BACKGROUND
Getting credit for TDS has become a prickly point in many of the intimations issued u/s 143(1) of the Income tax Act, 1961 and even in the case of assessments. The Government has tried to automate the process, which was expected to simplify the grant of credit for TDS and issue of refunds. However, the computerised system is unable to solve certain issues to the required extent, which gives a substantial headache to the assessee. She needs to tackle the demands that are created due to non-grant of correct credit of the TDS entitlement or issue of incorrect refunds. The process becomes more complicated, especially because the assessee has to deal with a Centralised Processing Centre (CPC) which does not entertain any human interaction!
Some of the major issues faced by an assessee in respect of TDS credit are as follows:
Non-payment of TDS by the deductor to the Government or non-filing or incorrect filing of relevant TDS return by him is a major problem.
A different system of accounting followed by the deductee and the deductor, resulting in a different year of deduction by the deductor and the claim of TDS by the deductee, is another one.
Statutory postponement of claim of TDS as per Rule 37BA of Income-tax Rules, due to which TDS is not allowed to be claimed unless the relevant income is offered to tax by an assessee. In many cases this results in non-grant of TDS credit to the assessee in the year of such claim.
Deduction and payment of TDS being made in a subsequent year by the deductor as compared to the year of accrual of the relevant income as per the accounting system followed by the deductee, more often than not results in deprival of TDS credit to the deductee in the relevant year.
WHY IS IT UNFAIR?
After TDS has been deducted, the deductee remains at the mercy of the deductor for securing the credit for the same. If the deductor does not pay the TDS or file the relevant return, or makes mistakes in the return affecting the deductee, the deductee can suffer financial loss as well as hardship in respect of his own tax liability. If such TDS credit is not granted, he will not only have to pay the tax but also pay interest for no fault of his.
The return of income has provided for stating the following details:
(i) Brought forward TDS from the previous years;
(ii) Credit of TDS granted in Form 26AS for the current year;
(iii) TDS claimed during the current year;
(iv) TDS carried forward to the next year.
However, the intimations received from CPC u/s 143(1) in many cases are not able to auto-fetch the correct TDS entitlement of the assessee for the year. The credit given is either less or equal to the TDS claimed by the assessee. There is no mechanism to understand which TDS credit claim has not been accepted by the CPC.
When the tax is recovered by the Government on behalf of the assessee as TDS, it may not be fair not to grant credit of the same for the year on the ground that the relevant income is not offered to tax in the said year. Deduction of TDS is a process of payment of tax on behalf of the deductee and it need not be connected with the declaration of corresponding income by the deductee as the same is declared as per the facts of the case and the governing law. Declaration of relevant income for the claim of credit of the relevant TDS may not be fair to the assessee, though it is in favour of the Revenue. Lest we forget, TDS is primarily a mechanism for collection of tax at source and not a mechanism for controlling avoidance of tax.
Is it not fair to grant the credit of the TDS to an assessee for the year in which the relevant income is offered to tax by him, irrespective of the fact that the TDS is paid by the deductor in a subsequent financial year? This is so, especially in the light of the fact that the TDS credit is not granted when the relevant income is not offered to tax in the year in which the TDS is deducted.
The TDS provisions take away the right of the deductee to recover the amount of TDS from the deductor. Is it not fair to grant him the credit of the tax because his recourse to the said amount is substantially weakened, if not lost? This is more so as Government has full right and effective means to recover the TDS amount from the deductor.
SOLUTION
The credit of tax deductible should be granted to the deductee once the deductor deducts the same, irrespective of the payment of the same by the deductor or filing of the relevant TDS return by him. Onus of proof should be transferred to the deductor or Government which, under law, requires the deductor to make that deduction.
Credit of the tax deductible at source may be granted in the year in which the relevant income is offered to tax, even if the relevant tax is not deducted in that year but deducted in a later year by the deductor.
The credit of the TDS may be granted even if it is not appearing in Form 26AS, when the assessee can submit the proof of deduction by the deductor; this is because Form 26AS is not generated out of any action of the deductee. It only reflects third-party data. A technology-driven mechanism should be rolled out by the income tax department to deal with the mismatch.
The credit of the TDS may be granted in the year of deduction, irrespective of whether or not the relevant income is liable to be offered to tax for that year. Rule 37BA grants credit of TDS provided the corresponding income is declared in the return of income of the year in which the TDS is claimed.
This has made the process of claiming TDS cumbersome and it also results in denial of credit by CPC in many cases. It may be desirable to do away with the Rule to grant credit in the year in which tax is deducted. This will make obtaining legitimate TDS credit less tedious and fair for the deductee.