Procedure for Deduction of Income Tax Article 25 Instalments

Procedure for Deduction of Income Tax Article 25 Instalments , One of the routine tax obligations is the payment of income tax instalments (PPh) Article 25. PPh Article 25 can be calculated in the calculation of annual income tax. Generally, ITA 25 is calculated based on the tax payable in the previous year’s annual income tax return. However, under certain conditions, taxpayers can request a reduction in the ITA 25 rate.

Income Tax Article 25 is a tax paid in instalments by taxpayers to reduce the burden of tax payments at the end of the year. Reduction of Income Tax Article 25 instalments can be made by taxpayers in several ways in accordance with applicable regulations.

Generally, the amount of Income Tax Article 25 instalments is determined by multiplying net income by the tax rate. The tax payable is then reduced by the amount of tax credit and then divided by 12 or the number of months in the tax year. For corporate taxpayers, the net income referred to when calculating the amount of instalments is the taxable net income calculated by deducting the costs of obtaining, collecting, and maintaining the income with gross income.

Basic Provisions of Income Tax Article 25 Instalments

The calculation of income tax under article 25 is carried out based on a fictitious tax return (SPT). This mechanism assumes that the taxpayer’s income for the current year is at least the same as the previous year’s income. In fact, businesses can experience a decline in sales due to various factors. Therefore, a reduction in the Article 25 income tax rate can be one way to adjust the company’s cash flow. If the forecast shows a decrease in income tax paid at the end of the year, then a decrease in income tax article 25 can also reduce the possibility of overpayment at the end of the year.

Before applying for an instalment reduction, taxpayers must understand the basic provisions related to Income Tax Article 25 instalments. Based on the Director General of Taxes Regulation, an instalment reduction can be applied for by taxpayers if they experience a significant decrease in income compared to the previous year.

Read also: Everything about Income Tax Article 25: Subject, Rate, Calculation, Payment and Reporting

Terms of Applying for Instalment Reduction

The provisions of the Directorate General of Taxes Decree KEP-537/PJ/2000 concerning the Calculation of the Amount of Tax Installments for the Current Tax Year in Certain Cases, one of which regulates the submission of applications for a reduction in the amount of Income Tax Article 25 installments after three months of the tax year have passed. To receive a deduction, taxpayers must fulfil several requirements. In this case, the applicant must be able to show that the income tax paid in the tax year is less than 75% of the income tax paid which is the basis for calculating the amount of Income Tax Article 25.

Reduced instalments can be submitted by taxpayers if they meet the following conditions:

There is a decrease in income that causes the amount of Income Tax Article 25 instalments to be greater than it should be.
Taxpayers must have a strong basis for applying for a reduction in instalments, such as financial statements or other evidence showing a decrease in income.
Submission of reduced instalments is made through the Tax Service Office (KPP) where the taxpayer is registered.

Procedure for Submission of Deduction of Income Tax Article 25 Instalment

The following are the steps in applying for a reduction in Income Tax Article 25 instalments:

  1. Prepare Supporting Documents

Taxpayers need to prepare supporting documents that show a decrease in income. The documents can be in the form of:

Latest financial statements
Income statement that shows a decrease in income
Other relevant documents that can support the application for instalment reduction

  1. Fill out the application form

Taxpayers must fill in the application form for reduction of Income Tax Article 25 instalments. This form can usually be obtained at the Tax Office or downloaded from the official website of the Directorate General of Taxes. The form must be filled in correctly and completely, including taxpayer data and reasons for applying for instalment reduction.

  1. Submitting an Application to the Tax Office

After completing the form and preparing supporting documents, the taxpayer must submit the application to the Tax Office where the taxpayer is registered. The application can be submitted in person or by post.

  1. Waiting for Approval from the Tax Office

Once the application has been submitted, the LTO will process and evaluate the submitted documents. This process may take several weeks depending on the complexity of the case and the local tax office’s policies. If the application is approved, the Tax Office will issue a decision letter regarding the reduction of Income Tax Article 25 instalments.

  1. Recalculating Income Tax Article 25 Instalments

After obtaining approval from the Tax Office, taxpayers must recalculate the amount of Income Tax Article 25 instalments based on the decision letter issued. The decision letter will provide details regarding the amount of the new instalment that must be paid as well as the validity period of the reduced instalment.

Making Payment of the New Income Tax Article 25 Instalment

After recalculating the amount of instalments, taxpayers must make payments of the new ITA 25 instalments in accordance with the approved amount. This payment can be made through the designated bank or other available payment methods. Make sure to adhere to the payment schedule that has been determined to avoid fines or sanctions.

Applying for a reduction in Income Tax Article 25 instalments is the right of taxpayers who experience a significant decrease in income. By following the correct procedures and preparing the relevant documents, taxpayers can reduce the tax burden that must be paid in instalments. It is important to always comply with the applicable rules and regulations and consult a tax expert if necessary to ensure that the instalment reduction application goes smoothly.

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