Charging The Audit Fee at the Right Time

When it comes to setting the price for services, time based charging is one of the important factor  to consider. Although, there is caution and optimism among some professionals to accept the use of time based remuneration for services like auditing, there is always a variance in this opinion.

 In auditing profession,  80% of clients turn up at the last minute with their books for tax audit and tax filing – typically the last one month before the tax filing deadline.This is not an area specific or country specific issue but a global phenomenon. 

Some types of assignments are time specific – for example statutory audits of banks, tax audits etc. Time specific assignments bring in a touch of seasonality to the profession with peak requirements during tax audit submissions typically July to September every year. Audit firms therefore have very specific and detailed training requirement for staff to avoid being swamped/overloaded during the peak season - training that involves a fair amount of time and money. Every CA firm undertakes said training and development to ensure smooth sailing during the tax audit.

When a client comes in at the 11th hour with a set of sub standard books the question of course is how to provide quality service when the level of input is sub standard as well as being last minute. This would require the use of qualified resources at a higher cost and therefore justify a higher fee from the client than that charged to a similar sized business which brings in the books on time.

Let us look at a similar situation in the Airline industry. Once upon a time, airline companies charged you the same amount whether you booked the ticket one month in advance or just a day ahead of your scheduled travel. The advent of low cost airlines changed the whole game. They brought differentiation into the pricing structure and used that as a major business strategy.

Typically,  flight ticket from Kolkata to Mumbai would cost around Rs.3000, but if you book at the last minute, it would cost around Rs.15,000 to Rs.20,000.

This is the precise model US CPAs follow to charge clients when they come in at the last minute. They typically charge 20% more if the client comes in during the last month and fees go further up, if the same happens during the last week of the due date in April.

An auditor cannot work a miracle when the client takes forever to put together the documentation, and presents it hardly 3 days before the audited financials are due to be filed. Ideal clients would understand their own accounting and make the time to get the auditor what he / she needs on time.

Charging the same fee for prompt & not-so-prompt clients would tempt clients to drag on till the last possible minute as there is no monetary penalty involved per se – just a slight reprimand from a disgruntled auditor. However, a graded fee structure would serve as a disincentive to attempt last minute audit requests. This practice will eventually reduce the average cost per client served. Once the practice becomes habit, the overall fee charged is only going to go down as the auditor will have a more organized workload on hand and can plan ahead.

As Chartered Accountants, all of us are aware of the time value of money. While no client should be overcharged for any of the services provided, it would also not be justified to allow last minute clients to get quality service at a price that does not meet the basic costs involved and the related risks.  Therefore, it is worth considering a graded fee structure based on time and effort during the tax audit season.

Penalties for not filing eTDS return on time

eTDS  statement for 2013-14 first quarter is to be filed on or before July 15, 2013. Few important changes and points to remember are given below:

Mandatory Fees and Penal provisions

File eTDS Statement in time or pay late filing fees ( Section 234E)

failure to submit eTDS statement in time will result in fees

• A mandatory fees of Rs. 200 per day is applicable for any delay in furnishing of eTDS statement.
•  Total fees will be limited to the amount of TDS deducted
• Such fees must be paid before filing of eTDS statement and shown appropriately therein.

Penalty for late filing or incorrect filing ( Section 271H)

• A delay beyond one year will result in penalty ranging from Rs. 10,000 to 1 lac.

• Failure to file eTDS statement or filing incorrect details like PAN, challan details, TDS amount will also result in penalty being levied ranging from Rs. 10,000 to 1 lac

From the above, it is clear that this time when you fie eTDS statement, you need to file in time and also ensure that you are not filing incorrect details in the statement.

Rectification of errors in tax challans

Deposit of TDS can be made either electronically or by a physical challan. e-Payment of tax is mandatory for companies and others covered under mandatory tax audit. Several times, while depositing tax, errors may creep in. To rectify these errors, income-tax department has issued new guidelines with immediate effect.

This new mechanism allows Banks to correct physical challans only.For corrections in electronic challan, request will have to be made to Assessing Officer.

Correction in Physical Challans

What fields can be corrected by bank

• Assessment Year
• Major Head Code
•  Minor Head Code
•  TAN/PAN
•  Total Amount
•  Nature of payment (TDS Codes)

What is the time frame for correction request ?

• Request for correction has to be made within 7 days of deposit of challan for correction in PAN, TAN and Assessment Year
• For Major head, minor head and nature of payment, request can be made within 3 months of deposit of challan.

What is the remedy available after time frame is over ?

• After lapse of time frame, request can be made to the Assessing Officer.
  

What is the time frame given to bank to carry out correction?

• After receipt of request, bank must carry out the correction within 7 days

What are other conditions for correction ?

• Correction in name is not allowed
• Any combination of correction of Minor Head and Assessment Year together is not allowed
• PAN/TAN correction will be allowed only when the name in the challan
  matches with the name as per the new PAN/TAN.
• The change of amount will be permitted only on the condition that the
  amount so corrected is not different from the amount actually received by the bank and credited to Govt. Account.
• For a single challan, correction is allowed only once. However, where 1st
  correction request is made only for amount, a 2nd correction request will be allowed for correction in other fields.
• There will be no partial acceptance of change correction request, i.e. either all the requested changes will be allowed, if they pass the validation, or no change will be allowed, if any one of the requested changes fails the validation test.

