For simplification and speedier calculations rounding off of income and tax both should be by ignoring paise and other rounding off e.g. rounding off to nearest Rs.10 vide – Section 288A & 288B of Income-tax Act need to be dispensed with.

[DEV KUMAR KOTHARI]

For  simplification  and speedier calculations  rounding off  of income and tax  both should  be by ignoring paise  and other rounding off e.g. rounding off to nearest Rs.10  vide  – Section 288A & 288B of Income-tax Act  need to be dispensed with.

General discussion:

Inclusion of paise – require more calculation time:

It was different when each pie was more valuable then now and at that time even in my childhood I have seen importance of calculations including paise by shop keepers while receiving payment or refunding to customer. When each paie was considered for payment and adjustment etc. Over a period of time with falling value of money I have seen practice of  rounding off to char ane   (25 Paise ) or aath ane ( 50 paise)

 Perhaps at that time and efforts required for calculations was considered less valuable than amount including paise.

In Income-tax Act also from history of provisions we notice that earlier paise were also rounded off to nearest rupee. Then practice came, by amending provisions to ignore paise in calculations. However, practice of rounding off amount of tax to nearest Ten rupees is still statutory requirement, as discussed lateron.

Quick and easier calculations:

To make calculations quicker and easier, it is suggested that rounding of should be restricted to just ignore paise at all stage and to discontinue rounding off to nearest Ten rupees.

Even in computerized system the software and resultant calculations will experience simplified processing by ignoring two rows of numbers.

Whether it be manually prepared document or computer generated document, inclusion of paise in amount involved more calculations in any working like totaling , subtracting, multiplications, division etc. If amount can be mentioned only in rupee , ignoring paise, calculation will be quicker and easier.

Materiality:

Ignoring  paise in amounts will not materially affect any party over a period of time and number of transactions. By ignoring paise, some times a few paise will be collected or paid extra and some times a bit less.

Policy decision can be for quoting price without paise:

A  decision to quote or fix pieces in rupee only and ignoring paise is a policy decision considering nature of products, and range of pricing.

Manual calculations vis a vis computerized calculations:

In manual calculations, many times we use rounding off. Rounding off to the extent of rupee, by ignoring paise is  adopted, for long past,  even in billing systems by many shop keepers and other organizations as I recall from my childhood shopping experience.

Even while receiving payment in cash many shopkeepers also ignored paise  and used to receive payment rounded off to Rupee and ignoring paise. This is a favored practice presently also because it help in completing transaction easily and quickly. On involvement of paise, finding coins and giving or receiving is a time consuming work. Many times when there is shortage of coins, we have observed practice of giving stamps, or additional items to complete process of payment.

Only some organisations like BATA used to place MRP with Rs. and 95 paise. However, while receiving payment paise were ignored in manual dealings. In computer generated bill cash memo or receipt paise are being ignored by many organisations.

As per a web search BATA has also discontinued practice of  mentioning 95 paise. Now they place figure or number ending with 99. As per a webpage:

As on 28.02.2023 author found pricing pattern for BATA products ending with 99  like

NORTH STAR

MRP ₹ 3,499.00

SCHOLL

MRP ₹ 3,499.00

 

MARIE CLAIRE

MRP ₹ 999.00

This reduces and  simplify calculations for two   rows of numbers.

For example, amount with and without rounding off:

Amount without RO Rupees and paise	Amount RO ignoring paises.
15.95	16
15.45	15
Total 31.40	31

 

Difference is not material. Over a period of time and many number of transactions differences of some saving or some extra spent, makes balancing.

Why rounding off is still continuing in Income and tax calculations.

We find some provisions which require rounding off of amounts. For example, in the Income-tax Act, 1961:

¹[Rounding off of income.

288A. ²[The amount of total income] computed in accordance with the foregoing provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten; and the amount so rounded off shall be deemed to be the total income of the assessee for the purposes of this Act.]

