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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 with
the provisions of the Income-Tax Act, 1961, at the rates prescribed by the Finance Act
from year to year. An assessee is required to pay the income-tax by way of advance
payment 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 most
effective mode of tax administration and recovery , with the least obligation, hassles and
burden on the revenue. No cost is required to be incurred by the revenue for making such
a sweet and soft recovery. But, on the other hand, a taxpayer, already overburdened with
so many other statutory compliances, has been made to bear and shoulder many liabilities
and 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, a
resident or non-resident, PAN holder or not and so many things. The deductor is fastened
with the liability of timely deduction of tax in all applicable cases and that too at the
prescribed rates, to pay the tax so deducted within the prescribed time limit to the credit
of the Central Government, to issue certificate of T.D.S. and finally to file the periodical
statements of T.D.S. with prescribed authorities .
Even a small slippage on the part of a bonafide tax deductor may result into putting him
into the shoes of the deductee, making him liable for the amount of tax, which otherwise
the payee is required to pay and that too along with interest. The deductor may also be
denied the claim of deduction in respect of payment made for computing his own income
under section 40a(ia) of the Act . Besides, the deductor may also be made to suffer
rigorous of various penalties and even prosecutions in certain cases and many times but
not for any fault on his part.
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Friends, with the laxity and inefficiency in tax administration and tax collection by those
who are duly paid for it, innovati ve ideas are being evolved by the legislatures to expand
the provisions and scope relating to deduction of tax at source. Not only, the scope is
getting increased day by day but new procedures of electronically filing of T.D.S. returns
and making of e-payment etc. have increased the complexity in T.D.S. compliance
manifold, especially for small and medium tax payers and tax professionals located in
mofusill area. In our country, where at many places power is not available for 10 -15
hours a day, compliance t hrough electronic media is a real challenge. Now a day, the
offices 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 as
tax complier only.
Friends, the tendency of shifting the burden of the tax recovery on civilians by the tax
administrator 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 got
themselves 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 having
threat of T.D.S. Survey u/s. 133A of the Act as also of many and multiple legal
proceedings and litigations relating to T.D.S. . Many of our assessees are victims of
problems relating to non-grant of tax credit due to mismatching, filing and correction of
the T.D.S. returns, frequent notices which are being issued by the T.D.S. Officers and
also 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 free
compliance of T.D.S. provisions on behalf of their clients . We hope that it is only a
transitory 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 system
would take place very soon.
The theme of the seminar, in which this paper is being presented, has very rightly been
selected as "Taxation - A Challenge, requires Knowledge and Wisdom". Here, the paper-
writer has a humble suggestion that the set of words 'Practical Approach' should have
also been inserted to the punch line of the theme. Ultimately, it is the common sense and
practical approach (not that practical approach, as we understand some time) which
prevails in any tax related statue compliance.
The paper-writer has been assigned the topic of 'Practical Issues in Tax Deduction at
Source'. The practical issue, in context of the topic, is a very wide term. It covers the
examination of the obligations of a tax deductor, various rights and obligations of a
deductee, procedural aspects of T.D.S. compliance and , finally, ways of defending
notices and orders passed by the T.D.S. Administration Authorities along with
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consequences for defaults. In the present paper, an attempt has been made to address all
such 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 the
provisions 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 after
first incidence of deduction of tax at source but it is advisable that no sooner an
entity come into existence, it should apply for TAN in prescribed Form 49B. In
case of proprietorship concern too, if it is likely that in nea r future its
turnover/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 not
otherwise.
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 avoid
multiple filing of the T.D.S. returns in respect of every branch/office, it is
advisable 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 become
inevitable.
iii) Separate TAN is required for separate PAN. If a partnership firm is dissolved and
its entire business is taken over by one of the partners, than the partner taking over
the business would be required to obtain separate TAN if he is not already having
one. The similar would be the situation when a proprietorship firm is converted
into 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 made
to transporters, immunity from T.D.S. u/s. 194C(6) is available only if the PAN is
provided by the contractor to the payer.
