New Rational Provision of TDS and TCS

Under Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rate if the ...

Under Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rate if the payment exceeds the specified threshold. The person deducting tax (‘the deductor’) is required to file a quarterly Tax Deduction at Source (TDS) statement containing the details of deduction of tax made during the quarter by the prescribed due date. Similarly, under Chapter XVII-BB of the Income-tax Act, a person is required to collect tax on certain specified receipts at the specified rates. The person collecting tax (‘the collector’) is also required to file a quarterly Tax Collection at Source (TCS) statement containing the details of collection of tax made during the quarter by the prescribed due date.

47.2 In order to provide effective deterrence against delay in furnishing of TDS/TCS statement, the Finance Act, 2012 inserted section 234E in the Income-tax Act to provide for levy of fee for late furnishing of TDS/TCS statement. The levy of fee under section 234E of the Income-tax Act has proved to be an effective tool in improving the compliance in respect of timely submission of TDS/TCS statement by the deductor or collector.

47.3 Finance (No.2) Act, 2009 inserted section 200A in the Income-tax Act which provides for processing of TDS statements for determining the amount payable or refundable to the deductor. However, as section 243E was inserted after the insertion of section 200A in the Income-tax Act, the existing provisions of section 200A of the Income-tax Act did not provide for determination of fee payable under section 234E of the Income-tax Act at the time of processing of TDS statements. Therefore, the provisions of section 200A of the Income-tax Act has been amended so as to enable
computation of fee payable under section 234E of the Income-tax Act at the time of processing of TDS statement under section 200A of the Income-tax Act.

47.4 Currently, the provisions of sub-section (3) of section 200 of the Income-tax Act enable the deductor to furnish TDS correction statement and consequently, section 200A of the Income-tax Act inter alia provides processing of the TDS correction statement. However, there did not exist any provision in the Income-tax Act for allowing a collector to file correction statement in respect of TCS statement already furnished. Therefore, the provision of section 206C of the Income-tax Act has been amended so as to allow the collector to furnish TCS correction statement.

47.5 The Income-tax Act contains detailed provisions for processing of TDS statements, however, there did not exist any provision for processing of TCS statement. As the mechanism of TCS statement is similar to TDS statement, a new section 206CB has been inserted in the Income-tax Act for enabling processing of TCS statements on the lines of existing provision for processing of TDS statement contained in section 200A of the Income-tax Act. This newly inserted section also incorporates the mechanism for computation of fee payable under section 234E of the Income-tax Act for late furnishing of TCS statement.

47.6 Under the existing provisions of the Income-tax Act, after processing of TDS statement, an intimation is generated specifying the amount payable or refundable. This intimation is (i) subject to rectification under section154 of the Income-tax Act; (ii) appealable under section 246A of the Income-tax Act; and (iii) deemed as notice of demand under section 156 of the Income-tax Act. As the intimation generated after the processing of TCS statement is similar to the intimation generated after processing of TDS statement, the provisions of the Income-tax Act have been further, amended to provide that intimation generated after processing of TCS statement shall also be—
(i) subject to rectification under section 154 of the Income-tax Act;
(ii) appealable under section 246A of the Income-tax Act; and
(iii) deemed as notice of demand under section 156 of the Income-tax Act.

47.7 As the intimation generated after proposed processing of TCS statement shall be deemed as a notice of demand under section 156 of the Income-tax Act, the failure to pay the tax specified in the intimation shall attract levy of interest as per the provisions to the limit of the amount deductible or collectible, shall be levied in case of failure to furnish the said statement.

47.13 Under section 192 of the Income-tax Act, the person responsible for paying income chargeable under the head “salaries” under the Income-tax Act (DDO) is authorised to allow certain deductions, exemptions or allowances or set-off of certain loss as per the provisions of the Income-tax Act for the purposes of estimating income of the assessee or computing the amount of the tax deductible under the said section.

47.14 The evidence/proof/particulars for some of the deductions/exemptions/allowances/set-off of loss claimed by the employee such as rent receipt for claiming exemption of HRA, evidence of interest payments for claiming loss from self occupied house property etc. is generally not available with the DDO. In these circumstances, the DDO has to depend upon the evidence/particulars furnished, if any, by the employees in support of their claim of deductions, exemptions, etc. As the
provisions of the Income-tax Act did not contain any guidance regarding nature of evidence/documents to be obtained by the DDO, there was no uniformity in the approach of the DDO in this matter.

47.15 In order to bring uniformity and certainty in this matter, the provisions of section 192 of the Income-tax Act have been amended so as to provide that the person responsible for paying, for the purposes of estimating income of the assessee or computing tax deductible under section 192(1) of the Income-tax Act, shall obtain from the assessee evidence or proof or particulars of the prescribed claim (including claim for set-off of loss) under the provisions of the Income-tax Act in the prescribed form and manner.


47.16 The existing provisions of sub-section (6) of section 195 of the Income-tax Act, prior to its amendment by the Act, provided that the person referred to in section 195(1) of the Income-tax Act shall furnish prescribed information. Section 195(1) of the Income-tax Act provides that any person responsible for paying any interest (other than interest referred to in sections 194LB or 194LC or 194LD of the Income-tax Act) or any sum chargeable to tax (not being salary income) to a non-resident, not being a company, or to a foreign company, shall deduct tax at the rates in force.


47.17 The mechanism of obtaining of information in respect of remittances fulfils twin objectives of ensuring deduction of tax at appropriate rate from taxable remittances as well as identifying the remittances on which the tax was deductible but the payer has failed to deduct the tax. Therefore, obtaining of information only in respect of remittances which the remitter declared as taxable defeats one of the main principles of obtaining information for foreign remittances i.e. to identify the taxable remittances on which tax was deductible but was not deducted.

47.18 In view of this, the provisions of section 195 of the Income-tax Act have been amended so as to provide that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident, not being a company, or to a foreign company, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. Further, there was no provision for levying of penalty for non-submission/inaccurate submission of the prescribed information in respect of remittance to non-resident.


47.19 For ensuring submission of accurate information in respect of remittance to nonresident, a new section 271-I has been inserted in the Income-tax Act to provide that in case of non-furnishing of information or furnishing of incorrect information under subsection (6) of section 195 of the Income-tax Act, a penalty of one lakh rupees shall be levied. Further, the provisions of section 273B of the Income-tax Act have been amended so as to provide that no penalty shall be imposable under this new provision if it is proved that there was reasonable cause for non-furnishing or incorrect furnishing of information under sub-section (6) of section 195 of the Income-tax Act.


47.20 Applicability:- These amendments take effect from 1st June, 2015.

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Taxalertindia: New Rational Provision of TDS and TCS
New Rational Provision of TDS and TCS
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