Practical Issues in TDS

8/11/2019 Practical Issues in TDS

1/21

1

PRACTICAL ISSUES IN TAX DEDUCTION AT SOURCE

CA. Anil Garg

INTRODUCTION

Income-Tax is payable by an assessee on his income chargeable to tax in accordance withthe provisions of the Income-Tax Act, 1961, at the rates prescribed by the Finance Actfrom year to year. An assessee is required to pay the income-tax by way of advancepayment under the concept of "Pay as you earn". The T.D.S. is one of the modes of advance payments of taxes. The T.D.S. corresponds to the expression "withholding tax"commonly used in international tax terminology.

The relevant provisions for "tax deduction at source" are contained in Chapter-XVII of the Act under the caption "Collection and Recovery".

Over the years deduction of tax at source has become the most important an d mosteffective mode of tax administration and recovery , with the least obligation, hassles andburden on the revenue. No cost is required to be incurred by the revenue for making sucha sweet and soft recovery. But, on the other hand, a taxpayer, already overburdened withso many other statutory compliances, has been made to bear and shoulder many liabilitiesand obligations with no incentive or even the reimbursement of the cost incurred by him

in making such compliances , as an agent of the exchequer.

As a tax deductor, one is required to have a very vigilant watch on the complete details of the deductee such as whether he is an individual or a company, a senior citizen or not, aresident or non-resident, PAN holder or not and so many things. The deductor is fastenedwith the liability of timely deduction of tax in all applicable cases and that too at theprescribed rates, to pay the tax so deducted within the prescribed time limit to the creditof the Central Government, to issue certificate of T.D.S. and finally to file the periodicalstatements of T.D.S. with prescribed authorities .

Even a small slippage on the part of a bonafide tax deductor may result into putting himinto the shoes of the deductee, making him liable for the amount of tax, which otherwisethe payee is required to pay and that too along with interest. The deductor may also bedenied the claim of deduction in respect of payment made for computing his own incomeunder section 40a(ia) of the Act . Besides, the deductor may also be made to sufferrigorous of various penalties and even prosecutions in certain cases and many times butnot for any fault on his part.


2/21

2

Friends, with the laxity and inefficiency in tax administration and tax collection by thosewho are duly paid for it, innovative ideas are being evolved by the legislatures to expandthe provisions and scope relating to deduction of tax at source. Not only, the scope isgetting increased day by day but new procedures of electronically filing of T.D.S. returnsand making of e-payment etc. have increased the complexity in T.D.S. compliancemanifold, especially for small and medium tax payers and tax professionals located inmofusill area. In our country, where at many places power is not available for 10 -15hours a day, compliance through electronic media is a real challenge. Now a day, theoffices of we, the I.T. professionals, have become the offices of other sort of I.T.professionals i.e. of Information Technology. Most of our time is consumed in acting astax complier only.

Friends, the tendency of shifting the burden of the tax recovery on civilians by the taxadministrator can be judged from an anomaly that an assessee is required to make T.D.S.on so many payments but the Income -Tax Department has not undertaken even one

liability of T.D.S. i.e. on payment of interest on income -tax refunds. They have gotthemselves exempted u/s. 194A(3)(viii) of the Act on such payments of interest .

Friends, despite all the hassles and difficulties, an innocent tax payer is always havingthreat of T.D.S. Survey u/s. 133A of the Act as also of many and multiple legalproceedings and litigations relating to T.D.S. . Many of our assessees are victims of problems relating to non-grant of tax credit due to mismatch ing, filing and correction of the T.D.S. returns, frequent notices which are being issued by the T.D.S. Officers andalso of the Orders u/s. 201 treating the assessee in default.

It is a real challenge for Income-Tax professionals to make timely and error freecompliance of T.D.S. provisions on behalf of their clients. We hope that it is only atransitory period issue and looking to the fast pace of up-gradation of system for T.D.S.compliance, a very neat, clean and clear T.D.S. administration and compliance systemwould take place very soon.

The theme of the seminar, in which this paper is being presented, has very rightly beenselected as "Taxation - A Challenge, requires Knowledge and Wisdom". Here, the paper-writer has a humble suggestion that the set of words 'Practical Approach' should havealso been inserted to the punch line of the theme. Ultimately, it is the common sense andpractical approach (not that practical approach, as we understand some time) whichprevails in any tax related statue compliance.

The paper-writer has been assigned the topic of 'Practical Issues in Tax Deduction atSource'. The practical issue, in context of the topic, is a very wide term. It covers theexamination of the obligations of a tax deductor, various rights and obligations of adeductee, procedural aspects of T.D.S. compliance and , finally, ways of defendingnotices and orders passed by the T.D.S. Administration Authorities along with


3/21

3

consequences for defaults. In the present paper, an attempt has been made to address allsuch issues.

