of goods from the business premises,

unless such details are available at the time of supply in invoices
issued at, or before, that time.

Failure to keep these records may attract penalty. All such records
should be preserved for the period specified in respective state
provision.

No Declaration Form:

Most of the declaration forms that existed before the introduction of VAT
have been dispensed with. Use of declaration forms is expected to be
stopped completely. Lots of time and energy is wasted by the dealer in
getting declaration forms from the department .there is provision for
concessional sale under the VAT acts since the provision for set- off
makes the input zero-rated. Hence, there will be no need for declaration
form.

Returns:

Under VAT laws there are simple forms of returns. Returns are to be
filed monthly/quarterly/annually as per the provision of the state
acts/rules. Returns will be accompanied with the payment challans.
Some state have devised return cum challan.in these cases the returns
along with the payment can be filed with the treasury.

A registered dealer may be required to file a monthly/quarterly/annually

return along with the requisite details such as output tax liability, value of
input tax credit, payment of VAT etc. opportunity may be provided to
lodge revised returns.

Every return finished shall be scrutinized expeditiously within the

prescribed time limit from the date of filing the return. If any technical
49
mistake is detecting on scrutinizing, the dealer shall be required to be
pay the deficit approximately.

How to Have Completed Your VAT Return

You should have continued to receive and submit VAT returns in the
normal way - monthly, quarterly or annually. The deadlines for submitting
your VAT returns and making payments were unchanged. For return
periods that covered both before and after 1 January 2010, you needed
to add together the VAT on sales charged at 15 per cent and the VAT on
sales charged at 17.5 per cent to work out the total VAT on sales to be
included in box 1 of your VAT return.

How to have corrected an error on your VAT return

If you discovered that you made an error you could have corrected it in
the normal way by making a voluntary disclosure or correcting it on your
next return .If you made mistakes accounting for the change of rate on
your first VAT Return after the change, HMRC will only seek an
adjustment if there was likely to be an overall revenue loss

Returns Filing Procedure Under VATLaws Are Designed With The

Objective Of:

1. Reducing the compliances costs incurred by the businesses in

completing and filing their returns.

2. Encouraging businesses to comply with their obligation to file

returns and pay VAT through the application of penalties in case
of late payment of VAT and late filling of returns.

3. Ensuring the efficient processing of the data included in the

returns.

Income Tax Return:

“Required to furnish under section 139 or clause (I) of sub-section (1) of

section 142 or sub-section (1) of section 148 or section 153A of the Act
or return of fringe benefits which he is required to furnish under sub-
section (1) or sub-section (2) of section 115WD of the Act for
assessment year 2008-09 or any subsequent assessment year, through
the above-mentioned authorized intermediaries”.
50
“Revise return of income under sub-section (5) of section 139 of the Act
or fringe benefits under sub-section (4) of section 115WD of the Act for
assessment year under this scheme if he has furnished a return of
income or return of fringe benefit for that assessment year under this
scheme”.

These entities that are authorized to file Income Tax returns in electronic
form on behalf of taxpayers are called E-Return Intermediaries. E-Return
Intermediaries are appointed by ITD.

NSDL has been appointed as the Registrar for processing applications

for registration as E-Return Intermediary by eligible entities.

NSDL has setup a web-based facility for online registration of E-Return

Intermediaries.

The entities desirous of acting as E-Return Intermediaries may

determine their eligibility and ensure that they have met the pre-
requisites required for submitting the application. The eligibility criteria
and pre-requisites are prescribed by ITD.

51
ITR FORMS:

1. ITR - 1 This form is applicable for individual having income from

salary, pension and interest.

2. ITR - 2 This form is applicable for individual and HUF having

income from other source which include income other
than business salary, capital gains and house property.
e.g. Lottery, house rising.

3. ITR – 3 This form is applicable for individual or HUF having

income for partnership for partners.

4. ITR- 4 This form is applicable for individual or HUF income from

business and profession.

5. ITR- 5 This form is applicable for partnership for association of

person and body of individual.

6. ITR- 6 This form is applicable for private LTD as well as public

limited company

7. ITR- 7 This form is applicable for trust, charitable institution,

educational institution, etc.

8. ITR- 8 IT forms for return for fringe benefits

9. ITR – V Where the data of the return income/fringe benefits in

form ITR-1, ITR -2, ITR -3, ITR-4, ITR-5, ITR-6and ITR-8
transmitted electronically without digital signature.

