Navigating the world of taxes and regulations can be tricky, especially tax risk management  with constant updates, multiple deadlines, ambiguous interpretations and the sheer breadth. A business always strives to optimise costs and taxes wherever possible and we have already shown a few ways in which tax exposures could be mitigated in an earlier article . Let us share with you few more tips to mitigate tax risks.

• Monitoring TDS defaults: The TRACES portal shows tax dues as a result of TDS defaults. Monitoring the portal on a regular basis will ensure that proactive action is taken to resolve any disputes and prevent further compliance costs.

• TDS on foreign payments: Section 192 to 194 of the income-tax act contain the base provisions for deduction of tax in case of payments made to residents. However, there could an inadvertent omission of deducting tax while making payment to a foreign entity. Compliance with the provisions of section 195 should also be observed along with other TDS compliances. One must also not forget to add Cess of 4% & surcharge as applicable to the TDS portion of foreign payments.

• Presumptive income: Section 44AD contains the presumptive income provisions under income-tax Act where the taxpayer can declare his income to be equivalent to 6% of gross receipts received through electronic means (ECS, account payee cheque, etc.) or 8% of gross receipts received via cash or such higher amount of tax as applicable. If the sales turnover/gross receipts are received in cash, it could lead to a higher presumptive rate of 8%. Hence, wherever possible, the taxpayer should try receiving the sale consideration through electronic means only. Furthermore, where the income is lower than 6% or 8% of the gross receipts as the case may be, the books of accounts need to be audited by a Chartered Accountant.

• Penalty for cash transactions: Section 269SS prohibits receiving of loans, deposits or specified advances exceeding ₹ 20,000 in cash from another person. Section 269T prohibits the repayments of loans, deposits or specified advances exceeding ₹ 20,000 in cash to another person. Further, section 269ST prohibits the receipt of ₹ 2,00,000 or more in aggregate from a single person in a day; in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person. The penalty in each of the cases is the equivalent to the amount taken or repaid, as the case may be. Thus the organisation needs to be aware of these provisions and have measures in place to avoid breach of these section.

• Equalisation levy: Not many people may be familiar with the provisions of equalisation levy. Equalisation levy of 6% is applicable on payments made in respect of online or digital advertising to a non-resident entity, if such payment exceeds ₹ 1,00,000 in the financial year. Such payments are due by the 7th of the next month as is the case with TDS. Further, the Equalisation Levy Statement (Form-1) is due to be filed by 30th June of the next financial year. Not complying with the same could lead to interest and even disallowance of the expenditure.
   

• Advance Tax payments: Advance tax is due in quarterly instalments of 15%, 45%, 75% and 100% respectively. While most entities calculate the tax and pay the same on a timely basis, what is sometimes missed out is the addition of surcharge on the estimated tax. The applicable surcharge depending on type of entity and total income should also be added to the advance tax dues and paid accordingly.

• Transfer Pricing provisions: Related parties in different tax jurisdictions should be careful about the consideration charged for goods/services supplied between them. All transactions have to be made at the prescribed arms-length price failing which the tax department might make transfer-pricing adjustments leading to the possibility of additional income tax, interest and also penalties. The company must disclose all information and documents as prescribed under section 92D failing which a penalty equivalent to 2% of value of the international transaction.

Conclusion

Some Tax risk management strategy can be done in-house while others may require expert guidance. These measures are not a one-time effort but an ongoing commitment to compliance and accurate financial reporting.