1. OBLIGATION OF A TAX DEDUCTOR

A. Obtain TAN Number

i) The obligation of a deductor start with obtaining a TAN in accordance with theprovisions of section 203A read with rule 114A of the Income-Tax Rules, 1962.Although, in the rule 114A, the requirement of ob taining TAN arises only afterfirst incidence of deduction of tax at source but it is advisable that no sooner anentity come into existence, it should apply for TAN in prescribed Form 49B. Incase of proprietorship concern too, if it is likely that in nea r future itsturnover/receipts may exceed the limits prescribed u/s. 44AB , the TAN number

should be obtained at earlier stage. No harm is caused in obtaining TAN even if T.D.S. is not likely to be made in near future. The requirement of filing the T.D.S.return arises only if some T.D.S. is made during the relevant quarter and nototherwise.

ii) In case, a business entity is having different branches or offices in the country,separate TAN may be obtained. However, as far as possible in order to avoidmultiple filing of the T.D.S. returns in respect of every branch/office, it isadvisable that all T.D.S. of a business entity are made under common TAN only.However, in case of very big organizations like Banks, Insurance Companies etc.

obtaining separate TAN and filing separate quarterly returns may becomeinevitable.

iii) Separate TAN is required for separate PAN. If a partnership firm is dissolved andits entire business is taken over by one of the partners, than the partner taking overthe business would be required to obtain separate TAN if he is not already havingone. The similar would be the situation when a proprietorship firm is convertedinto a partnership firm.

B. Obtain Permanent Account Number (PAN) of deductees

Now, after the insertion of provisions of section 206AA by the Finance Act, 2009,w.e.f. 01-04-2010, the T.D.S. is required to be made at a higher rate i.e. of 20% if the deductee fails to furnish his PAN to the deductor. In respect of payment madeto transporters, immunity from T.D.S. u/s. 194C(6) is available only if the PAN isprovided by the contractor to the payer.

In view of such provisions, it is advisable that every business organization shouldobtain PAN of every person , with whom any transaction of payments liable for


4/21

4

TDS is either made or intended to be made, at the very initial stage itself. Everybusiness organization should maintain master data of such PAN. Such PAN detailsshould be invariably noted in the master details, in computerized form, of everyparty. In the case of manual accounts, manual PAN register may be maintained.

It is also suggested that if possible, a deductor should also obtain a copy of thePAN of the payee specially in a circumstance when the payee belongs to anunstructured business class such as in case of a truck operator, labour contractoretc.. It is because under the provisions of sub -section (6) of section 206AA of theAct, if the PAN provided by the deductee to the deductor is invalid or it does notbelong to the deductee, it shall be deemed that the deductee has not furnished hisPAN to the deductor and accordingly, the deductor shall be liable to make T.D.S.at a higher rate as prescribed under sub -section (1) of section 206AA of the Act.Under section 194C(6), the requirement of obtaining the PAN from the goodscarriage operators is met the moment the deductee provides his PAN to the

deductor and therefore, even if such PAN is found invalid subsequently, noadverse action can be taken against the deductor. Still, it is advisable that in suchcases too, the deductor should take reasonable care to ensure that the correct PANis provided by the payee.

Although, there is no direct facility through whom a deductor can verify veracityof the PAN details provided by a deductee but it can be verified indirectly. Forsuch purpose, the deductor would have to go on the official website of the Income-Tax Department and then to click the 'Pay Online' and should fill-up the details of PAN provided by the deductee and the name of the deducte e. If both the details

mismatch to each other a message will get flashed and the correct name of theperson to whom PAN actually belongs would appear. In such manner, one canverify PAN details of the deductee. This exercise should be made especially in thecase of contract payments.

An examination of the PAN number of the deductee, would also facilitate thedeductor to know the status of a deductee which is required for determining theapplicable rate of T.D.S.. As we know that in respect of certain pay ments such aspayment u/s. 194C, the rate of tax depends upon the status of the deductee. T.D.S.is required to be made @ 1% where the payee is an individual or a HUF and 2%for all other payees. The status of the payee can be determined by going to thefourth character of ten digit alpha -numeric PAN number. If, it is 'P', the status of the payee is that of individual, if it is 'H', the status of payee is HUF, if it is 'F', thestatus of payee is firm and if it is 'C', the status of payee is company.

C. Liability to make T.D.S. at the prescribed time and at the prescribed rates

I) WHO IS LIABLE TO MAKE T.D.S.?


5/21

5

a) Every person is required to make T.D.S. on the various payments inaccordance with various provisions, contained u/s. 192, 193, 194, 194A to194LB and section 195 of the Act. It may be noted that the liability forT.D.S. arises irrespective of the fact that the person responsible for makingpayment is already an assessee or not.

b) All the provisions of section 193 to 194LB (except section 194E whichapplies on payments to non-sportsmen or sports association) apply whenthe payment is made to a resident. For making the payment to non -residentthe provisions of section 195 apply. The provisions of section 192 apply inrespect of salary paid even to a non-resident.

c) The provisions of T.D.S. on salary appl y to all the persons making paymentof income chargeable under the head ' Salaries'. Thus it applies to individualand HUF also irrespective of the fact that whether or not such class of

persons are liable for tax audit or having turnover/gross receipts over aspecified limit.

