AMENDMENT IN SCHEME OF DISALLOWANCE FOR WITHHOLDING TAX DEFAULTS

Section 40(a)(ia) of the Act presently provides for a dis allowance of an expense if the tax to be withheld on such expense has either not been withheld or is withheld but not deposited (or belatedly
deposited) with the Government. The proposed amendment seeks to provide relief from the scheme
of dis allowance under section 40(a)(ia) in cases of payments relating to the last month (March) of a financial year. Accordingly, in respect of tax to be withheld during the month of march, as long as the tax is deposited on or before the due date of submission of return of income (now September 30 of the immediately following financial year), there would be no dis allowance. This change is with retrospective effect from April 1, 2004. For all other payments, there is no change and where tax to be withheld has not been withheld or tax that is withheld has not been deposited into the Government account before the end of the financial year, no deduction shall be allowed and the deduction shall be allowed only in the year in which tax withheld is actually deposited with the Government.