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.