However, the other provisions such as 194A, 194C, 194H, 194 -I and 194Japply to individual or HUF in certain circumstances only. Veryinterestingly, for determining the l iability of individual or HUF to makeT.D.S., different provisions have been made under different sections andthese should be noted very carefully.

Under section 194A, 194H, 194-I and 194J, an individual or HUF has been

made liable to make T.D.S. only if his or its total sales, gross receipts orturnover from the business or profession carried on by him during theimmediately preceding year exceed the monitory limit specified underclause (a) or clause (b) of section 44AB for the financial year in which suchpayment is made. It has to be noted that for F.Y. 2010 -11, the liability forTDS has to be ascertained with respect to the limits of turnover/receiptprescribed for F.Y. 2010-11 i.e. of Rs.60.00 Lakhs or Rs.15.00 Lakhs andnot the limits prescribed for F.Y. 2009-10 i.e. of Rs.40 Lakhs or Rs.10Lakhs. So although, the turnover limit is to be looked into for F.Y. 2009-10but it has to be judged with the limits prescribed u/s. 44AB for F.Y. 2010-11. Accordingly, an individual having turnover of Rs.55 Lakh s during F.Y.2009-10 would not be liable for making any T.D.S. , under the abovesections, during the F.Y. 2010-11.

However, u/s. 194C, an individual or HUF has been made liable on thebasis of their liability for getting the books of account audited dur ing theimmediately preceding previous year. Therefore, T.D.S. on contractpayments has to be made by an individual or HUF for F.Y. 2010 -11 if during the F.Y. 2009-10 they were required to get their books audited u/s.


6/21


7/21

7

in the books regarding T.D.S. on the date of payment. Instead, pass thenecessary entry when the T.D.S. on earlier payments is actually deposited.Even in respect of TDS under other heads, the same practice should beadopted for two reasons i.e. (i) rate of interest is higher when the TDS ismade and not paid in comparison to when the TDS has not been made at alland (ii) case of TDS made but not paid attract prosecution but the case of non-making of TDS do not attract prosecution.

III) RATES OF T.D.S.

a) The T.D.S. is to be made either at the rate/rates prescribed in the relevantsection itself such as under section 194C (1% for individual/HUF and 2%for others), 194E (payment made to non -resident sportsmen or sportsassociation 10%), 194G commission on sale of lottery tickets (10%),194H (10%) 194-I (2% for use of any machinery or plant or equipment and

10% for the use of any land or building or furniture or fittings), 194J (feesfor professional on technical services 10%), 194K (income in respect of units 10%), 194LA (payment of compensation on acquisition of certainimmovable property 10%) or at the rates prescribed under the relevantFinance Act. However, where the PAN of the deductee is not available , theT.D.S. is compulsorily required to be made either at the rate prescribed inthe section itself, or at the rate prescribed by the relevant Finance Act or at20% whichever is the highest.

b) With effect from 01-07-2010, the T.D.S. is required is to be made at the flat

rate of tax without including any surcharge or education cess. If the tax isdeductible after 01-07-2010 than such surcharge and education cess is notrequired to be taken into consideration even if a part of the paymentpertains to period prior to 01 -07-2010. The liability for the T.D.S. is to beascertained on the basis of the rate in force on the date when such liabilityarises and not on the basis of the rates prevailing for the period to whichsuch payment pertains.

c) Under the provisions of section 197, if a person i.e. a deductee, uponmaking his application to his Assessing Officer in prescribed Form No. 13,has been issued a certificate in th e name of the deductor, authorizing himeither not to deduct any tax or to deduct the tax at a lower rate as specifiedin the certificate than the deductor is required to act accordingly. However,it should be ensured that such certificate reaches to the h ands of thedeductor before the occasion of T.D.S. arises and if on the date on whichthe liability for T.D.S. arises the certificate has not been provided to thedeductor, he should deduct the tax at the applicable rates and he should notdefer the T.D.S. in anticipation of issuance of certificate in Form No. 13 tothe deductee. In any case, the deductor should ensure that the certificate


8/21

8

reaches to his hand before the completion of the previous year. It may benoted that such certificate can also be obtai ned by a salaried person if he isin a position to demonstrate before his AO that due to some factors such ascarry forward unabsorbed depreciation, loss from business during the year,he would not be liable to pay tax on his entire salary income.

d) Likewise, self declaration in Form No. 15G and Form 15H, furnished by adeductee u/s. 197A, should also reach to the hands of the tax deductorbefore the due date for making the deduction. Under section 206AA(2), thedeductor can not accept such declaration i f the deductee does not mentionhis permanent account number in the declaration so furnished. It may benoted that a trust or AOP can also furnish such Form No. 15G in applicablecases.

e) Under section 197A(1B), where the amount of payment made by the

deductor exceed the maximum amount of income which is not chargeableto tax than irrespective of the fact that the tax liability of the deducteewould be Nil due to deductions under Chapter - VI-B or losses under theother heads but the deductor can not acc ept Form No. 15G from thedeductor. However, u/s. 194(1C) where the payment is made to a seniorcitizen than Form No. 15H may be accepted even if the amount of paymentexceeds the threshold limit prescribed for senior citizens. The age of seniorcitizen has been reduced to 60 years from 65 years and therefore thecorresponding provisions should also be made for eligibility of furnishingForm No. 15H under rule 29C.

