INCOME TAX
INSTRUCTION NO. 1896/1992
Dated: August 26, 1992
Section(s) Referred: 115K
Statute: Income - Tax Act, 1961
As you are aware, the Finance Act, 1992 has inserted a new Chapter XII-C in the I.T.Act which provides for a simplified scheme for payment of income tax by small businessmen. Government is very keen to ensure that the prospective tax payers are made aware of the simplified procedure and that maximum facility is provided to them for depositing this tax. With this end in view, a massive publicity campaign is being launched throughout the country. Apart from talks and interviews on Doordarshan and on All India Radio, it is also proposed to hold tax payers education programme(TEPs) in fora such as local associations of small traders, tailors, taxi drivers etc. Such TEPs will have to be organised primarily by CCITs and CITs who may also involve officers working under them. Care has to be taken that the TEPs are organised for the target group i.e. small retail traders, tailors etc. TEPs may also be held before organisations such as Chambers of Commerce, associations of lawyers, chartered accountants etc. in order to create a receptive environment for the new scheme.
2. Comments or clarifications on some questions and doubts which may be raised by small businessmen, alongwith important points of actions for the field officers are mentioned below:-
1. What are the salient features of the simplified procedure ?
a) The scheme is optional;
b) it is open to individuals and HUFs, not assessed to tax earlier, who have income of not more than Rs.35,000 from the business of retail trade or of running an eating place or any vocation and, in the case of business of retail trade, have an annual turnover upto Rs.5 lakhs;
c) a person carrying on the business of retail trade will be deemed to have a turnover of five lakh rupees and his total income will be deemed to be Rs.35,000. A person running an eating place or engaged in any vocation will, under the simplified procedure, be deemed to have total income of Rs.35,000. In most cases, tax will work out to Rs.1,400 if there is no income from any other source. No deduction under Chapter VIA except u/s.80-L will be allowed;
d) persons opting for the simplified procedure should not have taxable income exceeding Rs.5,000 from any source other than the business or vocation mentioned above. Tax in respect of the income upto Rs.5000 from any other source(as reduced by deduction u/s.80L) will be required to be paid at the appropriate rate;
e) such persons will not be required to file any income tax return. Instead, a simple prescribed statement-cum-challan is to be filed. Chapter XIV relating to "Procedure for assessment" will not apply in their case and there will be no enquiry nor assessment;
f) the tax is required to be paid alongwith the prescribed statement-cum challan by the 31st March of the financial year in which, the income is earned. The statement-cum-challan has to be filed in designated banks alongwith payment of tax. There is no need to go to the I.T. Office for this purpose;
g) the scheme will be in force initially for two assessment years i.e., A.Y's 1993-94 and 1994-95.
2. What is meant by the term "vocation" ?
Vocation has been defined to include tailoring hair-cutting, washing clothes, typing, photocopying, repair work of any kind and other services of a similar nature. Other services of a similar nature would include vocations which are of the same genus as the ones mentioned in the definition, that is to say, vocations which do not require any substantial intellectual input. Illustrations of this would be persons earning their livelihood as carpenters, electricians, plumbers, painters, welders, lathe machine operators, taxi drivers etc. The simplified procedure will, thus, not be available to professionals like lawyers, accountants, consultants, engineers, architects, teachers etc.
3. What is the statement which is required to be filed ?
That statement-cum-challan required to be filed is Form No.4A. The form is currently in print and will be available shortly.
4. Where will the forms be available ?
The forms will be despatched to CCITs/CITs by the DI(RSP & PR). The CCITs/CITs should send a major portion of the forms to the Zonal Accounts Officer who will then send it to the banks which collect direct taxes. The banks have already been requested to make available these forms at their counters. Some of the forms should be sent to the local associations of small businessmen. Forms will also be advertised in the newspapers from where prospective tax payers can take photocopies and file in duplicate. There is no need to go to the I.T.Office for this purpose.
5. What is the procedure to be followed in respect of payment made to banks ?
RBI has already issued instructions to banks about the procedure to be followed in respect of collection of tax under the simplified procedure. Form 4 A will be tendered by the tax payer in duplicate. One copy of the same, duly receipted, will be returned to the tax payer. The 2nd copy will be segregated and listed in statement-a-sub-scroll-separately. A single line entry will be made at the end of the receipt scroll indicating the total number of such forms received and the total amount of such collection. The receipt scroll and the second copy of the form will be sent by the bank to the Computer Centre(CTU) where it should be classified under the head "0021-INCOME TAX-SIMPLIFIED PROCEDURE".
6.What happens if a survey team goes to a business premises and the owner of the premises shows evidence of payment of tax under the simplified procedure ?
When a survey team comes across a tax payer who has paid tax under the simplified procedure, the survey team shall not ask any further question regarding the business or vocation declared in Form 4A.
7. Will the intensity of survey operations be increased or decreased as a result of the new scheme?
The intensity of survey operations will neither be increased nor decreased as a result of the new scheme.
8. Why have survey at all, once the new scheme has been announced?
Survey operations are intended to obtain information regarding all kinds of assessees irrespective of nature of income and turnover etc. The present scheme is however, restricted only to individuals and HUF having income from retail trade, eating house or from a vocation. It is also limited in terms of level of income and turnover. As stated above, the survey team will not ask any further question regarding the business or vocation declared in Form 4A.
9. Why is this scheme limited to two assessment years only ?
The scheme is experimental and initially for two years. Looking at the response and the success of the scheme, the scheme can be extended and improvement can be brought into it.
10. What is meant by not assessed to income-tax for any assessment year commencing on or before 1.4.92 ?
This would mean that a person can opt for the scheme if he has not been assessed to tax-either by way of scrutiny assessment or by way of prima-facie processing-for assessment year 1992-93 or the return has been filed but no processing has been done u/s.143(1)(a). Such person can still opt for the scheme provided the other conditions are fulfilled.
11. How is the income from any source other than the business or vocation computed ?
The person opting for the scheme should not have income exceeding Rs.5000 from any source other than the business or vocation. He may, for instance, have income from interest, house property, dividend, salary etc. This in the aggregate, should not exceed Rs.5000 even before making any deduction u/s.80L. From this aggregate amount, deduction u/s.80L will be allowed.
12. When should the provisions relating to reopening be invoked ?
The provisions of reopening should be invoked very sparingly and in rare cases. The provisions for reopening has been incorporated in the Act only to take care of cases where it is found that the simplified procedure is being misused for perpetuating tax frauds. Such reopening can be done just on the basis of reason to believe but only if the DCIT also has concrete evidence which shows that actual turnover was over Rs.5 lakhs or that total income was above Rs.35,000.
13. Will the Department try to ascertain whether the tax payer had taxable income for the preceding assessment years ?
The department will not take any action to initiate any proceedings for any earlier years merely because the assessee has filed a statement-cum-challan under the new scheme except in cases where there is definite evidence to show that the tax payer had substantial taxable income and has availed of the new scheme to evade payment of taxes for the past assessment years, no enquiry will be made by the department to ascertain whether the tax payer had taxable income for the past assessment years, no enquiry will be made by the department to ascertain whether the tax payer had taxable income for the past assessment years.
3. The above clarifications may be brought to the notice of all officers working in your jurisdiction.