In view of such provisions, it is advisable that every business organization should
obtain PAN of every person, with whom any transaction of payments liable for
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TDS is either made or intended to be made, at the very initial stage itself. Every
business organization should maintain master data of such PAN. Such PAN details
should be invariably noted in the master details, in computerized form, of every
party. 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 the
PAN of the payee specially in a circumstance when the payee belongs to an
unstructured business class such as in case of a truck operator, labour contractor
etc.. It is because under the provisions of sub -section (6) of section 206AA of the
Act, if the PAN provided by the deductee to the deductor is invalid or it does not
belong to the deductee, it shal l be deemed that the deductee has not furnished his
PAN 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 goods
carriage operators is met the moment the deductee provides his PAN to the
deductor and therefore, even if such PAN is found invalid subsequently, no
adverse action can be taken against the deductor. Still, it is advisable that in such
cases too, the deductor should take reasonable care to ensure that the correct PAN
is provided by the payee.
Although, there is no direct facility through whom a deductor can verify veracity
of the PAN details provided by a deductee but it can be verified indirectly. For
such 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 the
person to whom PAN actually belongs would appear. In such manner, one can
verify PAN details of the deductee. This exercise should be made especially in the
case of contract payments.
An examination of the PAN number of the deductee, would also facilitate the
deductor to know the status of a deductee which is required for determining the
applicable rate of T.D.S.. As we know that in respect of certain pay ments such as
payment 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 the
fourth 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', the
status 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.?
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a) Every person is required to make T.D.S. on the various payments in
accordance with various provisions, contained u/s. 192, 193, 194, 194A to
194LB and section 195 of the Act. It may be noted that the liability for
T.D.S. arises irrespective of the fact that the person responsible for making
payment is already an assessee or not.
b) All the provisions of section 193 to 194LB (except section 194E which
applies on payments to non-sportsmen or sports association) apply when
the payment is made to a resident. For making the payment to non -resident
the provisions of section 195 apply. The provisions of section 192 apply in
respect of salary paid even to a non-resident.
c) The provisions of T.D.S. on salary appl y to all the persons making payment
of income chargeable under the head ' Salaries'. Thus it applies to individual
and 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 a
specified limit.
However, the other provisions such as 194A, 194C, 194H, 194-I and 194J
apply to individual or HUF in certain circumstances only. Very
interestingly, for determining the l iability of individual or HUF to make
T.D.S., different provisions have been made under different sections and
these 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 or
turnover from the business or profession carried on by him during the
immediately preceding year exceed the monitory limit specified under
clause (a) or clause (b) of section 44AB for the financial year in which such
payment is made. It has to be noted that for F.Y. 2010 -11, the liability for
TDS has to be ascertained with respect to the limits of turnover/receipt
prescribed for F.Y. 2010-11 i.e. of Rs.60.00 Lakhs or Rs.15.00 Lakhs and
not the limits prescribed for F.Y. 2009-10 i.e. of Rs.40 Lakhs or Rs.10
Lakhs. So although, the turnover limit is to be looked into for F.Y. 2009-10
but 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 above
sections, during the F.Y. 2010-11.
However, u/s. 194C, an individual or HUF has been made liable on the
basis of their liability for getting the books of account audited dur ing the
immediately preceding previous year. Therefore, T.D.S. on contract
payments 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.
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44AB. For F.Y. 2009-10, the limit was of Rs.40 Lakhs/Rs.10 Lakhs and
therefore an individual having turnover of Rs.55 Lakhs for F.Y. 2009 -10
with the liability of tax audit under section 44AB would be required to
make T.D.S. u/s. 194C. The provision would apply whether or not the
individual, even after so becoming liable, has actually got his books audited
for F.Y. 2009-10.
d) Once the provisions of T.D.S. come into operation th en except in respect of
the payments covered u/s. 194C Payment to contractors and payments
covered u/s. 194J Fees for Professional or Technical Services, it makes no
difference that such payments are being made during the course of carrying
out any business or profession or during the course of personal affairs of
the individual or any member of HUF. Accordingly, T.D.S. is required to
be made by an individual or HUF even on salary paid to his domestic
servant/ driver or personal assistant . T.D.S. is also required to be made on
interest paid on borrowings made for construction of house or any other
domestic purposes such as for purchasing a personal vehicle. Likewise,
T.D.S. liability may also arise in case of an individual for payment of
brokerage or commission for purchase/sale of any immovable property
even if, such individual /HUF is not carrying on any business of purchase
and sale of immovable properties. Interestingly, liability for T.D.S. on
payment to non-resident u/s. 195 arises even on payment s made to a non-
resident against purchase of immovable properties situated in India.