IV. ON WHAT AMOUNT T.D.S. IS TO BE MADE?

a) T.D.S. on salary is required to be made only if the income chargeable underthe head salary after giving set -off for loss under the head income fromproperty and permissible deductions under Chapter VI-B, exceed thethreshold limit. However, for all other payments the liability for T.D.S.arises only if the amount of payment exceeds the limit/limits prescribedunder the respective provisions of the law.

b) For certain provisions, such as section 194B income by way of winningfrom lottery, 194H payment of commission or brokerage, section 194 -I payment of rent, section 194G payment of commission on sale of lotterytickets, the T.D.S. is required to be made on the net amount only withoutincluding any service-tax or reimbursement of expenses. However, forother payments such as payment to contr actors, u/s. 194C or payment of fees for professional technical services u/s. 194J, the T.D.S. is required to


9/21

9

be made on the gross amount inclusive of service -tax and other incidentalexpenses claimed by the payee.

c) The golden rule is that if in the pa rticular provision, the liability is qua thepayment of 'income', T.D.S. is to be made by excluding the service -tax andother payments and if the liability is qua payment of any 'sum' then theT.D.S. is to be made on the gross amount.

d) In many cases the threshold limit for deduction has been increased by theFinance Act, 2010 w.e.f. 01-07-2010 such as limit for single contractpayment is raised from Rs.20,000/ - to Rs.30,000/-, limit for aggregateamount of contract payments in a financial year has been r aised fromRs.50,000/- to Rs.75,000/-, limit for payment of rent in a financial year hasbeen raised from Rs.1,20,000/- to Rs.1,80,000/-. Limit for payment of brokerage has been raised from Rs.2500/ - to Rs.5000/-, limit for payment

of professional fees has been raised from Rs.20,000/- to Rs.30,000/-. Suchlimit is to be examined at the time when the liability for T.D.S. arises. Inrespect of monthly payment of rent of Rs.11,000/ - per month no liability forT.D.S. u/s. 194-I would arise even in respect of fi rst three months for thereason that the overall payment for the year would be below Rs.1,80,000/ -.

V. OBLIGATION OF PAYMENT OF T.D.S

Under section 200(1), any person deducting any sum in accordance with theChapter-XVII is liable to make the paymen t to the credit of Central Government

or the Board within the time limit prescribed under rule 30 of the IT Rules, 1962.In the case of Government deductor , the payment is to be made through book adjustment on the same day. In the case of other deductees, the T.D.S. is to bedeposited within a period of seven days from the end of the month in which thepayment is made or credited. However, when the payment is made at any time inthe month of March or credited to the account of the payee on the last day of t heaccounting year the TDS can be deposited till 30 th April. Previously, the time limitwas allowed up till 31 st May. The payment is to be made through challan number281. However, in the case of companies, the payment has to be made through e -payment only.

VI OBLIGATION OF FILING QUARTERLY STATEMENTS

At the outset, it may be noted that now there is no requirement of filing any annualreturn u/s. 206 of the Act.

Now, w.e.f. 01-04-2005, every person who has deducted any tax for any quarterand has also paid the tax so deducted, is required to prepare quarterly returns andsubmit such quarterly returns within a period of 15 days from end of the


10/21

10

concerning quarter. However, for the last quarter the due date is 15 th May.Previously, the return for the last quarter ended on 31 st March could have beenfiled up till 15 th June. The quarterly returns are required to be furnished separatelyfor each TAN.

These quarterly statements are required to be made in Form No. 24Q for salarypayments and in a common Form No. 26Q for all other payments.

In the case the deductor is an office of Government, a company or a personrequired to get his accounts audited u/s. 44AB in the immediately precedingprevious year or in a case where the number of deductees record in any of thequarterly statements of any quarter of the immediately preceding financial year is50 or more, the returns are compulsorily to be filed on computer media as per thedata structure (file format) provided by the e-filing administrator. This is availableon the Income-Tax Department Website www.incometaxindia.gov.in However,

any person who is not so statutorily required may also file quarterly return s oncomputer media.

The quarterly return contains the details of the deductor, the necessary detailsregarding the payment of T.D.S. such as date of payment of challan, BSR Code of the Bank in which the payment is made, challan identification number, details of the deductees such as his PAN, name and addr ess, the nature of payment, thesection under which the payment has been made, the amount of payment, the rateof T.D.S., the amount of T.D.S. and the reason for non -deduction or lower rate of deduction, details of interest u/s. 201(1A) etc.. It must be no ted that the amount of

T.D.S. deposited should always be equal or greater than the amount of taxdeducted.

The quarterly return has to be supported by a declaration in Form No. 27A inpaper form duly verified by the deductor. A copy of the computer dis c/floppyalong with the Form No. 27A is to be submitted to the prescribed authority i.e.NSDL. Each, e-tds return file should be in one virus free CD/floppy and it shouldnot across multiple floppies. Now, a day, the CD/floppies are not kept by theprescribed authority and it is returned back after copying the data. The receiptissued by the NSDL should be preserved as it may be required in future formaking revised statements. There is no requirement of submitting other documentssuch as copy of challans, TDS certificates, copy of certificates of non -deduction of tax, Form No. 15G & 15H etc. along with the returns.