52
 Note:-

As per the guidelines issued by the Office of CCA, it is required to

comply with the use of SHA-2 Hash Algorithm and 2048 bit RSA keys for
digital signing. In view of the same, the following pre-requisites need to
be followed:

1. JRE version : SUN-java 1.6_update29 or higher version (32 bit)

2. Client Operating system: Windows XP SP3, Vista Windows 7, Windows

2003 with patch for SHA-2.

3. I.E browser version supported: 7, 8 and 9.

4. Safe net or E-token drivers used should be the latest (if applicable)

A Public Sector Company as defined in clause (36A) of section 2 of

the Act or any other company in which public are substantially
interested within the meaning of clause (18) of section 2 of the Act
and any subsidiary of those companies which

 has a valid Permanent Account Number (PAN)

A Company Incorporated In India, Including A Bank, Having A Net

Worth of Rupees One Croreor More Which

 has a valid Permanent Account Number (PAN)

A Firm of Chartered Accountants Which

 has a valid Permanent Account Number (PAN)

A Firm of Advocates Which

 has a valid Permanent Account Number (PAN)

A Firm of Company Secretaries Which

 has a valid Permanent Account Number (PAN)

53
 A Chartered Accountant Who

 has a valid Permanent Account Number (PAN)

An Advocate Who

 has a valid Permanent Account Number (PAN)

A Company Secretary Who

 has a valid Permanent Account Number (PAN)

Tax Return Preparers (Income Tax) Who

 has a valid Permanent Account Number (PAN)

A Drawing Or Disbursing Officer (DDO) Of A Government

Department Who

 has a valid Tax Deduction Account Number (TAN)

His entity must have Digital Signature Certificate (Class II or Class III)
from any of the licensed Certifying Authorities specified by NSDL
(currently TCS, IDRBT, Safe Scrypt, MTNL, n code, e-mudhra and NIC)
for the purpose of digitally signing the application and the returns
uploaded online.

The digital certificate must be in the name of the applicant. If the digital
certificate is in the name of an employee / partner of the applicant, then
an authorization letter by the applicant should be provided on the
letterhead of the applicant to NSDL.

Hardware Requirements

 CPU > 500MHz or above

 RAM 256 MB or above

 A screen resolution of 800 x 600 pixels and display of 256 colures

54
 20 GB free hard disc space exclusive for ITD

 UPS power backup for minimum 30 minutes

 CD writer / other backup devices like DAT drive

 Printer

Software Requirements

 Operating system - Windows 98 / Windows NT 4.0 Server or above

 Anti-virus

 Internet Explorer 6.0 or above / Netscape 5.0 or above

Internet Connectivity

 Dialup connection 56.6 kbps or above / ISDN / Leased Line

The System Used To Log-On To the Computer System Of The ITD

 Should have no resident/ running programs (other than what is allowed

by ITD).

 Should have in place security procedure to ensure that there is no

misuse.

The entity should have necessary archival, retrieval and security

policy for the e-returns that are filed through him.

The entity should submit a due diligence certificate from a certified

ISA or CISA professional in the prescribed format that it has the
necessary computing infrastructure.

The entity or its Principal / responsible officers, must not have been
convicted for any professional misconduct, fraud, embezzlement or
any criminal offence by any court in India or by any professional
body, as the case may be.

55
 The E-Return Intermediary Shall

 Ensure that the assessee is an eligible person under this scheme;

 Ensure that the assessee has quoted a correct and valid permanent
account number or tax deduction account number;

 Ensure that the particulars of advance tax, self assessment tax and tax
deducted at source are in accordance with the documents enclosed;

 Ensure that the paper return of income has been properly filled in and
duly verified by the assessee;

 Ensure accuracy of the data entry while transcribing the return of income
and during its transmission;

 Ensure that the electronic portion of the return of income is transmitted

on or before the due date for filing the return of income;

 Ensure that the Form-ITR-V, duly verified by the assessee, is filed with
the assessing officer having jurisdiction over the concerned assessees;

 Retain for a period of one year from the end of the relevant assessment
year the electronic data of the return of income and the information
relating to the provisional receipts issued in respect of the returns filed
through it;

 Provide to the assessee a paper copy of the e-return submitted by e-

intermediary and the acknowledgement receipt of Form ITR-V filed to the
Assessing Officer;

 Maintain confidentiality of the information that comes to his possession

during the course of implementation of this scheme and shall not part
with any such information to anyone, except with the prior permission of
the assessee or the assessing officer;

 Ensure that all his employees, agents, franchisees, etc., adhere to the
provisions of this scheme;

 Promptly inform the Registrar of any change in the particulars given in

the application filed by it for registration;

56
 Abide by the instructions issued by the e-Return Administrator, from time
to time, for proper implementation of this scheme.