II) THE INCIDENCE OF LIABILITY FOR T.D.S.
a) The liability of T.D.S., except in case of salary payment, arises when the
payment is made or credit is given to the account of the payee, whichever
event occurs first. However, the liability for T.D.S. on salary arises only on
payment. Though, practically, there is no bar of making the T.D.S. on
provision of salary.
b) In respect of two types of payments i.e. payment of salary covered u/s. 192
and payment of interest other than interest on securities u/s 194A, although,
the liability for T.D.S. arises from the very first payment made during the
year but due to specific provisions i.e. provision u/s. 192(3) and 194A(4), a
liberty has been given to a tax deductor to make T.D.S. on the last
payments made during the same financial year without attracting any
adverse consequences. However, for all other sort of payments the liability
for T.D.S. arises on payments/credits made from time to time and one is not
statutorily eligible for deferring the incidence of T.D.S..
c) It is therefore advisabl e that in case of payment of salary or payment of
interest, if you fail to make T.D.S. on earlier payments, do not pass entries
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in the books regarding T.D.S. on the date of payment. Instead, pass the
necessary entry when the T.D.S. on earlier payments is actually deposited.
Even in respect of TDS under other heads, the same practice should be
adopted for two reasons i.e. (i) rate of interest is higher when the TDS is
made and not paid in comparison to when the TDS has not been made at all
and (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 relevant
section itself such as under section 194C (1% for individual/HUF and 2%
for others), 194E (payment made to non -resident sportsmen or sports
association 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 (fees
for professional on technical services 10%), 194K (income in respect of
units 10%), 194LA (payment of compensation on acquisition of certain
immovable property 10%) or at the rates prescribed under the relevant
Finance Act. However, where the PAN of the deductee is not available , the
T.D.S. is compulsorily required to be made either at the rate prescribed in
the section itself, or at the rate prescribed by the relevant Finance Act or at
20% 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 is
deductible after 01-07-2010 than such surcharge and education cess is not
required to be taken into consideration even if a part of the payment
pertains to period prior to 01-07-2010. The liability for the T.D.S. is to be
ascertained on the basis of the rate in force on the date when such liability
arises and not on the basis of the rates prevailing for the period to which
such payment pertains.
c) Under the provisions of section 197, if a person i.e. a deductee, upon
making his application to his Assessing Officer in prescribed Form No. 13,
has been issued a certificate in the name of the deductor, authorizing him
either not to deduct any tax or to deduct the tax at a lower rate as specified
in the certificate than the deductor is required to act accordingly. However,
it should be ensured that such certificate reaches to the h ands of the
deductor before the occasion of T.D.S. arises and if on the date on which
the liability for T.D.S. arises the certificate has not been provided to the
deductor, he should deduct the tax at the applicable rates and he should not
defer the T.D.S. in anticipation of issuance of certificate in Form No. 13 to
the deductee. In any case, the deductor should ensure that the certificate
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reaches to his hand before the completion of the previous year. It may be
noted that such certificate can also be obtai ned by a salaried person if he is
in a position to demonstrate before his AO that due to some factors such as
carry 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 a
deductee u/s. 197A, should also reach to the hands of the tax deductor
before the due date for making the deduction. Under section 206AA(2), the
deductor can not accept such declaration i f the deductee does not mention
his permanent account number in the declaration so furnished. It may be
noted that a trust or AOP can also furnish such Form No. 15G in applicable
cases.
e) Under section 197A(1B), where the amount of payment made by the
deductor exceed the maximum amount of income which is not chargeable
to tax than irrespective of the fact that the tax liability of the deductee
would be Nil due to deductions under Chapter - VI-B or losses under the
other heads but the deductor can not acc ept Form No. 15G from the
deductor. However, u/s. 194(1C) where the payment is made to a senior
citizen than Form No. 15H may be accepted even if the amount of payment
exceeds the threshold limit prescribed for senior citizens. The age of senior
citizen has been reduced to 60 years from 65 years and therefore the
corresponding provisions should also be made for eligibility of furnishing
Form 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 under
the head salary after giving set -off for loss under the head income from
property and permissible deductions under Chapter VI-B, exceed the
threshold limit. However, for all other payments the liability for T.D.S.
arises only if the amount of payment exceeds the limit/limits prescribed
under the respective provisions of the law.