The control details of amount deposited and income -tax deducted at sourcementioned in Form No. 27A should match with the corresponding details of thequarterly return. There should not be any overwriting in the Form No. 27A else itshould duly be ratified.


11/21


12/21

12

After deducting the tax and paying it, a deductor is required u/s. 203 of the Act toissue a certificate to the deductee , duly filled, in the prescribed form. Thecertificate in case of salary below Rs.1,50,000/ - has to be issued in Form No.16AA and for other cases of salary payments it has to be issued in Form No. 16.Certificates for all other payments are required to be made in one form i.e. FormNo. 16A. The T.D.S. certificate in respect of salary, should be furnished under rule31 within a period of one month from the end of the relevant financial year.However, for other payments the certificates should be issued within a month fromthe end of the month in which the T.D.S. is made.

2. OBLIGATIONS AND RIGHTS OF THE TAX DEDUCTEE

I. OBLIGATION OF FURNISHING HIS CORRECT PAN TO THEDEDUCTOR

Under the provisions of section 206AA of the Act, a deductee is required tofurnish his correct PAN to the deductor before the incidence of T.D.S. arises. If noPAN is provided or the PAN provided is invalid, the deductor can make the T.D.S.at the highest rate. In such a situation, it would also be difficult and a cumbersomeprocess for the deductee to get the credit for T.D.S.. The reason is that the T.D.S.paid by the deductor would not get reflected in his 26AS statement. In most of thecases, the reason for non-grant of credit for T.D.S. to the deductee by the CPC,Bangalore is attributable to a mistake i.e. of the T.D.S. claimed by the deductee inhis return is not getting matched with the details of T.D.S. furnished by thedeductor.

II. OBLIGATION OF FURNISHING FORM NO. 15G/15H ORCERTIFICATES IN FORM NO. 13 TO THE DEDUCTOR BEFORE THET.D.S. INCIDENCE

A tax deductee is required to furnish declaration in Form No. 15G/15H andcertificate in Form No. 13 obtained before the incidence of T.D.S. to the deductor,if he desire, the T.D.S. to be made zero rate or at lower rate.

III. OBLIGATION OF FURNISHING THE CORRECT DETAILS OF T.D.S. INHIS RETURN OF INCOME

Under rule 37BA(4), the credit for T.D.S. is granted on the basis of (i) theinformation relating to deduction of tax furnished by the deductor to the Income -Tax Authority or the person authorized by such authority and (ii) the informationin the return of income in respect of cl aim for the credit subject to verification inaccordance with the risk management strategy formulated by the Board from timeto time. It is thus clear that unless and until correct information is provided by thedeductee in his Income-tax return, the credit for T.D.S. can not be granted to him.


13/21

13

This would be the position even if the credit is appearing against his name inAS26.

IV. OBLIGATION TO PAY THE TAX DIRECTLY

Under the provisions of section 191 of the Income -Tax Act, 1961, in any casewhere the tax has not been deducted in accordance with the provisions of Chapter -XVII, the deductor is liable to pay the tax directly. In such a case, the deducteeshould intimate the deductor about the direct payment of tax made by him so as toavoid the deduction of the same tax at later stage by the deductor. However, insuch a case, the deductor can not be made liable for interest u/s. 234B & 234C.

V. OBLIGATION TO FURNISH NECESSARY INFORMATION OF THEREAL DEDUCTEE UNDER RULE 37BA

Under sub-rule (2) of Rule 37BA, inserted w.e.f. 01-04-2009, if the income onwhich tax has been deducted at source is assessable in the hands of a person otherthan the deductee, then the deductee is required to file a declaration with thedeductor giving the necessary details of the person/s who is/are assessable inrespect of such income. Such situation may arise when the income of a minor isincludible in the hands of his parents or the income of a member of HUF or apartner of a firm is assessable as the income of the HUF or firm or where theproperty or deposit or security or unit or shares are owned jointly by the deducteewith other persons. The declaration filed by the deductee should contain thedetails such as name, address, PAN of the person to whom the credit is to be

given, the nature of payment for which such declaration is being given and reasonfor giving such declaration. Thereafter, the deductor would issue the certificates inthe name of the concerning persons and would also reflect the name of such otherpersons in the quarterly TDS statements. Accordingly, credit for TDS would getreflected in AS-26 of such other persons.

V. RIGHT OF A DEDUCTEE TO HAVE THE T.D.S. CERTIFICATE

A deductee should obtain the T.D.S. certificate from the deductor even if the creditis getting appeared in AS26 for the reason that such information in AS26 may getchanged later on due to filing of correction statement by the deductor. Thedeductee should also ensure that some written communication from the deductor isobtained regarding the T.D.S. such as pay-in-slips, letters etc. till the T.D.S.certificate is actually issued to him. Such communication would help incompelling the deductor to issue him T.D.S. certificate. Under the provisions of section 205 of the Act an assessee shall not be called upon to pay the tax himself to the extent to which the tax has not been deducted from that income.

