Advance income tax in India

27-1-2002 | IslamWeb

Question:

In India, we have to pay advance income tax in very quarter, on the anticipated profit for the financial year. If we do not pay this tax in advance or pay less than the actual tax by the year end, the authorities charge interest on the amount short paid. If we pay more, then the authorities pay us interest for the excess amount paid by us. You know very well that it is very difficult to estimate the exact profit we may earn during the year. Kindly advise us.

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Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.

A state is allowed to impose taxes on its citizens according to the following conditions:

1. To exploit such funds in establishing public utilities such as hospitals, schools and paving roads.

2. To impose such taxes only on those who can pay.

3. To be in need for such taxes, i.e. in case of the treasury is in need to provide the services in point 1 above.

4. There should be no negligence while spending money, (i.e. to spend money in its proper channels by the government).

Whenever the above conditions are met paying taxes becomes obligatory, and it is prohibited to evade paying taxes. However, one is allowed to avoid paying taxes if any of the above conditions are not met.

As for interest, which the authorities take from you or that you receive as mentioned in your question, this is a pure Riba (usury), since this extra money is conditioned against a fixed time. Thus, we advise you to spend any amount of money you receive from the authorities as interest in fields of virtue or general benefit of Muslims. But, you are not to be blamed for the interest they take from you by force of law.

In the Prophetic narration: "Allaah forgives sins committed by mistakes, forgetfulness or by compulsion". [Ibn Majah]

Allaah knows best.