TDS Law & Procedure – Recent Developments

Date : 13th May, 2009.

1. Mr. Kothari, while introducing the subject remarked that the provisions of TDS are not only complex, difficult to interpret and still more difficult to implement. It expects the deductor to discharge his duties gratis on time bound basis. For due performance there is no reward but any failure on his part attracts not only interest, penalty and prosecution but he has to suffer disallowance. The injustice is aggravated where procedural changes are made in last week of March made effective from 1st April of the year following. For example, introduction e-payment of TDS is to be made after 1st April, 2009 instead of using paper challans. On 11th April, 2009, the Press Note has extended the time limit for e-payment till 1st July, 2009. Till then TDS can be paid by using challans presently in use.

2. Changes made in Sections & Rules :

i) Sec. 199(1) of the Act dealing with grant of credit of TDS was amended to provide for a situation where income becomes assessable in the hands of person other than the recipient due to operation of Sections 60, 61, 64, 93 & 94 of the Act.

ii) In case of AOP or Trust, the Rule provides that where the income is assessed in the hands of a member, the credit for TDS thereon will be available to him.

iii) In case of a Trust the credit will be given to Trustee. Where the income is assessable in hands of beneficiary, the credit will be available to him.

iv) Where the asset generating the income is held by Partner on behalf of firm, the credit for TDS will be available to the firm.

v) Where deductee is holding asset as Karta of his HUF the credit of TDS will be available to the HUF. A practical difficulty may arise where asset of HUF is held by a member other than Karta, the income though gets assessed in hands of HUF, the credit of TDS may be in jeopardy. Similar difficulty may arise in case of partial partition of HUF. In that case, the assessment of income will get continued as HUF income even though the partitioned asset will go outside the books of HUF.

vi) In case of a property deposit, security, units or shares held by an individuals jointly with others the credit of TDS will be given in the ratio of share of deductee and other co-owners.

3. The mechanism provided for claiming of Credit :

    In the above situations the concerned deductees have to furnish a declaration to the deductor giving details of names, addresses and PAN of or co-owners to whom the credit of TDS is to be given. There is no specific Form of Declaration. It can be given on plain paper also. Though no time limit is prescribed for furnishing the information to deductor, the deductee should ensure that such declaration is submitted before deductor effects deduction.

    The deductor has to issue certificate of deduction in the names of persons mentioned in the declaration.

4. Method of Accounting decides the Year of Assessability

    The speaker observed that different methods of accounting followed by deductor & deductee may cause mismatch of information given by deductor to I.T. Dept. and the year in which the deductee is submitting such income to tax. The deductee will be entitled to get credit.

5. Judicial views on TDS provisions :

    Delhi High Court as well as P & H High Court have taken a stand that credit should not be denied to the assessee on technical ground.

    i) In case of Escorts Ltd. the company was following accrual method. The Certificate for TDS was not available at the time of filing the return. The assessment was completed. The assessee claimed the credit in the year in which TDS certificate was received.

    ii) The Delhi High Court held that Sec.155 (14) empowers the Assessing Officer to consider the TDS even after 2 years from completion of assessment. Hence the A.O. should have given the refund of tax even though the assessment was completed.

    iii) In case of Sonal Bansal before the P & H High Court, the assessee, holding Deep Discount Bonds, received proceeds on maturity. The difference between maturity value and issue price was treated as interest by Bond issued and TDS was effected thereon. However, these bonds were purchased in the market at premium. The bond holder treated the difference between maturity value and his cost as interest since the seller of Bonds to him had paid Capital gain tax. So in such case, interest accounted will be less than income adopted for TDS. The Court took the view that he is entitled to tax credit because otherwise no one would get credit for TDS suffered.

6. Other Procedural Amendments

i) Rule-38 has been amended. There is no change in time permitted for effecting payment of TDS to Government. The only change is applicable to tax deducted by Government. Such tax had to be paid into the treasury on same day. Now, the time limit as is applicable to Non-Government organisation will apply even to Govt. So now the time limit will be 7 days from end of month in which tax is deducted. The time limit of 2 months will not apply, as the Government accounts are on cash basis.

ii) The payments can be made quarterly after obtaining permission of A.O. The mode of payment is for the first time prescribed in the Rule. Instead of challan No.280, now the challans should be in Form No.17 to be paid electronically.

iii) No consequences are prescribed for not paying challans electronically after 1st July, 2009. Tax deducted prior to 31.03.2009 can be paid by old challans.

iv) The new mode of payment will also apply to Government. In Form No.17, there is no need to put Assessment year but Unique Transaction Reference No. (UTN) is to be put. The challan has to make reference deductee-wise, giving the PA Nos. of the deductees , if they are ten or less. If the deductees are more than ten, a separate statement is to be prepared. In the Challan you have to give PAN of Deductor & the name of his Bank. Last year on 14th July, 2008, CBDT has come out with a Circular No.5 of 2008 to deal with payment from third party’s Bank A/c. The software will develop unit Transaction No. which is to be given in all statements submitted to LT. Department. There may be situations where PAN is not validated or where deductee’s PAN is wrong put, there may be some difficul ties.

v) Challan No.17 does not provide for the information under which Section the tax is deducted. However, in Form 26Q the section under which payment is made is to be given; as well as Name and PAN of deductees section-wise. Therefore Form No.17 must be used separately for each section.

vi) Form 27Q applies  to TDS from payment  to Non-Residents or Residents but not Ordinary Residents.