VI. RIGHT TO GET THE CREDIT FOR TAX DEDUCTED ON HIS BEHALF


14/21

14

Under section 205, where a tax is deducted at source, the assessee shall not becalled upon to pay the same tax again. Even, if the deductor has not paid the tax orhas not filed T.D.S. quarterly statements. However, the deductee should haveevidences to prove that the tax was actually deducted by the deductor.

It may be noted that an assessee is eligible for obtaining the credit for T.D.S.whether or not the necessary credit is reflecting in 26AS. The Board has recentlycome out with an Instruction No. 2 of 2011 dated 09 -02-2011 under which it hasinstructed that while processing the returns filed in ITR-1 & ITR-2, credit may beallowed even if there is zero matching , if the total T.D.S. claimed is Rs.5000/- orless. In other cases of zero matching, the credit shall be given only after dueverification. In all the returns (ITR-1 to ITR-6) where the difference betweenT.D.S. claim and matching T.D.S. amount reported in AS26 data does not exceedRs.1 Lakh, the T.D.S. claim should be accepted without verification. Where the

difference of mismatch is more than Rs.1 Lakh the T.D.S. credit s hall be allowedonly after due verification. The instruction further provide s that where thereT.D.S. are claimed with invalid TAN, T.D.S. credit for such claim should not beallowed to an assessee.

It is advised that if, for any reason, credit for T.D.S. is not given to the deductee inthe intimation u/s. 143(1) sent to him he should take following course of action:

i) If the credit is not appearing in AS -26 he should insist the deductor to filecorrected T.D.S. statement showing his correct PAN, nature of payment

and amount.

ii) If the above attempt fails than he should make an application forrectification to his AO manually u/s. 154 of the Act.

iii) The assessee can also make an application u/s. 119(2)(b) of the Act to theBoard for redressal of his grie vance and genuine hardship.

iv) Even, if an assessee has not made claim for T.D.S. in his original return hecan rectify the intimation sent by CPC, Bangalore by filing onlinerectification application. Such application can be filed u/s. 155(14) of theAct within two years from end of the assessment year in which suchincome is assessable.

Under Rule 37BA (3)(i) the credit for TDS shall be given for the assessment yearfor which such income is assessable. Under rule 37BA (3)(ii), where the income isassessable over a number of years, credit for TDS shall be allowed across thoseyears in the same proportion in which the income is assessable to tax.


15/21

15

There may be cases when a deductee is observing mercantile/cash system of accounting and the deductor is ob serving cash/mercantile system of accounting. Insuch cases, there may be variation of assessment year as regard to T.D.S.particulars. However, in such cases too, the assessee on the basis of T.D.S.certificates and AS26 statements for earlier/subsequent year can claim T.D.S..

3. PROCEDURAL ASPECTS OF PROCESSING OF STATEMENT ANDPASSING OF ORDERS

I. PROCESSING OF THE RETURNS U/S. 200A

The Finance Act, 2009 has inserted a new section i.e. section 200A w.e.f. 01 -04-2010 prescribing for the processing of statements of T.D.S.. According to section200A, where a statement of tax deduction at source has been made by a persondeducting any sum u/s. 200, the statement shall be processed and an intimation

shall be prepared or generated and sent to the deductor specifying the sumdetermined to be payable or the amount of refund due to him. It also provides thatwhile processing the statement, the sum deductible under the chapter shall becomputed after making adjustment on account of arithmetical error in thestatement or incorrect claim apparent from the information in the statement.Further, the interest, if any, shall also be computed on the basis of the sumdeductible. After making the adjustments, the sum payable or refund due to theassessee shall be determined. It further provides that no intimation shall be sentafter the expiry of one year from the end of the financial year in which thestatement is filed. If the corrected statement is filed at any time, such statement

shall again be subjected to processing under section 200A.

Such intimation is alike the intimation sent under section 143(1). An assessee isnot eligible for moving any application for rectification under section 154 (1)against such intimation. The necessary amendments in section 154 are re quired.

Now the provision of refund of excess T.D.S. has been incorporated in the Actitself. Previously, such refund could have been claimed only under section119(2)(b) of the Act under the authority of a Circular issued by the CBDT.

II. PASSING OF AN ORDER UNDER SECTION 201 AND 201(1A)

Under sub-section (1) of section 201 of the Act, where any person who is requiredto deduct any sum in accordance with the provisions of this Act does not deduct orafter so deducting fails to pay the whole or any par t of the tax, as required by orunder this Act, then such person shall without prejudice to any other consequenceswhich he may incur, be deemed to be an assessee in default in respect of such tax.It may be noted that passing of the order under sub-section (1) is automatic and anassessee cannot take shelter of his bona fide belief for not making due compliance.


16/21

16

Even no provision has been made for giving an opportunity of being heard to thedeductor. However, normally prior notices are given by the concern ing ITO(TDS).