Due dates for filing of TDS/TCS returns

Due dates for filing of TDS/TCS returnsare as below:

[Subject to Extension by the CBDT for specific quarters of a particular
FY]

Quarters Form Nos. 24Q & Form No. Form No.

26Q 27Q 27EQ

April to June 15 July 15 July 15 July

July to September 15 October 15 October 15 October

October to 15 January 15 January 15 January

December

January to March 15 May 15 May 15 May

Late Filing Consequences

Fees for delay in furnishing the statements: (refer section 234E of

Income Tax Act)
Effective from 1st July 2012, any delay in furnishing the E-TDS statement
will result in a mandatory fees of Rs. 200 per day, the total fees should
not exceed the total amount of TDS made for the quarter. The late filing
fee should be paid before filing such delayed E-TDS statement.

57
Penalty for failure to furnish statements and furnishing incorrect
statements: (refer section 271H of Income Tax Act)

Failure to file E-TDS statement delaying more than an year or furnishing

incorrect details in the statement filed like PAN, Challan and TDS
Amount etc, will result in a penalty ranging from Rs. 10,000 to one lakhs.

ITR Forms For 2008-09 AY:

Central Board of Direct Taxes [CBDT] has notified new return forms for
Assessment year 2008-09. The new return forms are continued to be
termed as ITR and known to be Return of Income/Fringe Benefits.

The notification NOTIFICATION NO. S.O. 752(E), DATED 28-3-

2008 amended the earlier ITR forms and made the relevant changes
in Rule 12 of Income Tax

The ITR forms starts from ITR 1 to ITR 8. In the form, individuals and
HUFs will be required to furnish information with regard to transactions
that are reported through annual information returns (AIR). Large
transactions like investment in real estate and mutual funds running into
lakhs is automatically reported to the department by banks and other
authorities using the investor's permanent account number (PAN).

Similarly, large expenditure incurred by an individual is also reported to

the department through AIR. Therefore, if an individual tries to hide his
income he can be caught through AIR reporting from various agencies, a
tax official said. What the new stipulation does is that it makes it
mandatory for the tax assesses themselves to submit the same
information to the IT department. A senior finance ministry official said
that the earlier idea was to use the cash flow statement to get information
both on the source of funds as well as expenditure.

For individuals, the four forms, ITR-1, ITR-2, ITR-3 and ITR-4, will
continue to remain. Companies also have the same two forms ITR 6 and
7. Either should be used as per applicability. The Firms, AOP and BOI’s
should go for only Form ITR - 5. This has made all earlier confusions on
status to form relation ZERO. It has also kept ITR-8 as Exclusive Return
on Fringe Benefits. But this should not be used by the assessees who

58
 are eligible for ITR 5, 6, and 7.

TDS - Procedure For Deduction / Challan / Return / Certificates

1: Deduct Correct TDS 4.

