Tedious (TDS) – practical difficulties

Tedious (TDS) – practical issues

In business parlance these days, the word ‘TDS’ has become synonymous with ‘tedious’. The deductor and the deductees who are the affected parties in these transactions are having a tough time. They not only have to ensure their role and play it well, they also have to take care that the other party (deductor/deductee) have played their roles efficiently.

Although the provisions of TDS were inserted so as to have a regular source of revenue for the Govt. throughout the year, it is at the cost and headache of many taxpayers. It has originated from pay-as-you-earn-scheme initiated by the CBDT. Let us have a look as to why and how this draconian compliance is such a pain in the neck.

Anomaly in law:

There remains darkness in certain areas so far as the TDS laws are concerned. In spite of issuing clarificatory Circulars and Notifications, one cannot take crystal clear decision whether TDS on certain transaction is attracted or not and even if TDS is attracted, on what amount TDS needs to be made and at what rate.

There are many instances where the vendors issue invoices on a gross basis i.e. bifurcation for particular items or enough details in the invoice is not provided. Thus, to be on a safer side TDS is made on the gross amount instead of a particular amount related to the invoice. Advice is given these days to vendors to issue separate invoices for separate transactions so as to avoid the need to deduct excess TDS.

Commission agents and related business that raise invoices for their reimbursement of expenses and commission income in a single invoice have to bear the brunt because TDS in this case is done not only on the income part but on the reimbursement amount as well. Lately exemption was granted for non-deduction at source for income of transporters (only if they provide a PAN) . The definition of transporters in the law was such that it could accommodate courier agency services as well, which was however not the intention of the Budget.

  Also, progressive decisions given by Tribunal, Courts etc. which throws some more light on issues where there is no clarity change the compliance procedures of many businesses. Suddenly, one fine day, an unfavorable decision by Court/Tribunal is delivered, and the taxpayers are caught in a net to deduct TDS and suddenly a decision reversing the unfavorable decision is delivered and taxpayers stop deducting TDS. Thus, one cannot distinguish between black and white where TDS is concerned. Not to mention the professional cost burden involved for distinguishing between this black and white.

Also, the threshold limits provided in the provisions are not practical and inflation linked. So if you are paying rent to someone providing home/office space etc of more than Rs.15,000/- per month, don’t be surprised if you receive a notice stating there is default regarding non-deduction.

Procedural Poison:

Compliance part to be ensured by the taxpayers is a different ball-game in itself. ‘TDS’ and ‘Etds’ are different continents of one globe. After understanding whether TDS is to be deducted or not on certain transactions, the deductor needs to deduct the same, deposit it in time or else pay interestto the Revenue. In order that the database of the Revenue is filled automatically, the burden of filing the Etds Returns is conveniently shifted on to the deductors.

Deductors also take great pain to follow up with the deductees to provide their correct PAN and other details. Thus, it is not an easy affair for the deductors as well. Think of huge companies which have thousands of deductees every quarter. Unless it is a 12 sigma compliant company, the chances of error(s) in any details provided cannot be ruled out. Now imagine the deductee whose credit was not entered or was incorrectly entered by a deductor. He will have to request the deductor to revise the return only for him! Give a thought whether such revision is commensurate with the amount of claim involved. Companies can frame a policy ascertaining an materiality level of amount or quantum or period for which revision needs to be undertaken so that they don’t keep on revising the Returns whenever a deductee comes up with issues of his TDS credit.

Section 206AA was introduced to deduct tax at a higher rate of 20% where PAN is not furnished by the deductee to deductor and where the same is not reflected in the TDS Return. If you observe in Etds Return the deductor needs to flag code ‘P’ wherever the tax is deducted higher rate since PAN of deductee is not furnished. Consider the case where tax is deducted in the initial Quarters (Say QI and QII) at higher rate of 20% since the deductee has either not obtained or not provided the PAN. Now, in QIII the deductee has provided the PAN to the deductor and  requests the deductor to adjust the TDS already made at higher rate in QI and QII. The deductor cannot make the changes through revision to entries which are under code ‘P’ in the original return. Once an entry in TDS Return is reflected under code ‘P’, it cannot be changed subsequently. What about the tax credit? Online generation of Form 16A is made mandatory to Companies and Banks. The procedure of online generation is such that the Form 16A replicates the name against the PAN which is available with the Department. So to be precise, if ‘PAN NOT AVBL’ entries are entered in TDS Return, the software of TIN does not generate any Form 16A. The deductees are left helpless because higher TDS made in initial quarters cannot be adjusted subsequently and they cannot be given an authenticate Form 16A as well for TDS made on their income!

Very recently the Tax authorities have invented another harassment named – TAN Registration. A deductor assessee who wants to revise any earlier Etds Return now needs to first of all register his TAN with the online portal. Needless to mention, the details to be filled while registering the TAN are not so easily and readily available and of course they need to match to the last digit. Once you have registered and you are requesting for the already filed files, you have only 3 attemptsin a day so to request the file correctly. If you fill the wrong details thrice, bang goes the day!

Other issues:

TDS Credit:By and large, in most of the assessees’ cases, there is always a mismatch between the amount of TDS claimed and the TDS shown in books as per the TDS Certificates received. The mismatch of TDS credit as per computation and as per books now has become an inherent part and parcel of life. This is because the deductor has not issued the TDS Certificates with correct amounts, PAN or name. In such cases, the deductee has many difficulties convincing the tax authorities that the claim made in the computation is correct in spite of an incorrect TDS Certificate. It is worthwhile mentioning that Rule 37BA has given the authority to the Tax Department to allow or disallow the quantum of TDS claim to the deductee based on their own risk assessed judgement.

It is also generally seen that the TDS amount as reflected between Etds Returns, TDS Certificates and Form 26AS never go hand in hand. Such instances arise due to inefficiency of either deductor or the bank which uploads the CIN. What is important to note is that it is the deductee who feels the brunt of these cumbersome procedures.

Luckily, effective FY 2011-12, the TDS Certificates have to be generated online on the basis of Etds Returns filed reducing the chances of mismatch between the Etds Returns and TDS Certificates. This welcome step should receive a warm response from the taxpayers.

There needs to be a fine tuning between the deductor and the deductee. Since the deductee would be making a claim of the credit, the deductor should ensure that correct details are entered in the Etds Returns. Also it is the responsibility of deductee to provide correct PAN and other details as and when required by the deductor.

The responsibility as a deductor is felt by an assessee when his own TDS on Income is not correctly reflected in Form 26AS. Thus, it is an inter-linked and inter-dependent process between the deductor and the deductee to make and claim correct TDS. It is not a miracle that one in a million transactions may be reported incorrectly. Thus, the cumbersome task of making correct TDS for the benefit of the deductee is very much important because the deductor at the same time might be deductee for some other assessee.

The Tax authorities should also take into consideration the pain the taxpayers are going through. TDS credit should not ideally be withheld just because it is not reflected in 26AS or Etds Returns. And finally the deductee does not become free by discharging his roles; he should enquire and follow up with the deductor whether correct details are provided in the Etds Returns on a regular basis.

In light of the above, I feel the procedures related to Etds Returns should not be taken lightly by both the deductors and the deductees for their own good.