Now a days, the Income-tax Department is issuing such notices in volumes on thebasis of mismatchment of the claims of the deductees in their respective income-tax returns and statement AS-26 which is generated on the basis of quarterlystatement filed by the deductor under section 200(3).

Now it is advisable that immediately after receiving the notice, one should check the statement in respect of which the notice is received and thereafter he shouldfile the corrected statement, if any. The reasons for such mismatchment mayattributable either on the part of furnishing of the wrong information by thedeductee such as quoting of wrong TAN of the deductor, or quoting of the wrongamount of TDS or quoting of the wrong nature of payment. Som etime it may also

be because of difference in the assessment years of deduction and payment of taxshown by the deductor and corresponding claim made by the deductee. However,many times, but not such mismatchment is attributable on the part of the providi ngof wrong information by the deductor such as wrong mentioning of the PAN of thedeductee, wrong mentioning of the particulars of the challan by the deductor orwrong furnishing of the nature of payments, etc. . The deductor must ensure thatthe details given in the TDS certificates are exactly same as given in the quarterlystatement so that the chances of mismatchment would get minimized.

Under sub-section (1A) of section 201 of the Act interest @ 1% per month is

charged for the period from the date w hen the tax was deductible to the date whenthe tax was actually deducted. However, higher rate of interest @ 1.5% is chargedfor the period when the tax was so deducted to the date of actual payment of tax.The person may also be imposed penalty under sec tion 271C equal to the amountof default. In such a case, the deductor besides becoming liable for penalty undersection 271C may also become liable for prosecution under section 276B of theAct.

Any order under section 201 cannot be passed after the expiry of two years fromthe end of the financial year in which the statement is filed. However, in a casewhere no statement has been filed, the order can be passed within four years fromthe expiry of the financial year in which the payment liable for TDS is made orcredit is given. However, in a case where the tax has been deducted and not paid atall, the order under section 201 can be passed at any time. However, for a financialyear commencing on or before 01-04-2007, the order could have been passed atany time on or before 31-03-2011.

The order passed under section 201 or 201(1A) can be got rectified under theprovisions of section 154(1) of the Act. An appeal can also be filed against an


17/21

17

order passed under section 201 before the CIT (A) under sect ion 246A (1)(ha) of the Act. However, a revision under section 264 cannot be made to the regular CITbut it has to be filed before the concerning CIT (TDS) only.

4.. SOME ISSUES IN RESPECT OF T.D.S. UNDER VARIOUS HEADS

Section 192 Salary

i) The provisions are applicable only if any payment of income chargeable underthe head 'Salaries' is made and the relation of the employer employee at thetime of payment is not an essential condition. Under section 17(1), salaryincludes annuity or pension and, ther efore, the payment made to a retiredemployee by way of pension is also covered under section 192. However, theamount paid by way of family pension to the dependents of the deceasedemployee are not covered under the expression of 'salary' and, therefore, there

is no liability for TDS on payment of family pension.

ii) The TDS is required to be made on estimated income of the deductee under thehead 'salaries'. The deductee is required to furnish particulars of his incomefrom other employer/previous employer and also of the income under the otherheads. However, if no such particulars have been furnished by the deductee,then the deductor is not duty bound to take cognizance of other income of thedeductee even if it is within the specific knowledge of the de ductor.Accordingly, a deductor is not required to take into account some otherpayments made by himself, such as interest, rent, etc., to the concerning

employee. Likewise, an employee is also not required to get tax deducted atsource in respect of his o ther income.

iii) No Form has been prescribed for furnishing the particulars of other income bythe employee.

iv) An employer is not required to investigate into the sources of investmentsreported by the employees for claiming rebates and deductions. However, t heemployer is supposed to take reasonable care in obtaining necessary documentsin support of various claims for deductions .

Section 194 Dividends

Since deemed dividend under section 2(22)(e) are not covered under section115-O, the liability of a company would arise even in respect of deemeddividend.

Section 194A Interest other than interest on securities


18/21

18

(i) In the case of an individual, who is liable to make TDS, it has to be ensuredthat due TDS is made both in respect of borrowing made in the name of proprietorship concern as well as in the name of individual himself.

(ii) TDS on interest is required to be made on the basis of payment or credit. If a deductor is having more than one account in respect of one deductee andin one account interest is credited and in the other account interest isdebited, the liability for TDS arises on the gross amount i.e. on the amountcredited and not on the net amount of interest.

(iii) The expression "interest" has been defined under clause (28A) of section 2of the Act. According to it, interest means interest payable in any manner inrespect of any money borrowed or debt incurred (including a deposit, claimor similar right or obligation) and includes any service fee or other chargein respect of the money borrowed or debt incurred or in respect of any

credit facility which has not been utilized.

(iv) The liability for TDS also arises in the case of financial lease or hirepurchase transactions since the expression "interest" includes interestpayable in any manner in respect of any money is borrowed or debtincurred. The nomenclature of the transaction is not a decisive factor.

(v) In the chit fund transactions, there is no borrowing of money and there is noincurrence of any debt and, therefore, dividend/discount distr ibuted

amongst the chit subscriber is not interest so as to attract TDS under section194A.

