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Tax deduction at source and emerging issue

CMA Devi Vara Prasad Korada 
on 06 February 2014

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Tax Deduction at Source (TDS) gained so much of importance in the recent years comparing to the earlier years because of insertion of Form 26AS (Online Tax Credit Statement for Assessees). Same got more importance in the recent period with insertion of Section 206AA and also that Income Tax Department and Many Assessing Officers are asking Form 26AS to be updated for allowing credit for TDS during their normal assessment. As Income Tax Department prefers to take data as per Form 26AS, which will be containing the details submitted by the Deductors in their TDS returns hence proper processing of the TDS returns is came into picture. In this regard, New Online Processing System called TDSCPC (TDS Centralized Processing Cell) is being introduced by the Income Tax Department vide Notification no 3/2012 dated  15/01/2013 which comes into effect from date of issue of notification.

History of TDS:

The Income Tax Act, 1961 when enacted did not have any provisions relating to tax deduction at source. However, the same was introduced in the year 1965 for payment of salaries etc. Though, in 1963 it was introduced for payment of interest on certain specific securities. Thereafter, the scope of the provisions has kept on increasing in the subsequent decades.

The provisions of TDS contain onerous responsibility on the deductor, as he not only has to pay it to the government in time, but he has to file different returns giving details of the transactions.  The process and responsibilities of Deductor in respect of TDS can be explained in the following flow chart:

Till now TIN-FC is facilitating for filing and processing of TDS returns. It is providing standard free software for generating TDS returns in electronic mode and a special TDS returns validation utility called File Validation Utility (FVU) for verification of data in return before filing the data. It has also provided system to enable correction of returns through correction returns. It will process the returns using the data provided by the deductor and data provided by Banks through their OLTAS (Online Tax Accounting System).

TIN-FC has undergone various changes during the last few months to simply the process and to increase the effectiveness in processing the returns. The same has been shifted to TDS CPC vide notification no 2/2013. The TDS CPC is providing different services and few of the same are as follows:

A. Consolidated TDS files:

- These files will have updated details of return including revised returns.

- A revised return can be filed only by using a consolidated TDS file.

- This can be downloaded from TDS-CPC by creating an account for your TAN number and by providing the some details of the return.

B. Defaults:

- This file will have details relating to short deduction/Short payment/Late Payment and respective interest calculations as per section 200A/201(1A).

- This will be helpful in identifying the mistakes by the assessee and giving clear details to rectify the same and it will help in identifying the errors in the returns hence in filing revised returns with the correct details.

- This can also be downloaded like Consolidated TDS file.

C. Form 16/16A:

- As notified by the Income Tax Department, all deductors are required to issue Form 16A downloaded from TIN-NSDL, now the same is provided by TDS-CPC.

- This can also be downloaded like consolidated TDS statement.

- TDSCPC is providing a special PDF converter to generate Form 16A’s in PDF format from the text file downloaded in the above step.

D. Invalid PAN’s list:

- TDS CPC is providing a list of invalid PAN’s provided in a return.

- This will help in identifying the wrong PAN’s provided by the vendor or any errors in the return.

E. Challan Status:

Provide the details of the usage and details of challans paid.

However TDS-CPC is causing so much of inconvenience during this transition period from TIN-FC to TDS-CPC but we should hope for faster and effective and correct processing of TDS returns in near future.

The latest updates in Income Tax Act effecting TDS and its processing:

A. Section 206AA:

(Submission of PAN by deductee to deductor)

 - Introduced w.e.f 01.04.2010 as per Finance Act 2010.

- Deductee has to submit PAN details to deductor at the time of deduction otherwise this section is applicable.

- Section overrides other provisions of the Statute.

- If PAN is not provided TDS shall apply at the higher of the following rates:

a. Rates specified in relevant provisions of the Statute; or

b. At the rate or rates  in force ; or

c. At 20%

B. Section 271H & 234E:

(Late fee/penalty for late filing of TDS returns)

- Introduced w.e.f 01.07.2012 as per Finance Act, 2012

- Section 272A is substituted by Section 271H and a new section 234E has been inserted. (As per old section 272A of the Income tax Act, if the TDS return is not filed within due date, penalty is charged @ Rs. 100/- per day till the return is filed.)

C. Interest on Interest:

As you know many of the deductors receiving notices from IT department containing Interest on Interest, which is not provided in any section of Income Tax Act,1961. However the same is clarified by The Addl DIT (Systems) during the course of National Seminar on T.D.S. on 15.02.2013 in Mumbai, the Addl.DIT (Systems), ShriSatpal Gulati, informed that there is misconception on this account among the tax payers. According to Shri Satpal Gulati, the amount paid by the deductor / assessee was first apportioned towards the interest which sometimes resulted in reduced payment of the principal amount and hence, interest is charged thereon. However, in view of great concern among all tax payers detailed clarification on this issue is required? Probably by giving an illustration which is provided as follows:

Illustration:

PAN

Date of Deduction

Date of Payment

TDS Deducted

Date of Deposit

(Challan Dpst_Dt)

AMIPP4724G

31-Oct-2012

31-Oct-2012

10,000

08-Dec-2012

Step 1: Check if Date of Payment = Date of Deduction (No Late Deduction)

Step 2: Due Date: 07-Nov-12,Challan Deposit Date:08-Dec-12

Step 3: Challan Deposit Date is after Due Date, so late pament  by 2 month

(there is also a misconception in many of the deductors that the interest is to be calculated from due date for payment to till date of actual payment, but as per section 201(1A) interest is to be paid for the period from date of deduction to till date of actual payment)

Step 4: Calculate the Late Payment interest: 2*1.5%*10000=300

Step 5: Rs. 300 out of Rs. 10,000 paid on 08 December 2012 got adjusted towards interest so principal amount remaining = 300 Rs.

If date of processing is 01 February 2013 then

Step 6:  Hence interest amount calculated after 2 months on the date of processing = 300*2*1.5 /100 = 9 Rs.

The fee and Penalty as per new provisions are as follows:

Section

Section 234E – Fee

Section 271H - Penalty

Applicable from

01-Jul-12

01-Jul-12

When leviable

If the TDS return is not filed within due date

If incorrect information is furnished in return or if return is not filed within one year from the due date

Minimum

Rs. 200 per day till the return is filed

10,000/-

Maximum

TDS amount

1,00,000/-

Whether mandatory

Yes, to be deposited before filing of such TDS return

No

These provisions will insist Deductors to be careful in filing returns and in the data provided in the returns as any default may lead into penalty. This will also result in smooth running of Assessments for deductee assesses as they can get their TDS credit in Form 26AS correctly. All the problems of assesses can be solved as their TDS credit will reflect as required the AO’s.

Thanks 

Korada Devi Vara Prasad

S No. SRO0296756

CA-Final, CWA-Final


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