08-09-2011, 07:54 PM
If the employer has made excessive deduction and the relevant tax year has closed, then it means that your assessment would be entitling you to refund for that year. Whether an employer can make adjustment for previous tax year's refund is a debatable issue. Department disallows that. Many chartered accountants also share the view of department. The circulars on this issue are Circular No. 18 of 2004 and paragraph 6 of Circular No.11 of 2010. The circular 11/2010 enlists several items on which tax adjustment may be allowed by employer. This list does not contain refund from previous years. However, these Circulars also no where say that adjustment should not be granted under other heads.
No decision of court of law is in place on this issue. I am personally of the opinion that employer can make adjustment. The basis of my opinion is para ii of sub-section (1) of section 149. It allows adjustment for <b>any excess </b> deduction or deficiency arising out of <b>any </b> previous deduction
It is pertinent to note that in para i & iii of s.149, legislature has restricted the period of deductions, regarding which adjustment is to be allowed, to current tax year, by using the phrase "during the tax year"
While in para (ii) no such restriction is made and legislature has intentionally not used the phrase "during the tax year".
Further, it is pertinent to note that in the income tax return, a taxpayer is allowed to give himself adjustment for previous year refund(at the bottom of page 1 of Income Tax Return). If taxpayer is entitled to give adjustment for previous year refund by reducing his tax payable, without any reference or order from department, then why his employer cannot assist him by allowing him refund adjustment.
As payment of tax lower than that required by Income Tax Ordinance, 2001 is bad similarly deducting excessive tax also amounts to depriving one of his property. Any approach creating undue hardships and resulting in undue labour for recovering one's own property should be discouraged.
In your case what we advise is that, employer should give adjustment and at a same time it may take indemnity from you that if he had to pay it later or to pay any surcharge for non deduction, then he may recover it from you. Mostly, in small organizations, such adjustments went unnoticed by tax authorities. Further, as such adjustment is not clearly barred by law or FBR, so I see no chance of imposition of surcharge or penalty, even if court ruled later against us.
In case your employer doesn't agree, then you have to make a little effort
Submit return for the relevant tax year, that will be entitling you to refund
File Refund application.
If refund application not decided within 60 days, you have two ways open. Approach FTO for maladministration or file appeal to Commissioner Appeals {s.170(5)(b)}.
both are not difficult in your case, it is simple case. I understand, for refund of Rs.9,000 you cannot afford hiring lawyer, try it yourself if needed. It will be a good experience.
No decision of court of law is in place on this issue. I am personally of the opinion that employer can make adjustment. The basis of my opinion is para ii of sub-section (1) of section 149. It allows adjustment for <b>any excess </b> deduction or deficiency arising out of <b>any </b> previous deduction
It is pertinent to note that in para i & iii of s.149, legislature has restricted the period of deductions, regarding which adjustment is to be allowed, to current tax year, by using the phrase "during the tax year"
While in para (ii) no such restriction is made and legislature has intentionally not used the phrase "during the tax year".
Further, it is pertinent to note that in the income tax return, a taxpayer is allowed to give himself adjustment for previous year refund(at the bottom of page 1 of Income Tax Return). If taxpayer is entitled to give adjustment for previous year refund by reducing his tax payable, without any reference or order from department, then why his employer cannot assist him by allowing him refund adjustment.
As payment of tax lower than that required by Income Tax Ordinance, 2001 is bad similarly deducting excessive tax also amounts to depriving one of his property. Any approach creating undue hardships and resulting in undue labour for recovering one's own property should be discouraged.
In your case what we advise is that, employer should give adjustment and at a same time it may take indemnity from you that if he had to pay it later or to pay any surcharge for non deduction, then he may recover it from you. Mostly, in small organizations, such adjustments went unnoticed by tax authorities. Further, as such adjustment is not clearly barred by law or FBR, so I see no chance of imposition of surcharge or penalty, even if court ruled later against us.
In case your employer doesn't agree, then you have to make a little effort
Submit return for the relevant tax year, that will be entitling you to refund
File Refund application.
If refund application not decided within 60 days, you have two ways open. Approach FTO for maladministration or file appeal to Commissioner Appeals {s.170(5)(b)}.
both are not difficult in your case, it is simple case. I understand, for refund of Rs.9,000 you cannot afford hiring lawyer, try it yourself if needed. It will be a good experience.
