What is Tax Management?
Tax management refers to compliance with income tax rules and regulations. Tax management covers matters relating to penalties, prosecution, appeal, tax revision or settlement of tax cases. The objectives of tax management are to ensure compliance with tax laws at the specified time and in a specified manner as also to ensure that the tax cost is minimized.
Table of Contents
- 1 What is Tax Management?
- 2 Difference Between Tax Planning and Tax Management
- 3 Difference Between Tax Avoidance and Tax Evasion
- 4 Areas of Tax Management
- 5 Tax Management Regarding Tax Deducted at Source
The functions of tax management include tax planning, organizing the personnel to ensure tax compliance and directing and coordinating the compliance with all the provisions of tax laws. The objective of Tax Management is to comply with the provisions of Income Tax Law and its allied rules.
Tax Management deals with filing returns in time, getting the accounts audited, deducting tax at source etc. It helps in avoiding payment of interest, penalty, prosecution etc. and is essential for every assesses.
Difference Between Tax Planning and Tax Management
|Tax Planning||Tax Management|
|Tax planning is a wider term and includes tax management.||Tax management is a narrower term and the first step towards tax planning.|
|Tax planning emphasis on minimization of the tax burden.||It emphasizes compliance with legal formalities for the minimization of tax.|
|Tax planning helps in decision making.||Tax management helps in complying with the conditions for effective decision making.|
|Tax planning involves the comparison of various alternatives before selecting the best one.||It involves maintenance of accounts in prescribed forms, filing of returns, payment of taxes, etc.|
|Tax planning looks at future benefits.||Tax management relates to the past present and future.|
|Tax planning helps to claim various benefits of the tax.||Tax management helps in complying with the conditions for effective decision making.|
Difference Between Tax Avoidance and Tax Evasion
|Tax Avoidance||Tax Evasion|
|Tax avoidance means planning for the minimization of tax according to legal requirements but it defeats the basic intentions of the legislature.||Tax evasion means avoiding tax liability illegally.|
|Tax avoidance takes into account various lacunas of law.||Tax evasion involves the use of unfair means.|
|It is lawful but involves the element of mala fide intentions.||Tax evasion is unlawful.|
|Tax avoidance is planning before the actual liability for tax comes into existence.||Tax evasion involves avoidance of payment of tax after the liability of tax has arisen.|
Areas of Tax Management
Important areas of tax management are discussed below:
- Collection of Tax at Source
- Payment of Tax
- Maintenance of Books of Accounts
- Audit of Books of Accounts
- Furnishing the Return of Income
- Documentation and Maintenance of Tax Records
- Review of Orders of Income Tax Department
TDS (Tax Deducted at Source): Persons responsible for deducting tax at source should deduct from the income and that should be paid to the central government on time. Moreover, he should issue deduction certificates to the deductee’s and file it on the income tax website.
Collection of Tax at Source
Collection of tax at source: In some special cases, some persons are responsible for collecting the tax at the source from the buyers (sec 206C). They should comply with those formalities.
Payment of Tax
Payment of tax: It includes (a) Payment of advance tax (b) Payment of tax on self-assessment. (c) Payment of tax on demand (payment after receiving notice from authorities).
Maintenance of Books of Accounts
Maintenance of books of accounts: Every businessman or a professional must maintain books of accounts and other relevant documents so that the tax can be computed accurately and verified by the Assessing Officer. Maintenance of account books, vouchers, bills, correspondence and agreements, etc. is a part of tax management.
Audit of Books of Accounts
Audit of books of accounts: If the turnover of the business for the previous year 2015-16 exceeds one crore rupees, the audit of books of accounts is compulsory as per income tax rules. (w.e.f P.Y 2016-17 – 50 lakh). In the case of a professional audit is compulsory if the gross receipts are more than 25 lakhs.
Furnishing the Return of Income
Furnishing the return of income: The tax manager must ensure that the return of income is furnished on time otherwise the assessee will lose the right to carry forward and set off the losses and become liable to pay interest, penalty, prosecution or fine or both.
Documentation and Maintenance of Tax Records
Documentation and maintenance of tax records: An assessee should keep complete and updated tax files so that the documentary evidence can be made available in case of all queries. Tax files include filed returns, Form 16, documentary evidence in support of deductions, rebate and relief, court orders, etc.
Review of Orders of Income Tax Department
Review of orders of Income Tax Department: Reviewing the assessment orders and other orders received from the tax department is an important function of tax management. If there is any mistake in the order, an application for rectification can be made. If the order is prejudicial to the interest of the assessee he can file an appeal, revision or application for settlement of the case can be made.
Tax Management Regarding Tax Deducted at Source
The provisions of the Income Tax Act, 1961 requires the taxpayer to follow the principle “pay as you earn”. The system of tax deducted at source (TDS) is an outcome of that principle. The concept of TDS was introduced with an aim to collect tax from the very source of income.
As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
Thus, TDSis also a form of advance tax where taxes are collected by the person who is disbursing the income. Persons who can deduct tax at the source of income are:
- In case of payment made under government employment, the Drawing and Disbursing Officer.
- The employer paying salary to his employees or the Principal Officer.
- In case of individual, the borrower himself.
- In case of a company, it is the company including the Principal Officer.
- In case of any other type of payments, the payer himself: if the payer is a company, the Principal Officer will be responsible for TDS.
The tax has to be deducted at the rate specified in relevant Sections of the Income Tax Act, 1961. Deductor must have the Permanent Account Number (PAN) of the payee. Tax is deducted at source in case of the following payments:
- Salaries (Section 192),
- Interest on securities (Section 193),
- Dividends (Section 194),
- Interest other than interest on securities (Section 194A),
- Winnings from lotteries or crossword puzzles (Section 194B),
- Winnings from race horses (Section 194BB),
- Payment to contractors or sub-contractors (Section 194C),
- Insurance commission (Section 194D),
- Payment to non-resident sportsman, payment to sports association (Section 194E),
- Payment in respect of deposits under National Savings Scheme, etc. (Section 194EE),
- Payment on account of repurchase of units by mutual funds or Unit Trust of India (Section 194F),
- Payment of commission, etc. on sale of lottery tickets (Section 194G),
- Commission or brokerage (Section 194H),
- Rent (Section 194I),
- Fees for professional or technical services (Section 194J),
- Income in respect of units of UTI and mutual funds (Section 194K),
- Payment of compensation on acquisition of certain immovable properties (Section 194LA).
Apart from this tax is also deducted at source from payment to non-residents, units purchased in foreign currency, long term capital gain from foreign currency, the income of Foreign Institutional Investors (FII) from securities, etc.