Income Tax Administration1

Furnishing of Return of Income.

Furnishing of return of income is an important obligation of a tax payer. “Return of income” is a set of forms sent by the department of Inland Revenue to every tax payer to file the same with the department.

Filling of Return of Income

A person liable for income tax is required to send the return of income to the assessor. The due date for filing the return of income is on or before 30th November after the end of a year assessment.

Filling of Return…………….Contd.2

However, an individual whose income for any year of assessment include solely of one or a combination of the following sources, is not required to file a return.

a) Dividend on which tax at 10% has been deducted.

a) Interest paid on deposits, Government securities and corporate bonds on which tax has been deducted by the payer.

a) Income from employment which on PAYE tax has been deducted by the employer under normal PAYE scheme.

The reason for the above exclusion is that the relevant WHT/PAYE deducted are considered as final tax.

Opening of an Income Tax File.3

If an individual is liable to tax, he must first make an application to the CGIR. The CGIR will assign a file number and serve with the return of income for every year of assessment.

Closing of Income Tax File

A person who has already registered for income tax purpose can close his file if he establishes that he will not have any profits or income liable to income tax.

Information to be Disclosed in the Return of Income

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A return of income of an individual is mainly compromised of the following information;

Particulars of sources of income

Computation of total statutory income, assessable income, taxable income and income tax liability.

Value of the assets and liabilities as at the last date of any year of assessment.

Any exempt profits and income.

Filling Complete Return of Income5

Mere filing the return of income does not mean that an obligation of a tax payer is fulfilled. He also must make sure the return of income is complete and accurate.

For a return to be complete relevant documents to support the declaration of income and assets should be sent together with a return.

Penalty for Failure to Furnish a Return.

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If a tax payer fails to submit a return he is liable to pay a penalty. The commissioner General may impose a penalty not exceeding Rs. 50,000 in case of failure to submit a return.

He may reduce or waive the entire penalty under the following circumstances.

Such failure was due to the circumstances beyond his control

A return has been subsequently furnished with in the period specified by him.

Payment of Tax7

Payment of income tax is another important obligation of a tax payer. It is required to compute and pay income tax liability on self assessment basis, the tax payer must estimate his Quarterly income tax payable in a year of assessment.

The Quarterly installment payable is one Quarter of the tax payable by him for that year of assessment.

Payment of Tax……….Contd.8

The income tax law requires to pay such Quarterly installments on or before due dates. The due dates of Quarterly installments are as follows;

1st Quarter - On or before 15th of August of that year.

2nd Quarter – On or before 15th of November of that year.

3rd Quarter – On or before 15th of February of the next year.

4th Quarter – On or before 15th of May of the next year.

Tax in Default9

Where the Quarterly installments are not paid under self assessment basis on or before due dates, such amount is said to be in default.

Where the installment is not paid on or before the due dates, the tax payer is liable to pay penalty. The penalty is computed as follows.

If the tax is not paid on or before due date, the penalty is 10% of the tax.

Further penalty of 2% will accrue for every additional month which will not exceed 50% of the tax.

• CGIR has powers to reduce or waive such penalty, if he is satisfied that the reduction is just & equitable.

Discount of 10% for Early Settlement of Tax

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A discount of 10% is allowed to an individual who has paid Quarterly installment not less than 30 days in advance.

Verification of the return of income.

Calling for information

Once the return of income is filed by a tax payer , the assessor may verify the information given in the return of income. The assessor may require additional information from time to time from the tax payer for the purpose of his verification.

Assessments11

An assessment could be made on the following circumstances.

Where the assessor is of the opinion that the tax payer has not paid due taxes in a year of assessment.

Where the assessor is of the opinion that the tax paid by the tax payer is less than the proper amount that should have been payable.

• An assessor shall issue notice of assessment to the tax payer notifying the income tax assessed. Notice of assessment may indicate income assessed with the tax charged and penalty.

Assessments…… Contd.12

• In issuing an assessment, an assessor must comply with the following requirements.

Communication of reason for not accepting a return in writing Generally, it is made in the form of a letter sent in registered post to the tax payer.

Issuing of an assessment within statutory time limit.