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Treatment for TDS

chintan mehta (Chartered Accountant) (445 Points)

21 October 2011

the company needs to pay to one of its creditors for the contract work done.

the comapny deducts the TDS at appropriate rate and pays the same to Government.

after 2 months the creditors comes up with a exemption notification that TDS should not be deducted for any amount paid to him and asks the company for the refund of TDS amount deducted previously.

is the company liable to pay back to the creditor the amount of TDS deducted ??????

Or the company needs to just issue a TDS certificate in form 16A???

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14 Replies

Manish (Accountant) (250 Points)
Replied 21 October 2011

If your Company has refunded TDS amount to its Creditor, it is their (Company's) Loss as deducted TDS amount are deposited by the Company in Government Treasury. So, issue TDS Certificate Form 16A to your Co.'s Creditor and ask them that this TDS amount will be refunded by Income Tax Department to them by way of Tax Refund.

valji (Accounts manager-MBA) (2150 Points)
Replied 21 October 2011

i am tottally agree with mr manish

Swapnil Jain (Finance - FP&A) (564 Points)
Replied 21 October 2011

agree with manish and valji sir

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 22 October 2011

You need to see the date of exemption certificate issued by TDS AO under section 197. Also the period of lower/nil deduction mentioned therein.

If date of your deduction is before section 197 certificate then no need to refund TDS . Issue NSDL linked Form 16A

Manish (Accountant) (250 Points)
Replied 22 October 2011

Partially not agree with Dipjyoti. As per Dipjyoti, if date of Exemption Certificate is before the date of deduction of TDS, we have to refund the TDS Amount to the party? If yes, this is direct Loss to the Company.

In the instant case, all the formalities i.e. TDS deduction/Deposit the same has been done. So in any case, if the matter of TDS refund to the party arise, it will be direct loss of the Company. If TDS certificate has been issued to the party, this TDS amount will be refunded to them by way of Income Tax Refund. So please issue TDS Certificate to the party and ask them to claim this TDS in their Income Tax Return.

SHAHAD (CA Final) (75 Points)
Replied 22 October 2011

for claiming exemption under section 197, the party have to produce the certificate in advance.I think in this case they produced certificate after deducting the tds and payment. so company no need to return back the tds. only to issue Form 16A.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 22 October 2011

Originally posted by : chintan mehta
	the company needs to pay to one of its creditors for the contract work done. the comapny deducts the TDS at appropriate rate and pays the same to Government. after 2 months the creditors comes up with a exemption notification that TDS should not be deducted for any amount paid to him and asks the company for the refund of TDS amount deducted previously. is the company liable to pay back to the creditor the amount of TDS deducted ?????? Or the company needs to just issue a TDS certificate in form 16A???

such certificates should be produced well before the incidence of TDS deduction, for claiming non deduction

once the TDS is paid to govt, and return is filed, the company has not to honour such certificates and issue form 16A and ask the party to claim the tax by filing return.

SHAHAD (CA Final) (75 Points)
Replied 22 October 2011

I agree with Sharma

Mayank (Sr.Accountant) (152 Points)
Replied 22 October 2011

your company should issue the TDS certificate to its creditors because if ur company refunds the amount of tds deducted it will be a loss for ur company while the creditor can take the credit of TDS deducted.

Hardik Patel (B.Com, CA Final) (158 Points)
Replied 22 October 2011

he have required to mentioned the matter regarding exemption at the time of deduction. Now its to late. issue him a TDS certificate and tell him to get credit for the same in his return of IT.

CA PRAVEEN SINGH (MANAGER ACCOUNTS) (2277 Points)
Replied 23 October 2011

Right ..............

Shiva Rama Krishna (MBA -International Business) (23 Points)
Replied 24 October 2011

Yes It is absolutely right. Before deducting TDS we should ensure whether the party has the exemption certificate or not. If he produces a certificate, then amount can not be deducted else it must be deducted and later disputes should be solved with IT dept by a creditor. However you are issuing a Form 16 to the party.

Rahul Gupta (Chartered Accountant) (644 Points)
Replied 28 October 2011

agreed with manish

Harsh Soni (Employee) (31 Points)
Replied 28 October 2011

Agree with Manish.

Company can issue TDS certificate in this case to avoid it's own loss.

Compnay can deduct TDS @ lower rate only if the letter of lower deduction of tax at source has been received directly from the Income tax department by the company specifying the amount and period of validity of lower deduction certificate.