Provisions relating to collection and recovery of Tax
A provision for income taxes is the estimated amount that a business or individual taxpayer expects to pay in income taxes for the current year. The amount of this provision is derived by adjusting the reported net income of a business with a variety of permanent differences and temporary differences. The adjusted net income figure is then multiplied by the applicable income tax rate to arrive at the provision for income taxes.
This provision can be altered to a considerable extent by the amount of tax planning that a person or business engages in to defer or eliminate the income tax liability. Consequently, the proportional size of this provision can vary significantly from taxpayer to taxpayer, based on their tax planning abilities.
A planned provision for income taxes can also be included in a company’s budget model. In a well-crafted model, this planned provision would include both permanent and temporary differences. In a more basic model, the provision is simply based on the applicable tax rate.
Section 220: When tax payable and when assessee deemed in default
Section 221: Penalty payable when tax in default
Section 222: Certificate to Tax Recovery Officer
Section 223: Tax Recovery Officer by whom recovery is to be effected
Section 224: Validity of certificate and cancellation or amendment thereof
Section 225: Stay of proceedings in pursuance of certificate and amendment or cancellation thereof
Section 226: Other modes of recovery
Section 227: Recovery through State Government
Section 228: Recovery of Indian tax in Pakistan and Pakistan tax in India [Omitted]
Section 228A: Recovery of tax in pursuance of agreements with foreign countries
Section 229: Recovery of penalties, fine, interest and other sums
Section 230: Tax clearance certificate
Section 230A: Restrictions on registration of transfers of immovable property in certain cases [Omitted]
Section 231: Period for commencing recovery proceedings [Omitted]
Section 232: Recovery by suit or under other law not affected
Features of Provision for Taxation:
Provision for taxation has the following features:
- Source of Working Capital:
Provision for taxation provides funds for financing working capital.
- Cost of Financing:
Financing of working capital through provision for taxation does not involve any cost.
- Legal Formalities:
Use of provision for taxation as a source of finance does not require any legal formalities.
- Floatation Cost:
It does not involve any issue-related cost.
Advantages of Provision for Taxation:
It is a cheaper source of finance and does not involve any cost.
There is no obligation of payment of any cost of capital.
Disadvantages of Provision for Taxation:
3. Short-term Finance:
Provision for taxation provides funds for a very short period.
2. Inefficient Utilization of Funds:
Sometimes excess provision may be created which might lead to misuse of funds.