5. Important terms or provisions which a taxpayer needs to know to comply with the income-tax law
Upload Date
30/04/2026
Concept of TDS or TCS
The concept of "Tax Deducted at Source", commonly known as TDS has been introduced to ensure a regular flow of revenue to the Government. The payer of income is required to deduct tax from certain payments at the prescribed rates and deposit it to the credit of the Central Government within the prescribed time.
The provisions relating to TCS were introduced under Income-tax Act to collect tax in advance from the persons who are engaged in the business of trading in alcoholic liquor, scrap, forest produces, etc., and buy such goods under a contract. As per TCS provisions, a seller is required to collect tax from the buyer in respect of certain transactions and deposit it to the credit of the Central Govt. The tax so collected and deposited through this mechanism is called 'Tax collected at Source'.
Every person who is required to deduct or collect tax at source has to apply for allotment of Tax Deduction and Collection Account Number (TAN) within the prescribed time.
How to apply for a TAN?
An application for allotment for Tax Deduction and Collection Account Number (TAN) shall be made in Form No. 49B.
To incorporate a company, the promoters are required to apply in Form No. INC-32 (SPICe) under the Companies Act, 2013. By filing one form, the applicant can avail of below 5 services:
a) Reservation of Name
b) Allotment of Director Identification Number (DIN)
c) Incorporation of a New Company
d) Allotment of PAN
e) Allotment of TAN
The application for allotment of a TAN can be filed electronically or manually with the Income-tax department.
The application for allotment of TAN has to be made within 1 month from the end of the month in which tax was deducted or collected at the source.
An assessee who has been allotted TAN is required to quote the same in payment challans, TDS Statements, TCS Statements, TDS Certificates, TCS Certificates, or in all documents pertaining to such transactions as may be prescribed.
Concept of Advance Tax
The scheme of advance tax requires every assessee to estimate his current income and if tax liability on such estimated income exceeds the specified limit, the assessee is required to pay the estimated tax in instalments during the financial year itself. Thus, an assessee is required to pay tax as he earns and therefore the scheme of advance tax is also known as the 'Pay as you Earn Scheme'.
Every person, whose estimated tax liability for the Financial Year is Rs. 10,000 or more, shall pay his taxes in advance in the form of "advance tax". However, a resident senior citizen (i.e., an individual of the age of 60 years or above) not having any income from a business or profession is not liable to pay advance tax.
Tax Audit under Income-tax law
An assessee shall get the books of accounts audited if its gross turnover or receipts during the relevant previous year exceeds the prescribed threshold limit. The following persons are compulsorily required to get their books of account audited by a Chartered Accountant:
| Nature of Business or Profession | Category of Taxpayer | When the audit is mandatory? |
| Any professions (specified or non-specified) | Any professional | If gross receipts from the profession during the relevant previous year exceeds Rs. 50 lakhs |
| Business | Cash receipt and payment up to 5% (See Note) | If total sales, turnover, or gross receipt from the business during the previous year exceeds Rs. 10 crore |
| Business | Any person | If total sales, turnover, or gross receipt from the business during the previous year exceeds Rs. 1 crore |
| Businesses eligible for the Presumptive Tax Scheme under Section 44AD | Resident Individual or HUF | If the income of the assessee exceeds the maximum exemption limit and he has opted for the scheme in any of the last 5 previous years but does not opt for the same in the current year. |
| Businesses eligible for the Presumptive Tax Scheme under Section 44AD | Resident Partnership Firm (Other than LLP) | A taxpayer has opted for the scheme in any of the last 5 previous years but does not opt for the same in the current year. |
| Profession eligible for Presumptive Tax Scheme under Section 44ADA | Resident Individual or Resident Partnership Firm (Other than LLP) | The taxpayer claims that his profits from his profession are lower than the profits computed under Section 44ADA and total income exceeds the maximum exemption limit |
| Businesses eligible for Presumptive Tax Scheme under Section 44AE | Any Assessee engaged in plying, hiring, or leasing of goods carriage | The taxpayer claims that his profits from the business are lower than the profit computed under Section 44AE |
| Businesses eligible for Presumptive Tax Scheme under Section 44BB | Non-resident assessee engaged in the exploration of mineral oil | The taxpayer claims that his profits from the business are lower than the profit computed under Section 44BB |
| Businesses eligible for Presumptive Tax Scheme under Section 44BBB | Foreign Co. engaged in civil construction | The taxpayer claims that his profits from the business are lower than the profit computed under Section 44BBB |
Note: Following conditions need to be fulfilled:
(a) Cash receipts, including the amount received for sales, turnover, or gross receipts, do not exceed 5% of the aggregate amount received during the previous year; and
(b) Cash payments, including the amount incurred for expenditure, do not exceed 5% of the aggregate amount paid during the previous year.
To compute the limit of 5%, payment or receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the payment or receipt in cash.
Maintenance of Books of Account
An assessee is required to prepare and maintain books of account if his income or gross turnover or receipts, as the case may be, exceeds the prescribed threshold limit. The books of account and documents should be kept and maintained by the assessee at the place where he is carrying on the business or profession. The prescribed books of account should be kept and maintained for a period of 6 years from the end of the relevant assessment year. The requirement to maintain the books of accounts is prescribed under Section 44AA.
Tax Rates under Income-tax law
(a) For Proprietorship business - An Individual is not liable to pay tax if his normal income is up to the maximum exemption limit or basic exemption limit. An individual's income shall be taxable as per the slab rates applicable to him (either in the old tax regime or the new tax regime as opted by such person).
(b) For Partnership and LLP business - A partnership firm (including LLP) is liable to pay tax at the flat rate of 30% of normal taxable income.
(c) For Companies (including OPC) - Income-tax Act allows a domestic company to choose from the following taxation regime subject to the fulfilment of prescribed conditions:
|
Section |
Conditions |
Tax Rates |
|
|
1. The co. is set up and registered on or after 01-03-2016; 2. It is engaged in the manufacture or production of any article or thing; and 3. It does not claim specified exemption, incentive, or deduction. |
25% |
||
|
1. The co. is set up and registered on or after 01-10-2019; 2. It is engaged in the manufacture or production of any article or thing; 3. It commences manufacturing on or after 01-10-2019 but on or before 31-03-2024; and 4. It does not claim specified exemption, incentive, or deduction. |
15% |
||
|
If co. does not claim specified exemption, incentive, or deduction |
22% |
||
|
First Schedule to Finance Act |
If total turnover or gross receipts during the financial year 2023-24 does not exceed Rs. 400 crores |
25% |
|
|
First Schedule to Finance Act |
Any other domestic company |
30% |
Further, a foreign company is liable to pay tax at the flat rate of 35% of normal taxable income.
The above rates prescribed for an individual or a partnership firm (including LLP) or a company shall be further increased by surcharge (if applicable) and health and education cess.