b) For certain provisions, such as section 194B income by way of winning
from lottery, 194H payment of commission or brokerage, section 194 -I
payment of rent, section 194G payment of commission on sale of lottery
tickets, the T.D.S. is required to be made on the net amount only without
including any service-tax or reimbursement of expenses. However, for
other 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
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be made on the gross amount inclusive of service -tax and other incidental
expenses claimed by the payee.
c) The golden rule is that if in the pa rticular provision, the liability is qua the
payment of 'income', T.D.S. is to be made by excluding the service -tax and
other payments and if the liability is qua payment of any 'sum' then the
T.D.S. is to be made on the gross amount.
d) In many cases the threshold limit for deduction has been increased by the
Finance Act, 2010 w.e.f. 01-07-2010 such as limit for single contract
payment is raised from Rs.20,000/ - to Rs.30,000/-, limit for aggregate
amount of contract payments in a financial year has been r aised from
Rs.50,000/- to Rs.75,000/-, limit for payment of rent in a financial year has
been 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/-. Such
limit is to be examined at the time when the liability for T.D.S. arises. In
respect of monthly payment of rent of Rs.11,000/ - per month no liability for
T.D.S. u/s. 194-I would arise even in respect of fi rst three months for the
reason 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 the
Chapter-XVII is liable to make the payment 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 be
deposited within a period of seven days from the end of the month in which the
payment is made or credited. However, when the payment is made at any time in
the month of March or credited to the account of the payee on the last day of t he
accounting year the TDS can be deposited till 30
th
April. Previously, the time limit
was allowed up till 31
st
May. The payment is to be made through challan number
281. 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 annual
return u/s. 206 of the Act.
Now, w.e.f. 01-04-2005, every person who has deducted any tax for any quarter
and has also paid the tax so deducted, is required to prepare quarterly returns and
submit such quarterly returns within a period of 15 days from end of the
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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 been
filed up till 15
th
June. The quarterly returns are required to be furnished separately
for each TAN.
These quarterly statements are required to be made in Form No. 24Q for salary
payments 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 person
required to get his accounts audited u/s. 44AB in the immediately preceding
previous year or in a case where the number of deductees record in any of the
quarterly statements of any quarter of the immediately preceding financial year is
50 or more, the returns are compulsorily to be filed on computer media as per the
data structure (file format) provided by the e-filing administrator. This is available
on the Income-Tax Department Website www.incometaxindia.gov.in However,
any person who is not so statutorily required may also file quarterly return s on
computer media.
The quarterly return contains the details of the deductor, the necessary details
regarding 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, the
section under which the payment has been made, the amount of payment, the rate
of 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 tax
deducted.
The quarterly return has to be supported by a declaration in Form No. 27A in
paper form duly verified by the deductor. A copy of the computer dis c/floppy
along 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 should
not across multiple floppies. Now, a day, the CD/floppies are not kept by the
prescribed authority and it is returned back after copying the data. The receipt
issued by the NSDL should be preserved as it may be required in future for
making revised statements. There is no requirement of submitting other documents
such 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 source
mentioned in Form No. 27A should match with the corresponding details of the
quarterly return. There should not be any overwriting in the Form No. 27A else it
should duly be ratified.
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It may be noted that subject to penal provisions, quarterly returns can be filed at
any time and no upper time limit has been prescribed. Therefore, the quarterly
returns even in respect of financial year 2005 -06 can be filed now.
In filing the quarterly returns one should take care that TAN is filled -up correctly.
The PAN of the deductee and the details of challan payments should also be filled-
up correctly. Any mistake would result in non-grant of tax credit to the deductee at
the stage of processing of his income -tax return for the relevant year.
A statement filed u/s. 200(3) can be corrected at any time by filing the revised
statements in the format provided available at the site of www.tin-nhdl.com.
However either in the Act or in the Rules, no provision has been made in this
behalf. For the purpose of filing correction statements , the availability of the FVU
File (File Validation Utility) and receipt issued by the NSDL , of the original
statement or the last corrected statement is a must. By filing the corrected
statement, the details of the deductor can be modified, the details of challan can b e
modified or details of new challans can be added, the details of deductees can be
updated, added or deleted, the PAN of the deductee can be changed, or the nature
of payment or the amount of payment can be modified. However, by filing the
revised statements, the details such as TAN, period of the return, etc. can not be
changed. However, the name of the deductee can be changed only once. A return
already revised, can again be revised. Unlike procedure for revising return u/s.
