I am going to pen down a simple concept which was asked from me yesterday by one of my friend.
Query 1: Under which section rounding off is done is Income Tax Act?
Query 2: On what amount rounding off is done i.e. on taxable income or tax payable?
Reply: To avoid difficulty in calculation of Tax amount, act provides provisions of rounding off of Taxable income as well final tax liability.
Section 288A: Rounding off of Taxable Income
As per Section 288A, Total amount of taxable income calculated as per various provisions of this act shall be rounded off to nearest Rupees 10 (ten) and avoid any fraction thereto.
Explanation: The total income, as computed, shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored. Thereafter if such amount is not a multiple of ten, then, if the last figure is 5 or more, the amount shall be increased to the next higher multiple of 10 and if the last figure of Total Income is less than 5, the amount shall be reduced to the next lower multiple of 10.
For example, if taxable income computed is Rs. 99,9995/- then it shall be rounded off as Rs.1,00,000/- and where taxable income computed is Rs.9,99,994.50, it shall be rounded off as Rs.9,99,990/-.
Section 288B: Rounding off of Income Tax Payable
As per Section 288B final tax liability, calculated on taxable income as per provisions of this act, shall be Rounded off to nearest Rupees 10(ten) and avoid any fraction thereto.
Explanation: The amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of refund due, under the provisions of the Income-tax Act, shall be rounded off to the nearest multiple of ten rupees and, for this purpose, where such amount contains a part of ten rupees then, if such part is five rupees or more, it shall be increased to ten rupees and if such part is less than five rupees it shall be ignored.
For example, if tax liability comes to Rs.14,996 then it shall be rounded off to Rs. 15,000 and where tax liability comes to Rs. 14993, it shall be rounded off to Rs. 14,990.
Combine Example of Section 288A and 288B of Rounding off
Mr X, has a total income off Rs.2,99,995/- for the A.Y. 2013-14. Compute the final Tax liability for A.Y.2013-14 (Here, A.Y. means assessment year)
|Total Taxable Income (as given)||2,99,993.00|
|Taxable income (Rounded off u/s 288A)||2,99,990.00|
|Tax Liability @ 10.30% on Rs. 99,990/-||10,299|
|Tax Liability (Rounded off u/s 288B)||10,300|