1. Salaries

2. Non Salaries

3. Consequences of not making Tax deduction

2: Make Correct Challan/Payment

1. Points to be considered before making a payment

2. Steps to make a payment

3: Verify A Paid Challan

1. What is CIN?

2. If banks does not provide a Proper CIN?

3. Steps to verify the challan

4: Verify Deductee / Employee PAN

1. Verifying a PAN

2. Steps To verify the PAN

3. Letter to missing/Wrong PAN deductees

4. Consequences of wrongly quoting a PAN

59
 5: Deduction-To-Payment Verification

1. Points to be noted while verifying Deduction-to-

payment

6: Prepare Correct Statement

1. Deductor

2. Deductee

3. Valid PAN Percentage

4. Deductions

5. Salary details

6. Challan Details

7. Challan and Deduction link

7: Submitting A Regular Return

1. What the law says?

2. Type of submission

3. Return not accepted by TIN FC

4. Form 27A

8: Due Dates For Filing Of TDS/TCS Returns

1. Late filing consequences

2. 9:Verify Submitted Returns

1. PRN or RRR number

60
2. Login

3. Verification

4. Action after verification

5. Analyzing the challan status and further action

10: Inconsistencies In TDS Returns

1. Notice from DGIT [Systems]

2. Content of Notice

3. How to verify the inconsistencies

11: Correction In Regular Return

1. Correction Statement

2. Types of Corrections

3. General Notes on Correction Statement

1. 12: Submit A Correction Statement

2. Procedure to submit

3. Return not accepted by TIN FC

4. Batches in the Correction

13: Verify A Correction Statement

1. Login

2. Verification

14: TDS Register Maintenance

61
1. Types of registers

15: Issue TDS Certificate

1. TDS certificates

2. How it will be useful

3. Compulsion/Optional

4. Types of TDS certificates

5. Issuing the certificate

6. Covering Letter

16: Prepare ITR

1. ITR-1

2. ITR-2

3. Other ITR forms

How To Verify A Paid Challan

On receipt of the amount, receiving bank will upload the details in the
Challan to Government via NSDL through its OLTAS (Online Tax
Accounting System) return within 3 working days.
Once deductor makes the payment, he should cross-verify the Amount
and CIN that has been uploaded by the receiving Bank to NSDL.

This should be cross-verified by the deductor, with either his TAN

number or CIN number provided by bank against each challan.

Steps To Verify The Challan:

62
1. Visit www.tin-nsdl.com and click on “Challan Status Enquiry”.

2. Here select either

a. CIN Based View

On entering CIN and amount (optional), deductor can view the following
Details:

 BSR Code

 Date of Deposit

 Challan Serial Number

 Major Head Code with description

 TAN/PAN

 Name of Tax Payer

 Received by TIN on (i.e. date of receipt by TIN)

 Confirmation that the amount entered is correct (if amount is entered)

b. TAN based View:

By providing TAN and financial year, deductor can view the following
details:

 CIN

 Major Head Code with description

 Minor Head Code

What Is CIN?

Challan Identification Number (CIN) has three parts

63
1. Seven digit BSR code of the bank branch where tax is deposited

2. Date of Deposit (DD/MM/YY) of tax

3. Serial Number of Challan

4. Example of CIN: 000076202020832

CIN is stamped on the acknowledgement receipt to uniquely identify the

tax payment. CIN has to be quoted in the return of income as a proof of
payment. CIN is also to be quoted in any further enquiry. Therefore, you
must ensure that CIN (comprising the above three parts) is stamped on
the Challan by the bank. If any challan does not contain CIN, immediately
contact the Bank and insist on CIN.

If banks does not provide a Proper CIN?

 The Reserve Bank of India has already passed an order dated April 1,
2004 making it compulsory for all tax collecting branches of banks to use
a rubber stamp acknowledgement that carries CIN. A separate CIN is
given for each challan deposited. If the Bank Manager concerned is
unable to resolve the issue, you should address your grievance to the
Bank's Regional Manager and the Regional Office of RBI

 Nature Of Payment

If deductor enters the amount against a CIN, the system will confirm
whether it matches with the details of amount uploaded by the bank.

3. On getting above details, deductor can consider the result obtained here,
irrespective of what has been put in the challan by the bank.

4. If the entry is missing over here, after 3 working days [from the date of
issuing counter foil], deductor should contact the Bank Branch to check
the matter.

What The Law Says?

1. Section 206 [Annual returns]:

64
 This section deals with, the deductions made before 1st April 2005 and
asks the deductor to file the Annual returns of TDS in Form 24, 26 and
27. However for the current FY, this is not applicable.

2. Rule 31A [Quarterly Statements]:

This Rule deals with termination of Section 206 and incorporation of

“Quarterly Statements of TDS/TCS” from FY 2005-06.

Type Of Submission

1. E-Filing:

a. Mandatory: [refer Rule 31A]

1. From FY 2003-04, it is mandatory to all corporate deductors to file the

TDS return electronically.

2. From 30-6-2005, e-filing is mandatory to Government deductors also.

3. From 01-09-2007, e-filing has been extended to

1. All deductors who are liable for audit under section 44AB of Income Tax
Act {Tax Audit} in the immediate preceding FY.