139(5), it is also not necessary that the original return is filed in time. Further, a
return can be revised even after processing of the original or earlier revised returns
u/s. 200A.
Now, since u/s. 206AA in case of non -availability of PAN of the deductee, T.D.S.
is to be made at the highest rate and therefore, T.D.S. returns can now be filed
without PAN of deductees but in such a case the condition is that the T.D.S. is
deposited at the highest applicable rates.
The common error which is committed in filing the quarterly T.D.S. returns
pertains to wrong mentioning of PAN of the deductee or the details regarding to
the challan. Now, we can take care of the mistakes relating to PAN by going
through the process already discussed. The mistake of the challan can be avoided
by going to the OLTAS site of the NSDL. By giving the TAN of any deductor all
the details (except the amount) can be viewed for any period. From such site, one
can have a look of the date of payment, BSR Code , CIN and nature of payment
etc.
VII OBLIGATION OF FURNISHING OF T.D.S. CERTIFICATES
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After deducting the tax and paying it, a deductor is required u/s. 203 of the Act to
issue a certificate to the deductee , duly filled, in the prescribed form. The
certificate 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. Form
No. 16A. The T.D.S. certificate in respect of salary, should be furnished under rule
31 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 from
the 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 THE
DEDUCTOR
Under the provisions of section 206AA of the Act, a deductee is required to
furnish his correct PAN to the deductor before the incidence of T.D.S. arises. If no
PAN 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 cumbersome
process 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 the
cases, 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 in
his return is not getting matched with the details of T.D.S. furnished by the
deductor.
II. OBLIGATION OF FURNISHING FORM NO. 15G/15H OR
CERTIFICATES IN FORM NO. 13 TO THE DEDUCTOR BEFORE THE
T.D.S. INCIDENCE
A tax deductee is required to furnish declaration in Form No. 15G/15H and
certificate 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. IN
HIS RETURN OF INCOME
Under rule 37BA(4), the credit for T.D.S. is granted on the basis of (i) the
information relating to deduction of tax furnished by the deductor to the Income -
Tax Authority or the person authorized by such authority and (ii) the information
in the return of income in respect of cl aim for the credit subject to verification in
accordance with the risk management strategy formulated by the Board from time
to time. It is thus clear that unless and until correct information is provided by the
deductee in his Income-tax return, the credit for T.D.S. can not be granted to him.
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This would be the position even if the credit is appearing against his name in
AS26.
IV. OBLIGATION TO PAY THE TAX DIRECTLY
Under the provisions of section 191 of the Income -Tax Act, 1961, in any case
where 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 deductee
should intimate the deductor about the direct payment of tax made by him so as to
avoid the deduction of the same tax at later stage by the deductor. However, in
such a case, the deductor can not be made liable for interest u/s. 234B & 234C.
V. OBLIGATION TO FURNISH NECESSARY INFORMATION OF THE
REAL DEDUCTEE UNDER RULE 37BA
Under sub-rule (2) of Rule 37BA, inserted w.e.f. 01-04-2009, if the income on
which tax has been deducted at source is assessable in the hands of a person other
than the deductee, then the deductee is required to file a declaration with the
deductor giving the necessary details of the person/s who is/are assessable in
respect of such income. Such situation may arise when the income of a minor is
includible in the hands of his parents or the income of a member of HUF or a
partner of a firm is assessable as the income of the HUF or firm or where the
property or deposit or security or unit or shares are owned jointly by the deductee
with other persons. The declaration filed by the deductee should contain the
details 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 reason
for giving such declaration. Thereafter, the deductor would issue the certificates in
the name of the concerning persons and would also reflect the name of such other
persons in the quarterly TDS statements. Accordingly, credit for TDS would get
reflected 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 credit
is getting appeared in AS26 for the reason that such information in AS26 may get
changed later on due to filing of correction statement by the deductor. The
deductee should also ensure that some written communication from the deductor is
obtained 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 in
compelling 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
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Under section 205, where a tax is deducted at source, the assessee shall not be
called upon to pay the same tax again. Even, if the deductor has not paid the tax or
has not filed T.D.S. quarterly statements. However, the deductee should have
evidences 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 recently
come out with an Instruction No. 2 of 2011 dated 09 -02-2011 under which it has
instructed that while processing the returns filed in ITR-1 & ITR-2, credit may be
allowed even if there is zero matching , if the total T.D.S. claimed is Rs.5000/ - or
less. In other cases of zero matching, the credit shall be given only after due
verification. In all the returns (ITR-1 to ITR-6) where the difference between
T.D.S. claim and matching T.D.S. amount reported in AS26 data does not exceed
Rs.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 allowed
only after due verification. The instruction further provides that where there
T.D.S. are claimed with invalid TAN, T.D.S. credit for such claim should not be
allowed to an assessee.
