Payment of Self Assessment Tax by 31 July 2020 – A problem

 

Due date for payment of Self Assessment Tax where amount payable is Rs 100,000 has not been extended. In case of failure to do so, interest under Section 234A will be levied at 1% per month. This means individual taxpayers need to ascertain their tax liability by 31 July 2020 and discharge the Self Assessment Tax if the same is Rs 100,000 or more. This Article captures various contentions against such a provision and discusses the way forward.

 

Extension of Due Dates

 

Central Board of Direct Taxes (CBDT) have issued a Notification under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 to further extend various due dates. Under this Notification, inter-alia, the following due dates have been extended:

 

·         Due date for filing TDS returns for the quarter ended 31 March 2020 has been extended to 31 July 2020;

·         Due date for issuance of Form 16 for FY 2019-20 has been extended to 15 August 2020;

·         Consequent to the extension of due date of filing TDS return, the due date for issuance of Form 16A has also been extended to 15 August 2020;

·         Due date for filing of tax return for all taxpayers has been extended to 30 November 2020.

 

Thus, further relief has been granted for filing of TDS returns – which were earlier required to be filed by 30 June 2020. Consequential relief has been granted for issuance of Form 16/ Form 16A which were earlier required to be issued by 15 July 2020.

 

In the Notification, a proviso has been added to the effect that taxpayers who are required to pay Self Assessment Tax of Rs 100,000 or more, have to do so on or before the original due date of filing tax return (for individuals/ certain other taxpayers – 31 July 2020 and for companies/ entities subject to Tax Audit – 31 October 2020). This fact has been reiterated in the Press Release dated 24 June 2020. Thus, inter-alia, individual taxpayers would be required to discharge Self Assessment Tax by 31 July 2020 – if the same is Rs 100,000 or more. On a failure to do so, interest under Section 234A would be levied at 1% per month (part of a month will be considered as full month). In order to ascertain as to whether Self Assessment Tax is required to be paid, the entire tax working needs to be finalized by 31 July 2020.

 

Impossible Situation

 

As stated above, deductors are required to file TDS return by 31 July 2020 and issue Form 16/ Form 16A by 15 August 2020. Thus, the above requirement to pay Self Assessment Tax puts individual taxpayers in an impossible situation as updated Form 26AS may not be available in time to determine and pay Self Assessment Tax. It is settled position that a taxpayer cannot be expected to do something which is impossible. Hence, the requirement to pay Self Assessment Tax appears to be unfair and unequitable.

 

Promissory Estoppel

 

In the Press Release dated 13 May 2020, it had been clearly stated that the due date for filing tax returns for FY 2019-20 would be extended to 30 November 2020. The due date for payment of Self Assessment Tax (failing which interest would be levied under Section 234A) is coterminous with the due date for filing tax returns. In absence of any specific provision, a taxpayer would assume that the due date for payment of Self Assessment Tax would also be extended. In the past, there have been instances when the due date of filing tax return and payment of Self Assessment Tax have been delinked. However, it may be noted that in such cases, the fact of delinking is clearly stated at the time of announcing extension of due date.

 

In this case, it appears that this delinking was an afterthought. Hence, as per the doctrine of promissory estoppel (which has been upheld by the Supreme Court), it could be contended that the due date for payment of Self Assessment Tax cannot

Add caption

the argument of impossibility. ITR Forms – Not Available

It may be interesting to note that CBDT has not yet released all the necessary forms for filing of tax returns. In actual fact, interest under Section 234A is levied for filing of tax return beyond the due date. The taxpayer needs to be provided sufficient time to file the same. In other words, a taxpayer cannot be penalized if the forms are not available within reasonable time.

 

Recourse Available

 

It is likely that the validity of this proviso in the above Notification will be challenged before a High Court by way of a Writ Petition. In such an event, it is likely that the High Court may strike down this proviso. Given the timeframe involved, it is less likely that a High Court will decide this issue before the due date. Hence, taxpayers need to be prepared for the worst-case scenario.

 

Way Forward

 

In the meantime, as this unfair provision is challenged and struck down, taxpayers need to start accumulating information for preparation of tax working. As mentioned above, the due date for filing of TDS returns has been extended to 31 July 2020.

However, taxpayers need to start following up for obtaining Form 16/ Form 16A. Taxpayers need to assert to the deductors that there is a requirement to pay Self Assessment Tax by 31 July 2020 and Form 26AS needs to be updated latest by 20 July 2020 in order to leave enough time to ascertain and pay Self Assessment Tax.

 

The biggest challenge could be faced by taxpayers having large fixed deposits with banks. Taxpayers need to request the banks to file TDS returns by first week of July 2020. If banks fail to do so, the taxpayers should seek indemnification for the interest liability which they will incur. It is important to clearly state this fact in correspondences with the bank. Alternatively, taxpayers should obtain interest statement from the bank.

 

Thus, preponement of the due date for payment of Self Assessment Tax will result in considerable hardship to taxpayers and deductors.