³[***]

 ----------------------

Notes :-

1. Inserted by the Finance Act, 1966, w.e.f. 1-4-1966.

2. Substituted for "(1) Subject to the provisions of sub-section (2), the amount of total income" by the Finance Act, 1968, w.e.f. 1-4-1969.

3. Sub-section (2) and Explanation, omitted by the Finance Act, 1968, w.e.f. 1-4-1969.

Discussion

As per  above section  the total income computed as per various sections of the act, shall be rounded off to the nearest Rs 10. For the purpose of rounding off, firstly any part of rupee consisting of paise should be ignored. Thereafter, if the last digit in the total figure is 5 or greater than 5, the total amount should be increased to the next higher amount which is a multiple of Rs. 10.

And if the last digit in the total figure is less than 5, the total amount should be reduced to the nearest lower amount which is a multiple of Rs 10. This rounding off of income should be done only to the total income and not at the time of computation of income under the various heads.

Eg: If total income is Rs. 108944.50 In such a case, firstly the paise would be ignored and total income would be considered as 108944. Thereafter, this 108944 would be reduced/ increased to the nearest multiple of 10. As the last digit is 4 which is less than 5, it would be reduced to the nearest multiple of 10 which in this case would be 108940

Instead of Rs. 108944.50, if this income had been 108945.50, it would have first been rounded off to Rs. 108945 and then rounded off to 108950.

 

¹[Rounding off amount payable and refund due.

288B. Any amount payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten.]

------------------------ Notes :-                      

1. Substituted by the Taxation Laws (Amendment) Act, 2006, w.e.f.13-7-2006. Prior to its substitution, section 288B, as amended by the Finance Act, 1966, w.e.f. 1-4-1966, read as under:

288B. Rounding off of tax, etc.-The amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise it shall be ignored."

Discussion: Regarding rounding off of amount of tax payable or refundable  S.288B provide manner of rounding off and there was an amendment w.e.f. 1307.2006 when rounding of paise base don more or less than 50 paise was omitted. This means paise is ignored at both end. Before amendment  requirement was to   rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise it shall be ignored."

So we can recall when computers were not available , all concerned has to do tedious calculations of rupee by rounding off to nearest rupee also in both directions.

By ignoring paise at all , the rounding off was simplified.

 

The total tax computed shall be rounded off to the nearest Rs 10.

The rounding off of tax would be done on the total tax payable or refundable and not to various different sub-heads of taxes like income tax, education cess, surcharge etc.

Rounding off would be done in the same manner as above i.e. firstly paise would be ignored and thereafter if the last digit in the total figure is 5 or greater than 5, the total amount should be increased to the next higher amount which is a multiple of Rs. 10.

Eg: If the total tax payable of a taxpayer is Rs. 102923.25, firstly the paise would be ignored and the tax would be assumed to be 102923 and thereafter as the last digit is less than 5, this figure would be reduced to the nearest multiple of Rs. 10 i.e. Rs. 102920.

If  the tax is  Rs. 102926.25, it will be  rounded off to Rs 102926 and then to Rs 102930. This means Rs.4 will be demanded extra or in case of refund Rs.4 will b refunded extra.

Rounding off causes difficulty in matching and reconciling  figures:

In accounts , paise is ignored because of practice followed to pay by ignoring paise. However, when matter comes to adjust tax and refund, it causes difficulty to put figures in a reconciled manner.
For example, if tax refund is received higher by Rs.4, then where to show it- this can be either reducing amount of tax payable/ paid or showing refund at higher figure by including it in interest amount received. Reverse will be position in case of refund received being less by Rs.4/-

In both cases there will be mismatch in amount of tax or interest and it will not match with the amount reported by tax department in Form 26AS , TIS and AIS etc.

Therefore, it will be  advisable to include Rs. 4 in miscellaneous income or other income and in case refund received is less by Rs.4/- then to show Rs.4 in some head of expenses.

This will help in maintaining amount same as reported in reports like form 26AS , AIS, TIS and other reports issued by the tax department.

Readers are requested to send their views and suggestions and also to ignore mistakes, if any, in amounts due to inadvertent mistakes or due to computer generated figures some times.