(vi) In view of the definition of the term "interest", commitment charges or loanprocessing charges shall also partake character of interest liable for TDSunder section 194A. However, since the payment of interest to banks andfinancial institutions have been excluded from the ambit of TDS and,therefore, payment of commitment charges and loan processing charges tothe banks and financial institutions are exempted fro m TDS.

Section 194C Payments to contractors

(i) Contract includes both oral contracts and written contracts.

(ii) No distinction is now made on payment made to contractor or sub -contractor.


19/21

19

(iii) Even on the payment under advertising contract t o a person, other thanindividual or Hindu Undivided Family, TDS would be required to be madeat the rate of 2% and not at the earlier rate of 1%.

(iv) In the case of a newly constituted partnership firm, which failed to makeany TDS on contract payments , possibilities may be explored to give it thestatus of AOP and in such a case, there would not be any liability for TDSat least in the first year.

(v) TDS is required to be made on the entire sum which includes service tax forthe reason that the word used is 'any sum' and not 'any payment of income'.

(vi) TDS under section 194C is not required to be made in relation to paymentsmade for hiring or renting of equipments. Where a taxi is hired with achauffer provided by the contractor, then TDS on hir e charges would be

required to be made u/s 194C. However, in a case only a taxi is providedwithout any chauffer or further obligation of the contractor to meet the costof fuel or repairs/maintenance, it would be a case of renting of equipmentliable for TDS under section 194-I.

(vii) TDS is required to be made even in a case where the payment is made forgetting a vehicle repaired.

(viii) TDS is also required to be made on the charges paid to the depositoriesmaintaining D-mat accounts.

(ix) T.D.S. is not required to be made on Builder Developer Agreement.

(x) Annual Maintenance Contracts are also covered u/s. 194C.

Section 194H - Commission or Brokerage

i) T.D.S. is not required to be made on any commission or brokerage payableby BSNL or MTNL to its franchise.

ii) T.D.S. is not required to be made for any services in relation to anytransaction relating to securities as defined under clause 2(h) of theSecurities Contacts (Regulation) Act, 1956. In the definition, thederivatives have also been covered and therefore, the paper -writer is of theopinion that brokerage paid on derivatives of commodities is also notcovered u/s. 194H.


20/21

20

iii) Discount granted on principal to principal basis such as discount allowed toStamp Vendors is not covered u /s. 194H.

iv) T.D.S. is applicable on the amount retained by the travel agents being thedifferences of the value of tickets sold by them and value of tickets paid bythem to the Airlines.

Section 194I - Rent

i) The limit of Rs.1,80,000/- applies qua every payee. In respect of paymentsto co-owners, the T.D.S. is to be made if the payment to each payee exceedRs.1,80,000/-.

ii) If the asset is held in the name of a deductee being a partner of a firm or akarta of Hindu Undivided family but it is assessable as the income of the

firm or HUF or where the property, is jointly owned by more than oneperson than the credit may be given to the person who is assessable inrespect of such income. As per rule 37BA, the deductee should file adeclaration with the deductor on a plain paper containing the details such asname, address, PAN of the person to whom the credit is to be given,payment or credit in relation to which the credit is to be given and reasonfor giving credit to such other person. Thereafter, the deductor would issuethe certificate in the name of the persons in whose name credit is to begiven as per the declaration. The deductor has to keep such declaration inhis safe custody.

iii) The provisions apply only for use of land or building or furniture etc. andwhere there is no right given to use it would not be a rent under thedefinition given in the section 194-I.

iv) T.D.S. is required to be made on non-refundable deposit. However, on therefundable deposit no liability for T.D.S. arises (Circular No. 718 dated 22-08-1995).

v) Ware Housing Charges will be subject to deduction of tax u/s. 194 -I.(Circular No. 718 dated 22 -08-1995).

vi) Payment made for hotel accommodation taken on regular basis will be inthe nature of rent, subject to T.D.S. u/s. 194-I. (Circular No. 715 dated 08-08-1995).

vii) No T.D.S. to be made on service-tax component. (Circular No. 4/2008dated 28-04-2008).

Section 194J - Fees for Professional or Technical Services


21/21

i) T.D.S. is to be made inclusive of service-tax components. (Circular F. No.215/73/2007-ID(B) dated 30-06-2008).

ii) Payment made to a hospital for rendering medical services will attract

T.D.S. u/s. 194J. (Circular No. 715 dated 08 -08-1995).

iii) Human interface is a must for making provisions of section 194J applicable[CIT vs. Bharti Cellular Ltd. 175 Taxman 573 (Del) ].

Section 195 Payment to Non-Resident

i) Unless the payment made to non-resident is in the nature of incomechargeable to tax no liability for T.D.S. arises. [ Transmission Corporationof AP Ltd. vs. CIT 239 ITR 587 & GE India Technology Centre (P) Ltd. vs.

CIT 193 Taxman 234 ]

ii) The situs or source of payment is not a relevant consideration. The paymentmade in India or outside India, both are covered.

***************

Practical Issues in TDS

Documents

Transcript of Practical Issues in TDS