2. All the deductors whose deduction records in a quarterly statement for

any quarter of the immediately preceding financial year is equal to or
more than fifty.

b. Types: There are 2 Provisions for submitting a TDS return under this
method

1. Electronic [TIN FC]: In this procedure,

1. Deductor should prepare the return in the FVU format and file it at the
TIN FC in a CD/Floppy.

2. Deductor should also enclose a declaration letter in Form 27A.

3. Deductor should pay the submission charges to TIN FC, depending on

the deduction records, as Rs. 25, Rs 150, Rs 500 for upto 100, upto 1000

65
 and above 1000 deduction entries, respectively. Additional service taxes
applicable.

2. Digital [online]: In this process,

1. Deductor should prepare the FVU file and upload online to www.tin-
nsdl.com, with his respective login.

2. Deductor should also have obtained a Digital Signature.

3. As a prerequisite, deductor should have got registered with NSDL, with

nominal registration charges.

4. While registration, deductor should deposit the minimum advance of Rs.

1000/- and subsequently make the payments, minimum of 500/-.

5. The advance amount will be adjusted with each return upload as

“Metering Upload charges”.

6. Metering upload charges will be same as that charged by TIN FC.

7. This facility can be used extensively by banks and organization having

multiple branches with different TAN. All the branches can upload the
return under single login. [Note: the Branch TANs should be registered
with NSDL prior, for the same account]

2. Paper Filing:

a. This provision is available for the deductors not falling under e-filing
compulsion.

b. The returns can be printed on paper in the format specified and

submitted to TIN FC.

c. The charges are applicable as for e-filing.

Return Not Accepted By TIN FC:

If any return is not accepted by TIN FC, deductor should collect the “non
Acceptance memo” in paper, duly signed by TIN FC. This should be

66
taken for rechecking the regular return file.

Fs This is the declaration being provided by the deductor for filing of

“electronic TDS return”. This is also applicable for TCS returns filed for
FY 2005-06 or later. Form 27A should be in paper Format manually
signed by responsible person for the Deductor. [Refer Rule 31A]

Concept Paper E-Payment of Taxes

Introduction:

The optional scheme of electronic payment of taxes for income-tax

payers was introduced in 2004. With a view to expand the scope of
electronic payment of taxes, it is mandatory for the following categories
of taxpayers: -

1. All corporate assessee’s;

2. All assessee’s (other than company), to whom provisions of section

44AB of the Income Tax Act are applicable.

The scheme of mandatory electronic payment of taxes for income-tax

payers is made applicable from 1st April 2008. This is applicable for all
payments, irrespective of the assessment year to which it belongs. That
means, if any tax has to be paid for AY 2007-08, also then it has to
through be e-payment. Taxes that can be paid are:

1. Advance Tax for Income Tax and FBT

2. Self Assessment Tax for Income Tax and FBT

3. Tax Deducted at Source

4. Tax Collected at Source

NSDL offers the gateway for Taxpayers to make electronic payment of

taxes through the Internet banking facility offered by the authorized
banks. They will also be provided with an option to make electronic
payment of taxes through Internet by way of credit or debit cards.

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Pre-Requisites:

1. Valid TAN and PAN

2. Internet Banking Account

3. Good internet connection

4. In case TDS the amount of payment should be spilt based on:

a. Type of Deductee( i.e deduction from Companies and from Non-

Companies)

b. Nature of Payment (i.e. For each section like 94C, 94J etc for
Companies and From Non-Companies separately)

4. Sufficient balance in the bank to cover the amount of payment for

immediate Transfer.

Please avoid using browsing centers for making e-payments as there

are Chances of fraud. Copyright: RelyonSoftechLTDSaralTaxOffice.com|
Indian tax Software

68
 Procedure [Flow Chart]:

Visit Select “e-payment” Select the

www.tin_nsdl.com option challan:

1.itns-280

2.itns-281
Print/save the “challan
3.itns-283
identification number”
4.itns-284

Confirm the
Enter the detail in the
payment
challan

Enter your online

Select your bank
banking username
name
and password

List of Banks, Available For E‐Payment Of Taxes:

Following is the list of bank, currently providing this facility. Tax Payer
should have Net‐Banking account with any of these banks.

69
Allahabad Bank, ICICI Bank, State Bank of Indore, Axis Bank, IDBI
Bank,

State Bank of Mysore, Bank of Baroda, Indian Bank, State Bank of

Patiala,

Bank of India, Indian Overseas Bank, State Bank of Saurashtra,

Bank of Maharashtra. Oriental Bank of Commerce.

