Honorable Finance Minister, could you please boot out tedious TDS?
It’s that time of the year when you are preparing next year’s budget for presentation in parliament. Hopefully this Budget is not just an annual exercise but an effort to assimilate the populaces views. All the leading dailies are redden with industry leaders and business pundits rolling out list after list of what they expect the Finance Minister to deliver. Here are my brief propositions on Amendments in respect of provisions of Tax Deducted at Source (TDS).
Restructure the procedural features
CBDT has made it clear that no tax is to be deducted on the service tax component while paying the rent. It should be lengthened for other payments also (payment made to contractor, professional & technical services, for brokerage & commission, etc).Service tax is not the income of the recipient and there cannot be tax on tax.
Furthermore, TDS procedures should be reduced to bear bones. It is momentous to note here that outlay of compliance is exorbitantly high in case of miniature assesses and needs to be taken into account while stipulating filing/compliance rules. At least, TDS return filing should be half yearly instead of quarterly. Due date for furnishing of the TDS returns may be extended to 30 days instead of 15 days. In case of TDS payment under different sections facility should be provided for payment under single challan which should have breakup of payment under different sections for departmental accounting purpose.
In line with the relief given to banks for accruals made on account of interest accrued but not due, similar relief should be given to other payments that are accrued but are not due to the payee and for which the payees are not identifiable and symbolizes only a provision made in accordance with accounting policy.
Where out of pocket expenses have been clearly stated in the invoice, tax should not be deducted on such out of pocket expenses, since these are purely recompense of expenses incurred and do not exemplify income.
TDS certificates issued by the deductors, which are furnished by the deductees in the tax assessment, should be given due cognizance and refund claims based on such TDS certificates should be processed. Further the tax authority can suitably issue proper notice for the clarification rather than hurriedly issuing orders to the taxpayer concerned.
It is recommended that suitable instructions be issued by the lawmakers providing an option to the deductee to indicate their TAN in the invoice and further a column/field may be added in the TDS returns asking the payers to furnish the TAN against each deductee (this should however be an optional column), wherever TAN has been provided by the deductee, at the time of submission/filing of TDS returns by the payers.At the same time, it is also recommended that the E-TDS software of the tax department may be amended so that when the TDS returns are processed to generate the TDS certificates, the address should first be automatically picked from the TAN database in respect of the deductee maintained by the tax department and in case no TAN is mentioned in the TDS return, then the address should be picked from the PAN database. This would facilitate generation of the TDS certificate at the TAN address, wherever TAN is provided by the deductee.
A self-reliant audit provision may be appended to provide for an all-embracing audit of all the TDS returns filed with the Department. Apposite forms of audit report can be prescribed to certify about the precision of the quarterly TDS returns. This will facilitate the Department to rest be guaranteed about the exactness of the TDS returns filed as well as the transmittal of the tax deducted at source to the credit of the Central Government.
Time limit of 30 days should be fixed for grant of such certificates from the date of application with the concerned Assessing Officer and in case of non receipt of certificate within the prescribed period, the application shall be deemed to have been granted. Certificate for lower or nil deduction of tax u/s 197 (1) of the Act is received after a ample time gap of 3-6 months from the date of application and hence the assessee is subjected to higher deduction of tax till the date of receipt of certificate which is outside the power of the applicant.
If the deductee does not provide the PAN (Permanent Account Number) tax need to be deducted at a higher rate i.e. 20% or applicable rates, whichever is higher, by the deductor. This provision is applicable both to residents and non-residents. In case of payments for royalty & technical knowhow to non residents, as per Section 9 of the Income Tax Act read with the provisions of DTAA, tax is to be deducted @ 10%. Section 206AA of the Income Tax Act should be duly amended and tax need not be deducted at a higher rate i.e 20% for payments made to non-residents for royalty & technical knowhow, etc. because this is one exception where it overrules the doctrine of International Law. A proviso should be inserted in section 206AA to the effect that the provisions of this section shall not be applicable in respect of the assessee who is not required to obtain PAN under section 139A. From revenue prospective, the rate of 20% may be increased to 30% in other cases. Section 197A be extended for all TDS sections so that a person with say, agricultural income or income below taxable limit and in receipt of any payment under section 194C etc. can give a declaration. Section 206AA be amended to exclude the quoting of PAN number in cases where the person has ‘nil’ income /exempt income / income below taxable limit.
The credit for tax deducted at source should be allowed in the assessment year immediately following the financial year in which the tax has been deducted at source. In other words, it also means that the credit to the deductee should not be refused on account of non-payment of TDS with the Treasury of the Government by the deductor as the deductee has no control over the Deductor. There are sufficient provisions in the law to recover the amount not deposited by the deductor who is an assessee in default. Credit of TDS should be allowed either on the basis of for 26AS or original TDS certificate filed before the Assessing Officer.
TDS amounts should be allowed to be adjusted in any of the Assessment Years up to 3 years following the year of deduction. This will take care of the legitimate problems of delay in filing of quarterly returns especially from Government Departments and will provide expediency to assessees to get it attuned or adjusted in any of the following 3 years also.
A scheme similar to Personal Ledger Account (PLA) in excise law should be incepted in Chapter XVIIB of the Act ,wherein the deductor can deposit a lumpsum amount to the credit of assessee’s account and the Personal Ledger Account should be accessable to the deductor online. Such amount can be adjusted and appropriated against the liability of tax deducted by way of debit to the account. Excess amount to the credit of the assessee should be refunded or carried forward at the discretion of the assessee after filing and processing of the e-tds statement filed.
The Penalty proceedings may be initiated separately based on the facts of the case instead of automatically. Specific guidelines may be issued for non initiation of penal proceedings, when the deductor himself has rectified the mistake and paid the tax along with interest prior to issue of notice by the department.
Augment the threshold limit for deduction
Limit for the aggregate amount of interest credited or paid (where the payer is banking company, co-operative society, post office or any other person) during a financial year should be increased to Rs.30,000 for the deduction of tax.(Section 194A).
Limit for the aggregate amount credited to the account of a contractor or sub contractor (payee) or at the time of payment whichever is earlier during a financial year should be increased to Rs.50,000 in a single payment or credit or Rs.100,000 in the aggregate during a financial year for the deduction of tax. From revenue prospective, the rate of 5% may be prescribed for both contractors and sub contractors.(Section 194C).
Limit for the aggregate amount of commission or brokerage credited or paid during a financial year should be increased to Rs.30,000 for the deduction of tax. (Section 194H).
Limit for the aggregate amount of rent credited or paid during a financial year should be increased to Rs.240,000 for the deduction of tax.(Section 194I).
Limit for the aggregate amount credited or paid to the account of a payee by way of fees for professional services, or fees for technical services or royalty during a financial year should be increased to Rs.60,000 for the deduction of tax.(Section 194J)