Introduction
Form 26A is a powerful relief mechanism available to deductors under Section 201(1) of the Income Tax Act. It is a Chartered Accountant-certified form that helps avoid being treated as an assessee-in-default when TDS has not been deducted, but the deductee has already paid the tax and filed the return.
Let's understand its relevance, legal backing, interest implication, and landmark judicial precedents.
What is Form 26A?
Form 26A is a CA-certified form that certifies the following:
- The deductee (payee) has included the income in their tax return,
- Has paid tax due on such income,
- And has filed return under Section 139 of the Act.
If these conditions are met, then as per the proviso to Section 201(1), the deductor will not be treated as assessee-in-default.
Key Section: Section 201(1) & Proviso
"...a person who fails to deduct tax shall not be deemed to be an assessee-in-default if the resident payee:
(i) has furnished his return of income u/s 139;
(ii) has taken such income into account;
(iii) has paid tax due on the income;
(iv) and the deductor furnishes a certificate from an accountant (Form 26A)..."
However, interest under Section 201(1A) is still mandatory, as explained below.
Interest @1% under Section 201(1A): Detailed Explanation
Even if Form 26A is submitted, interest under Section 201(1A) is not waived.
What is the rate?
1% per month or part thereof
- From: Date on which TDS was deductible
- To: Date on which deductee filed ITR
Note: Not till the date of filing Form 26A, but till the date the deductee pays the tax and files return.
Example:
ABC Ltd paid Rs 5,00,000 professional fees to Mr. Sharma on 10-Apr-2023.
TDS @10% = Rs 50,000 was not deducted.
Mr. Sharma filed ITR and paid tax on 31-Jul-2024.
ABC files Form 26A on 05-Aug-2024.
Interest calculation
- From 10-Apr-2023 to 31-Jul-2024 = 16 months
- Interest = 1% × Rs 50,000 × 16 = Rs 8,000
Even though ABC is not treated as assessee-in-default (due to Form 26A), interest of Rs 8,000 is still payable.
Important Case Laws on Form 26A and Section 201
1. Hindustan Coca-Cola Beverage Pvt. Ltd. v. CIT (2007) 293 ITR 226 (SC)
Held:
Once tax is paid by the recipient of income, the department cannot recover the same tax from the deductor again. Deductor should not be held as assessee-in-default.
This case laid the foundation of the relief provided through Form 26A.
2. CIT v. M/s. Sony India Pvt. Ltd. (Delhi HC, 2006)
Held:
Where the deductee paid taxes and filed a return, the deductor cannot be penalized for failure to deduct TDS. Interest under section 201(1A), however, remains applicable.
This case emphasized the difference between tax recovery and interest liability.
When & How to Use Form 26A
When applicable:
- TDS not deducted on payment to resident
- Deductee has already paid the tax
- Deductee has filed return
- CA certification is available
When not applicable:
- Deductee is non-resident
- Deductee has not filed return
- Income is exempt and not declared in return
Step-by-Step Filing Procedure
- Deductor logs into TRACES and initiates Form 26A.
- Deductee confirms details on e-filing portal.
- Chartered Accountant certifies the declaration via DSC.
- Form 26A is electronically submitted to CPC-TDS.
- CPC removes assessee-in-default status and re-calculates interest.
Conclusion
Form 26A is a vital tool that protects genuine deductors from harsh TDS defaults, provided the tax has already been paid by the deductee. However, interest under Section 201(1A) at 1% per month is mandatory, serving as a cost for delay in deduction.
Timely and proper filing of Form 26A, backed with professional CA certification and documentation, helps ensure smooth compliance and avoids penalties.
The author is a CA Finalist and MBA (Finance) with expertise in Direct Tax, GST and Corporate Compliance. He writes to bridge the gap between tax law and practical compliance. He can also be reached at shubhamtripathi492@gmail.com.
CAclubindia