State Bank of Travancore, Canara Bank, Punjab National Bank,

Syndicate Bank, Corporation Bank, State Bank of Bikaner & Jaipur,

Union Bank of India, Dena Bank, State Bank of Hyderabad, Vijaya Bank

HDFC Bank, State Bank of India,

Copyright: RelyonSoftech LTDSaralTaxOffice.com| Indian tax Software.

Step By Step Procedure for E-Payment:

1. Visit www.tin-nsdl.com

2. Click on the link for "e-payment: Pay Taxes Online"

3. Select the relevant challan i.e. ITNS 280, ITNS 281, ITNS 282 or ITNS
283, as applicable.

4. Enter its PAN/TAN as applicable. There will be an online check on the

validity of the PAN / TAN entered.

5. If PAN/ TAN are valid the taxpayer will be allowed to fill up other
challan details.

I. Tax Collected from Companies or Non Companies

II. Assessment Year – Choose proper assessment year. Example,
while making payment towards TDS /TCS of Financial year 2007-
08, select assessment year 2008-09.
III. Valid TAN
IV. Address where city, state and pin code is compulsory

70
 V. Type of Payment i.e. in case of TDS 200 (TDS/TCS payable by
Tax payer)
VI. Nature of Payment – Section
VII. Select your Bank Name
VIII. Pl note, the amount of payment is not to be entered here, but it
should be entered in the Bank website.

6. Click on Proceed to submit data entered. Now, a confirmation screen

will be displayed. If the taxpayer confirms the data entered in the
challan, it will be redirected to the net-banking site of your bank. If data
needs editing, the user can do the same by clicking ‘Edit’.

7. In the Net banking site, the taxpayer should login to the net-banking
site with the user id/ password provided by the bank for net-banking
purpose and enter relevant payment details like basic tax, surcharge,
cess, interest, penalty etc., Select the relevant bank account in case you
have multiple accounts with internet facility for the same login.

8. On successful payment, a Challan counterfoil will be displayed

containing CIN, payment details and bank name through which e-
payment has been made. This counterfoil is proof of payment being
made.

9. Please note that for each Challan, a separate payment has to be

made.

10. On paying against all Challan and obtaining the CIN details, log out
of the bank web site

11. While it is mentioned that payment can be made either through credit
card or debit card, the same is yet to be made available to the
taxpayers.

Assessment:

The basic simplification of VAT is with references to assessment. Under

VAT system, there is no compulsory assessment at the end of each
year. The VAT liability is self-assessed by the dealer himself in terms of
submission of returns upon setting off the tax credit, returns form etc. the
other procedure are also simple in all the states.

71
Deemed assessment concept is a major feature of the VAT. If no
specific notice is issued proposing departmental audit of the books of
account of the dealer within the time limit specified in the act, the dealer
will be deemed to have been self-assessed on the basis of the returns
submitted by him.VAT pre-supposes that all the dealers are honest.
Scrutiny may be done in cases where a doubt arises of under- reporting
of transaction or evasion of tax. Honest dealers will be protected and
fictitious or dishonest would be penalized heavily.

System Of Cross Checking:

In the VAT system more emphasis has been laid on self-assessment.

Hence, a system of cross checking is essential. Dealers may be asked
to submit the list of sales or purchases above a certain monetary value
or to give the dealer-wise list from whom or to whom the goods have
been purchased/ sold for values exceeding a prescribed monetary
ceiling.

A cross checking computerized system is being work out on the basis of

coordination between the tax authorities of the state governments and
authorities of central excise and income- tax to compared constantly the
tax returns and set-off documents of VAT system of the states and those
of central excise and income- tax. This comprehensive cross-checking
system will help reduce tax evasion and also lead to significant growth of
tax revenue. At the same time, by protecting the interests of tax
complying dealers against the unfair practices of tax-evaders, the
system will also bring in more equal competition in the sphere of trade
and industry.

Accounts To Be Audited In Certain Cases:

Under the sales-tax laws, tax evasion is considered to be on a large

scale. The sales-tax departments of various states have not been able to
effectively check the menace of tax avoidance and tax evasion.
Therefore, apart from the departmental audit many states have also
incorporated the concept of audit of accounts by chartered accountants.
The state of Maharashtra has prescribed an elaborate list of particulars
to be furnished by the dealers. These particulars have to be verified by
the VAT auditor.