Similar difficulty may arise in case of concerns having multiple branches and multiple PAN Nos./TAN Nos. Difficulties AI will arise in matching payments. Though payments can be made by credit card or Debit card, no facilities are available in software on websites. Similarly, in case where service tax is paid in a Bank other than permitted Bank, the assessee can’t be asked to pay tax again.

vii) As regards Tax Collected at Source, the Press Note states that the time limit will be 7 days from end of month & the time limit of 2 months does not apply to TCS.

7. Amendments in time limit for Issue of TDS Certificates

i) Rule 31 deals with issue of IDS Certificate. It applies from 01.07.2009. Formats of Form No. 16 & 16A remain unchanged. In respect of provision made in the accounts at year end, the TDS was payable before 31st May. Thereafter deductor was duty bound to issue certificate within 7 days i.e. 7th June. Now, it is provided that certificate should be given within one week from date of payment to Government. A Consolidated Certificate can therefore be issued within 1 month from close of the year. So, in cases where tax is paid after 30th April to 31st May, a separate certificate will have to be given.

As regards duplicate certificate the only change is that deductor should certify it as duplicate certificate.

8. Additional Information to be provided in Forms of TDS Certificates & in the Returns

i) Form No.16 has been modified. The new form includes TDS certificate No.(optional), UTN, Information whether PAN is uploaded and validated by LT. Department, Information about Gross Amount paid/ credited to such employee. This amount will be different from amount chargeable as salary due to perquisites and exempt allowances. The details of perquisites are required to be given in Form 12-BB (though now not in existence).

ii) Form 16A certifies payments other than Salary. Certificate of TCS is to be given in Form No. 27E. Earlier there was a provision for issue of consolidated certificate, the consolidation of TCS between two periods, April to September and October to March is now deleted. Now TCS Certificate is to be issued every month.

iii) Rule-31A  –  Quarterly   Statement   of TDS and TCS – This is to be furnished in Form 24C. If any deductor has to cancel the TAN, he has to approach TDS Officer for cancellation. Till the cancellation is not effected, obligation of filing Returns, Challans & other information continues.

iv) It is now provided that Form No.24C is to be filed on quarterly basis whereas Forms 24Q, 26Q, 27Q should be compiled on quarterly basis but the same are to be e-filed collectively before 15th June of succeeding financial year. Uptil now the obligation to submit Form 24Q and 26Q on software like diskettes or CDs was applicable to bodies corporate or concerns and individuals to whom Tax audit was applicable or where number of deductees are less than 50. Now, since every assessee has to make e-filing, hence filing through diskettes or C.D. Rom is not necessary.

v) The time limit for submitting Form 24C is 15th July, 15th October, 15th January and for March quarter it will be 15th June. Form 24C is newly introduced and is designed afresh. The information is to be filed on quarterly basis.

9. Filing of the details of total expenses incurred each month under each head to which TDS applies i.e. Sec. 192 to 195

i) The total expenses will include revenue as well as capital expenditure on which IDS is deductable. It will also include the amounts on which tax is not deducted due to submission of declarations or orders of Assessing Officer permitting non-deduction.

ii) Where u/s:194C, TDS is required to be made the debit effect may be to various account heads like Printing and Stationery, Advertisement and Publicity, Repairs and Maintenance etc. Therefore, Form 24C should contain the details of all such account heads and expenses from which IDS is made. This creates the need to keep back up support if TDS assessment is taken up.

iii) As regards salary, the Form requires you to mention expenses for the month on which TDS is liable to be deducted as well as the amount of salary on which IDS is deducted. As per law, for working out TDS on Salary, a bonafide estimate of salary for the whole year is required to be made for ascertaining TDS amount. As regards exemption and allowances, it is difficult to ascertain on monthly basis.

iv) As regards Returns for Tax collection at source, Similar Form Nos. 24Q, 26Q & 27Q are not to be filed every quarter though the back up information is to be maintained. Form 16AA is omitted.

10. New Requirements of Form No.27 BB applicable to TDS on payment to Non Residents. (applicable Forms No. 15CA & 15CB)

As per Form 15CA, information is to be given by a person making payment to NR. Such person has first to obtain certificate from Chartered Accountant. Such certificate will be in Form 15CB and remittance cannot be made unless this Form is submitted. After the Form is submitted electronically thereafter print out is to be signed and submitted to tax authority through deductor. The PAN of the recipient is also to be given.

11. Recently, Bombay High Court has held (293 ITR) that even if deductor has not deducted the tax, it cannot be recovered by the LT. Department from the deductee.

12. In 115 TTJ it is held that if the employer is not issuing certificate in Form 16 to employee then the A.O. must use his statutory power to enforce compliance from employer.

13. In Hindusthan Coca Cola’s case it was held that if the tax is deducted from employee, he will not be liable to pay to Govt. any shortfall in deduction for any mistakes of the deductor. In such cases, deductor may suffer disallowance u/s. 40(a).

14. In case of Mahindra and Mahindra vs. DCIT it was held by Special Bench that time limit for reopening as applicable to normal assessment will also apply to l’DS assessment. No enquiry can be initiated after expiry of 4 years or 6 years depending on facts and circumstances.

15. Supreme Court in Larsen and Toubro case has held that employer is not under obligation to collect supporting evidence in respect of claims of employees. Similarly, TDS is required to be deducted from salary to foreign employee even if income is not liable to tax.

The meeting then terminated with a vote of thanks to the learned speaker Mr. Rajesh Kothari.