RECENT CHANGES IN THE PROVISIONS REGARDING TAX DEDUCTION AT SOURCE (TDS) AND TAX COLLECTION AT SOURCE (TCS)

DR. VINOD K. SINGHANIA

This article examines the impact of the amendments made by the Income-tax (Sixth Amendment) Rules, 2009, Income-tax (Seventh Amendment) Rules, 2009 and Income-tax (Eighth Amendment) Rules, 2009 in respect of the provisions relating to tax deducted at source and tax collected at source.

INTRODUCTION

1. Various amendments have been made by Income-tax (Sixth Amendment) Rules, 2009 (hereinafter referred to as 6th Amendment Rule), Income-tax (Seventh Amendment) Rules, 2009 (hereinafter referred to as 7th Amendment Rule) and Income-tax (Eighth Amendment) Rules, 2009 (hereinafter referred to as 8th Amendment Rule). The impact of these amendments has been outlined below:

Due date of deposit of TDS/TCS

2. With effect from April 1, 2009, the due date of deposit of TDS/TCS has been modified by the 8th Amendment Rule by substituting rule 30 and rule 37CA. The table given below gives the amended provisions –

There is an overlapping between Case 1 (supra) and the provisions of section 40(a)(ia). One can examine the following case –

B Ltd. is a subsidiary of an overseas company. It maintains books of account on the basis of March-February year (accounting year starts on March 1 and ends on February 28/29 of the next calendar year, Income-tax Act does not require that books of account should be maintained on financial year basis). On February 28, 2010, it transfers a sum of Rs. 10 lakh as rent to the account of landlord in its books of account. Tax is deducted at source at the rate of 16.995 per cent under section 194-I. Tax is deposited on April 28, 2010 [i.e., within 2 months from the last date of the accounting year as permitted by section 200(1) read with amended rule 30(1)(a).

Even if tax is deposited before the due date given by rule 30, Rs. 10 lakh will be disallowed for the previous year 2009-10 by virtue of section 40(a)(ia).

Mode of payment of TDS/TCS

3. TDS and TCS shall be deposited electronically through internet banking facility by every deductor or collector with effect from April 1, 2009. The modified procedure is given below –

   (i)  Deposit through internet banking - Every deductor or collector will have to deposit tax only through internet banking facility.

  (ii)  New challan in Form No. 17 - The deductor/collector will electronically submit a challan in Form No. 17. Form No. 17 will be submitted on or before the due date of making deposit of TDS/TCS. In Form No. 17, the deductor will submit deductee-wise break-up of TDS and collectee-wise break-up of TCS. Immediately after uploading Form No. 17, a ‘Transaction Reference Number’ for the challan and a ‘Unique Transaction Number’ for each deductee/collectee will be created.

Unique Transaction Number

4. The ‘Unique Transaction Number’ will be generated by the deductor/collector at the time of electronically submitting of challan in Form No. 17. The ‘Unique Transaction Number’ will be quoted in respect of each deposit as follows –

   (i)  By the deductor/collector - The deductor/collector will quote ‘Unique Transaction Number’ in Form Nos. 16, 16A, 24Q, 26Q, 27Q and 27EQ.

  (ii)  By the deductee/collectee - The deductee/collectee will quote ‘Unique Transaction Number’ in ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6 and ITR-7 (Schedule TDS 1/TDS 2) to get the benefit of credit in respect of tax deducted/collected.

Certificate of TDS/TCS

5. TDS/TCS certificate will be issued in the following Forms as follow –

Form No. 16AA has been omitted. The format of Form Nos. 16, 16A and 27D has been substituted by new forms. On or after April 1, 2009, a person deducting/collecting tax at source will have to issue certificates in the new format even if tax was deducted/collected before April 1, 2009. The new format of Form Nos. 16, 16A and 27D includes ‘Unique Transaction Number’. The new format of Form No. 16 has provision for showing amount deductible on account of ‘standard deduction’/rebate available under sections 88, 88B and 88C. These deductions/rebates are now a days not available. One fails to understand the purpose of providing space for these deductions/rebates in the new format of Form No. 16.

Due date for giving certificates of TDS/TCS

6. The table given below highlights different due dates applicable for giving TDS/TCS certificates to deductees/collectees –

In Situation 2, the time-limit is within one week from the date of deposit of TDS. Suppose, an accounting adjustment entry is passed on March 31, 2009 in respect of unpaid commission payable to an agent. Tax is deducted by the assessee under section 194H on March 31, 2009. This tax can be deposited by May 31, 2009. Suppose, tax is deposited on May 16, 2009, then TDS certificate in new Form No. 16A shall be issued on or before May 23, 2009.