However, auditing for all types of dealers may not be necessary. The
selection of cases for auditing has to be made in accordance with the

72
criteria of the size of dealers. In such a case, the returns supported by
the audited statement can be accepted summarily. However, it might
indeed be useful to cull out a fixed proportion of large and medium sized
dealers for regularfor regular assessments on a regular basis. in
Maharashtra and Rajasthan, the dealer whose turnover exceeds Rs.40
lakhs in any year is required to get his accounts audited in respected of
such year.

Penal Provision:

Since VAT is purely a state subject, states will have incorporated penal
provision as per their requirement. However, these are in general more
stringent than those in the earlier sales tax laws. Since, the state
taxation laws have allowed certain additional benefits in the form of input
tax credit, which was not available earlier; they have introduced more
stringent penal provision to discourage evasion of taxes.

Authorized Signatories tothe Return Of Income (Section 140)

This section specifies the persons who are authorized to signed and
verify return of fringe benefits under section 115WD or return of income
under section 139 of the act.

Assessee Circumstances Authorized Signatory

1. Individual I. In the circumstances -The individual himself

not covered under
(ii),(iii),(iv) below

II. Where he is absent -the individual himself

from India. ;or

- any person duly

authorized by him in this
behalf holding a valid
power of attorney from
the individual (such

73
 power of attorney
should be attached to
the return of income)

III. Where he is -his guardian ;or

mentally
incapacitated from -any other person
attending to his competent to act on his
affairs. behalf

IV. Where, for any other -any person duly

reason, it is not authorized by him in this
possible for the behalf holding a valid
individual to sign the power of attorney from
return. the individual (such
power of attorney
should be attached to
the return of income)

2. Hindu I. In circumstances not -the Karta

Undivided covered under
Family (ii)and(iii)below

II. Where the Karta is -any other adult

absent from India member of the HUF

III. Where the Karta is -any other adult

mentally member of the HUF
incapacitate from
attending to his
affairs

3. Company I. In circumstances not -the managing director

covered under(ii) to of the company

74
 (v) below

II. (a) where for any -any director of the

unavoidable reason company
such managing
director is not able
to sign and verify
the return; or

(b) where there is no -any director of the

managing director company

III. Where the company -a person who holds a

is not resident in valid power of attorney
India from such company to
do so (such power of
attorney should be
attached to the return)

IV. (a)where the - Liqidator

company is being
wound up (whether
under the orders of
a court or
otherwise);or

(b)where any person

has been appointed
-Liquidator
as the receiver of
any assets of the
company

V. Where the -the principal officer of

management of the
company has been
75
 taken over by the the company
central government
or nay state
government under
any law

4. Firm I. In circumstances not -the managing partner

covered under (ii) of the firm
below

II. (a) where for any -any partner of the firm,

unavoidable reason not being a minor
such managing
partner is not able to
sign and verify the
return; or

(b) where there is no -any partner of the firm,

managing partner not being a minor

5. Local - -the chief executive

Authority officer of such party
(whether he is known as
secretary or by any
other designation)

6. Political - -any member of the

Party association or the
[Referred To principal officer of such
In Section association
139(4B)

7. Any Other - - That person or some

Person other person competent
to act on his behalf.

76
77
Bibliography:

Raj software technology (India) ltd

Email: [email protected]

URL: www.rajinfo.com

www.google.com

Taxation book

Website: www.icai.org

Email: [email protected]

Published by: the publication department on of CA. r. devrajan,

additional director of studies (SG), the institute of chartered accountant
of India

Company Profile:

Name of the Firm: Chetan P.Shah

Accountant and Tax Consultancy

Phone: 022 - 25348302

Mobile: 9323948302

Landmark: Near Shivsena Shakha

Contact Person: Chetan P. Shah

Address: No. 204 Royal Crown, Pokhran Road No. 1, Khopat

Thane West, Mumbai -400601

Working Hours: Monday - Saturday: 10.30 AM - 7.30 PM

Categories: Chartered Accountants

78
Specialized In

1. Auditors
2. CA Statements for Visa Procedure Consultants
3. Management Audit Services (Limited Company)
4. Statutory Audit Services (Limited Company)
5. Tax Consultants
6. Tax Return Services

Also Deals with

1. Company Formation
2. Company Secretarial Services Service
3. Compliance Audit Service
4. Indirect Taxation Service
5. Internal Audit Service
6. Risk Audit Service

 Experience:

10 to 15 years

79