What is the procedure for requesting correction ?

• The tax-payer has to submit the request form for correction (in duplicate) to the concerned bank branch.
•  The tax-payer has to attach copy of original challan counterfoil.
•  In case of correction desired for challans in Form 280, 282, 283, the copy of PAN card is required to be attached.
•  In case of correction desired for payments made by a tax-payer (other than an individual), the original authorization with seal of the non-individual taxpayer is required to be attached with the request form.
•  A separate request form is to be submitted for each challan.

Correction in Electronic Challans

• For correction in electronic challans and for correction after the time period for application to bank lapses, a written request in prescribed format has to be made to the Assessing Officer
• Assessing Officer has power to rectify the error , in bona fide cases, to enable credit of tax to assessee.

More details can be had from the Income Tax Department link here

Rectification of errors in challans transmitted to the TIN central system

Rectification in name of the tax payer, amount and the major head code (indicating the type of deductee i.e. company deductee/non company deductee) in the challan transmitted to the TIN central system by the bank through OLTAS can be done by the bank. The bank shall rectify the same and transmit correct details to the TIN central system. 

Rectification in TAN/PAN, assessment year, minor head code in the challan transmitted to the TIN central system by the bank through OLTAS can be done only by the Assessing Officer.  In such cases the deductor may contact its Assessing Officer (TDS Assessing Officer in case of rectification of TAN and Assessing Officer for income returns in case of rectification of PAN) to get the same rectified.

Checklist while preparing e-TDS Returns

Points to remember while preparing your bank's e-TDS return:

• The return is in conformity with file format notified by IT Department
• Each e-TDS return is furnished in a separate CD/floppywith duly signed & authorised Form 27A in physical form
• Striking & overwriting, if any, on Form 27A is ratified by authorised signatory
• More than one CD/Floppy is not used to furnish one e-TDS return and vice versa
• Compulsory affixing of label containing name of deductor, TAN, Form # and period of return on CD/floppy
• TAN quoted on e-TDS return and furnished on Form 27A are the same
• e-TDS return, if compressed, to be done using WinZip 8.1 or ZipItFast 3.0 or higher version utility only
• TAN Allotment Letter / screenshot from ITD website to be furnished as proof of TAN
• Form 49B(Application for TAN) / TAN application acknowledgement to be submitted alongside e-TDS return in case of government deductors in case TAN details are unavailable
• Control Totals, TAN & name on e-TDS application to match with those on Form 27A
• Form 24 - copies of certificates of no deduction of TDS & TDS deduction at a concessional rate , as received from deductees to be attached
• e-TDS return has successfully passed through the FVU
• CD/floppy furnished is virus-free

For detailed guidelines, procedures, forms, data structure (file formats), notification, list of

TIN-FCs, NSDL Return Preparation Utility (NSDL-RPU) and FVU visit www.tin-nsdl.com

E-TDS for banks - Filing due dates

Different types of E-TDS Statements include:

24Q - TDS on Salaries
26Q - TDS on all other payments other than Salaries
27Q - TDS on payments to Non-Residents & Foreign Companies
27EQ - Statement of Tax Collected at Source


Due dates for filing:

Tax residency certificate mandatory for foreign investors

As per a Government of India notification dated 17^th September 2012, all foreign investors will have to produce tax residency certificates (TRC) of their base nation to claim benefits under the double taxation avoidance treaty from April 1, 2013.

The amendments to the Income Tax Act, 1961will take effect from April 1, 2013 and will apply in relation to the assessment year 2013-14 and subsequent years.

The notification amends Section 90 and Section 90A of the Act dealing with taxation of foreign investment and tax benefits under the Double Taxation Avoidance Agreements (DTAAs).

Currently, India has a total of 84 DTAAs with foreign countries.

The TRC for availing tax benefits was proposed in the 2012-13 Budget, presented by the then Finance Minister Pranab Mukherjee.The TRC to be obtained by an assessee, not being a resident in India, from the Government of the country or the specified territory, shall contain the name of the assessee, status as to whether it is an individual or company, its nationality and country wherein it is registered or incorporated.

Besides, the TRC should also have the tax identification number of the assessee, its residential status for the purposes of tax, period for which the TRC is applicable and address of the assessee during that period.This requirement also has implications for NRIs who have India filing requirements. They will also be required to produce a tax residency certificate to claim benefits under DTAA in India.

Under a clause in the Double Taxation Avoidance Agreement (DTAA) entered into between two countries, the assessee can take the advantage of paying capital gains tax in either of the two nations.

The scheme of interplay of treaty and domestic legislation ensures that a taxpayer, who is resident of one of the contracting country to the treaty, is entitled to claim applicability of beneficial provisions either of treaty or of the domestic law.

A Memorandum to the 2012-13 budget mentioned that in many instances the taxpayers who are not tax resident of a contracting country do claim benefit under the DTAA entered into by the Government with that country. Thereby, even third party residents claim unintended treaty benefits.