It is advised that if, for any reason, credit for T.D.S. is not given to the deductee in
the 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 file
corrected 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 for
rectification 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 the
Board for redressal of his grievance and genuine hardship.
iv) Even, if an assessee has not made claim for T.D.S. in his original return he
can rectify the intimation sent by CPC, Bangalore by filing online
rectification application. Such application can be filed u/s. 155(14) of the
Act within two years from end of the assessment year in which such
income is assessable.
Under Rule 37BA (3)(i) the credit for TDS shall be given for the assessment year
for which such income is assessable. Under rule 37BA (3)(ii), where the income is
assessable over a number of years, credit for TDS shall be allowed across those
years in the same proportion in which the income is assessable to tax.
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There may be cases when a deductee is observing mercantile/cash system of
accounting and the deductor is observing cash/mercantile system of accounting. In
such 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 AND
PASSING 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 section
200A, where a statement of tax deduction at source has been made by a person
deducting 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 sum
determined to be payable or the amount of refund due to him. It also provides that
while processing the statement, the sum deductible under the chapter shall be
computed after making adjustment on account of arithmetical error in the
statement or incorrect claim apparent from the information in the statement.
Further, the interest, if any, shall also be computed on the basis of the sum
deductible. After making the adjustments, the sum payable or refund due to the
assessee shall be determined. It further provides that no intimation shall be sent
after the expiry of one year from the end of the financial year in which the
statement 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 is
not 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 Act
itself. Previously, such refund could have been claimed only under section
119(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 required
to deduct any sum in accordance with the provisions of this Act does not deduct or
after so deducting fails to pay the whole or any par t of the tax, as required by or
under this Act, then such person shall without prejudice to any other consequences
which 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 an
assessee cannot take shelter of his bona fide belief for not making due compliance.
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Even no provision has been made for giving an opportunity of being heard to the
deductor. 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 the
basis 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 quarterly
statement 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 should
file the corrected statement, if any. The reasons for such mismatchment may
attributable either on the part of furnishing of the wrong information by the
deductee such as quoting of wrong TAN of the deductor, or quoting of the wrong
amount 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 tax
shown 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 ng
of wrong information by the deductor such as wrong mentioning of the PAN of the
deductee, wrong mentioning of the particulars of the challan by the deductor or
wrong furnishing of the nature of payments, etc. . The deductor must ensure that
the details given in the TDS certificates are exactly same as given in the quarterly
statement 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 when the tax was deductible to the date when
the tax was actually deducted. However, higher rate of interest @ 1.5% is charged
for 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 amount
of default. In such a case, the deductor besides becoming liable for penalty under
section 271C may also become liable for prosecution under section 276B of the
Act.
Any order under section 201 cannot be passed after the expiry of two years from
the end of the financial year in which the statement is filed. However, in a case
where no statement has been filed, the order can be passed within four years from
the expiry of the financial year in which the payment liable for TDS is made or
credit is given. However, in a case where the tax has been deducted and not paid at
all, the order under section 201 can be passed at any time. However, for a financial
year commencing on or before 01-04-2007, the order could have been passed at
any time on or before 31-03-2011.
The order passed under section 201 or 201(1A) can be got rectified under the
provisions of section 154(1) of the Act. An appeal can also be filed against an
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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 CIT
but 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 under
the head 'Salaries' is made and the relation of the employer employee at the
time of payment is not an essential condition. Under section 17(1), salary
includes annuity or pension and, ther efore, the payment made to a retired
employee by way of pension is also covered under section 192. However, the
amount paid by way of family pension to the dependents of the deceased
employee 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 the
head 'salaries'. The deductee is required to furnish particulars of his income
from other employer/previous employer and also of the income under the other
heads. 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 the
deductee even if it is within the specific knowledge of the de ductor.