Situation 4 covers those cases where a deductee requests the deductor to provide a consolidated TDS certificate for the entire financial year. It is possible only when there are at least two TDS pertaining to two different months. If there is no request from the deductee, then consolidated TDS certificate for the entire financial year cannot be issued.

Return to be submitted to the department

7. The following return shall be submitted by a person who has been allotted a deduction/collection account number under section 203A.

TDS/TCS Compliance Statement in Form No. 24C shall be submitted electronically by every person who has been allotted a tax deduction/collection number (TAN). In case, no tax has been deducted or collected during a quarter, then nil return should be submitted in Form No. 24C.

The format of Form Nos. 24Q, 26Q, 27Q and 27EQ has been amended with effect from April 1, 2009. On or after April 1, 2009, these returns should be submitted in the new format. Moreover, on or after April 1, 2009, these returns would be submitted electronically by every deductor or collector.

Furnishing information under section 195(6)

8. Rule 37BB has been inserted by 7th Amendment Rule with effect from July 1, 2009.

8.1 Section 195(6) - Tax is deductible at source under section 195 in respect of payment/credit of any sum (other than salary) to a person who is a non-resident. The person making the remittance is required to furnish an undertaking
addressed to the Assessing Officer accompanied by a certificate from a chartered accountant in a specified format. This undertaking and certificate is submitted to the Reserve Bank of India or its authorized dealers who, in turn, are required to forward a copy to the Assessing Officer.

The purpose of the undertaking and the certificate is to effectively collect taxes (by way of TDS under section 195) at the stage when the remittance is made as it may not be possible to recover the tax at a later stage from the non-residents. There has been substantial increase in foreign remittances, making the manual handling and tracking of certificates difficult.

To monitor and track transactions in a timely manner, section 195 was amended by the Finance Act, 2008 so that the certificate and undertaking can be submitted electronically.

8.2 Rule 37BB - Rule 37BB provides that the deductor will obtain a certificate from a chartered accountant in Form No. 15CB. The undertaking by the deductor would be submitted in Form No. 15CA. The information in Form No. 15CA shall be furnished electronically to the website designated by the Income-tax Department and thereafter signed printout of the said form shall be submitted prior to remitting the payment.

Credit for tax deducted at source for the purpose of section 199

9. Rule 37BA has been incorporated by the 6th Amendment Rule with effect from April 1, 2009.

9.1 When income is taxable in the hands of some other person - When income on which tax is deducted at source is assessable in the hands of a person other than the deductee, credit will be available in respect of TDS to the other person in whose hands the income is chargeable to tax. However, this facility will be available only when the following conditions are satisfied –

   (i)  Income is taxable in the hands of a person other than deductee because of the following –

          (a)  the income of the deductee is included in the total income of another person under the provisions of section 60, section 61, section 64, section 93 or section 94;

          (b) the income of a deductee being an association of persons or a trust is assessable in the hands of members of the association of persons, or in the hands of trustees, as the case may be;

          (c)  the income from an asset held in the name of a deductee, being a partner of a firm or a karta of a Hindu undivided family, is assessable as the income of the firm, or Hindu undivided family, as the case may be;

          (d) the income from a property, deposit, security, unit or share held in the name of a deductee is owned jointly by the deductee and other persons and the income is assessable in their hands in the same proportion as their ownership of the asset.

  (ii)  The deductee should file a declaration to the deductor on a plain paper. The declaration should contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.

(iii)  After the receipt of declaration from the deductee, the deductor will report the tax deduction in the name of the other person. The ‘Unique Transaction Number’ will be generated in the name of the other person.

(iv)  The deductor shall keep the declaration in safe custody and issue Form No. 16 or 16A in the name of the other person.

  (v)  The other person will include the income in his income-tax return and give the information in Schedule SPI TDS-1 and TDS-2 of ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6 or ITR-7.

9.2 When income is assessable in the hands of deductee in different years - Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable. Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.

In such a case, the credit would be available on the basis of income reported in the income-tax return and the information which is submitted in Schedule TDS-2 (Column 7) of different ITRs.

Credit for tax collected at source for the purpose of section 206C(4)

10. Rule 37-I has been inserted by the 6th Amendment Rule with effect from April 1, 2009. On the basis of information submitted by the collector, credit will be given to the person from whom tax has been collected. Credit is available for the year for which income is assessable in the hands of the collectee. Where, however, tax has been collected at source and paid to the Central Government and the lease or license is relatable to more than one year, credit for tax collected at source shall be allowed across those years to which the lease or license relates in the same proportion in which the income is assessable to tax. For the purpose, the collectee will have to give information in Schedule TCS (Column 7) of different ITRs.