Accordingly, a deductor is not required to take into account some other
payments made by himself, such as interest, rent, etc., to the concerning
employee. Likewise, an employee is also not required to get tax deducted at
source in respect of his other income.
iii) No Form has been prescribed for furnishing the particulars of other income by
the employee.
iv) An employer is not required to investigate into the sources of investments
reported by the employees for claiming rebates and deductions. However, t he
employer is supposed to take reasonable care in obtaining necessary documents
in support of various claims for deductions .
Section 194 Dividends
Since deemed dividend under section 2(22)(e) are not covered under section
115-O, the liability of a company would arise even in respect of deemed
dividend.
Section 194A Interest other than interest on securities
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(i) In the case of an individual, who is liable to make TDS, it has to be ensured
that 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 and
in one account interest is credited and in the other account interest is
debited, the liability for TDS arises on the gross amount i.e. on the amount
credited and not on the net amount of interest.
(iii) The expression "interest" has been defined under clause (28A) of section 2
of the Act. According to it, interest means interest payable in any manner in
respect of any money borrowed or debt incurred (including a deposit, claim
or similar right or obligation) and includes any service fee or other charge
in 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 hire
purchase transactions since the expression "interest" includes interest
payable in any manner in r espect of any money is borrowed or debt
incurred. 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 no
incurrence of any debt and, therefore, dividend/discount distr ibuted
amongst the chit subscriber is not interest so as to attract TDS under section
194A.
(vi) In view of the definition of the term "interest", commitment charges or loan
processing charges shall also partake character of interest liable for TDS
under section 194A. However, since the payment of interest to banks and
financial institutions have been excluded from the ambit of TDS and,
therefore, payment of commitment charges and loan processing charges to
the 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.
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(iii) Even on the payment under advertising contract t o a person, other than
individual or Hindu Undivided Family, TDS would be required to be made
at 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 make
any TDS on contract payments , possibilities may be explored to give it the
status of AOP and in such a case, there would not be any liability for TDS
at least in the first year.
(v) TDS is required to be made on the entire sum which includes service tax for
the 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 payments
made for hiring or renting of equipments. Where a taxi is hired with a
chauffer 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 provided
without any chauffer or further obligation of the contractor to meet the cost
of fuel or repairs/maintenance, it would be a case of renting of equipment
liable for TDS under section 194-I.
(vii) TDS is required to be made even in a case where the payment is made for
getting a vehicle repaired.
(viii) TDS is also required to be made on the charges paid to the depositories
maintaining 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 payable
by BSNL or MTNL to its franchise.
ii) T.D.S. is not required to be made for any services in relation to any
transaction relating to securities as defined under clause 2(h) of the
Securities Contacts (Regulation) Act, 1956. In the definition, the
derivatives have also been covered and therefore, the paper -writer is of the
opinion that brokerage paid on derivatives of commodities is also not
covered u/s. 194H.
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iii) Discount granted on principal to principal basis such as discount allowed to
Stamp Vendors is not covered u/s. 194H.
iv) T.D.S. is applicable on the amount retained by the travel agents being the
differences of the value of tickets sold by them and value of tickets paid by
them to the Airlines.
Section 194I - Rent
i) The limit of Rs.1,80,000/ - applies qua every payee. In respect of payments
to co-owners, the T.D.S. is to be made if the payment to each payee exceed
Rs.1,80,000/-.
ii) If the asset is held in the name of a deductee being a partner of a firm or a
karta 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 one
person than the credit may be given to the person who is assessable in
respect of such income. As per rule 37BA, the deductee should file a
declaration with the deductor on a plain paper containing the details such as
name, 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 reason
for giving credit to such other person. Thereafter, the deductor would issue
the certificate in the name of the persons in whose name credit is to be
given as per the declaration. The deductor has to keep such declaration in
his safe custody.
iii) The provisions apply only for use of land or building or furniture etc. and
where there is no right given to use it would not be a rent under the
definition given in the section 194-I.
iv) T.D.S. is required to be made on non-refundable deposit. However, on the
refundable 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 in
the 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. 4/2008
dated 28-04-2008).
Section 194J - Fees for Professional or Technical Services
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 income
chargeable to tax no liability for T.D.S. arises. [Transmission Corporation
of 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 payment
made in India or outside India, both are covered.
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