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T. C. A. Ramanujam

T. C. A. Ramanujam says the stringent TDS norms will no doubt push up collections but could become draconian too

INCOME-TAX collection flows from several sources such as tax deduction at source (TDS), advance tax, self- assessment and collection on the basis of the efforts made by the Department in making a correct assessment of the total income. It has been shown that TDS accounts for about 40 per cent of the total direct tax collection in India. In the background paper circulated among the top officials of the Department at the Annual Conference last year, the Central Board of Direct Taxes (CBDT) stressed that there is no other area of work, whether it be assessment or search and seizure, which can give as much results as from TDS.

The Finance Act, 2001, had reduced the limit for collecting TDS on interest on time deposits in banks from Rs 10,000 to Rs 5,000. Provisions were introduced imposing TDS on game shows on TV and on payment of commission and brokerage. The TDS collections in 2000-2001 are as follows:

Salaries — Rs 13,820 crore (about 49 per cent of the total TDS collection of Rs 28,213 crore)

Interest — Rs 3,769 crore

Interest on securities — Rs1,846 crore

Payment to contractors and sub-contractors — Rs 4,209 crore

Insurance commission — Rs 2.03 crore

Payments and non-residents — Rs 3,943 crore

Winnings from lottery or password puzzles — Rs 74.74 crore

Horse races — Rs 6.56 crore

Deemed dividend — Rs 338.35 crore

Budget 2002

The latest amendments will more than double the TDS collections. For one thing, dividend is now subjected to tax irrespective of the quantum — there will be TDS at 10 per cent on all dividend payments in excess of Rs 1,000 by companies and mutual funds. This takes effect from June 1, 2002. For another, the radical amendment to Section 88 of the I-T Act deprives those earning incomes above Rs 5 lakh the benefit of rebate.

The amendment to Section 194 H will secure TDS at 5 per cent on commission and brokerage instead of the current rate of 10 per cent. Under the existing provisions, individuals and HUFs are not required to deduct tax at source on the following payments: i) interest other than interest and securities; ii) payment to contractors and sub-contractors; iii) commission or brokerage; iv) rent; and v) fees for professional and technical services.

The latest amendments now make it imperative for all individuals and HUFs to deduct tax at source on all these payments with effect from June 1, 2002. The requirement will apply to individuals and HUFs having a total turnover of over Rs 40 lakh or gross receipts of Rs10 lakh. It has not struck the Finance Ministry that the extension of the coverage under Sections 194A, 194C, 194H and 194J will increase the Department's paperwork enormously. The monetary limits under Section 44AB was fixed long back. These limits could have been extended to at least Rs 1 crore.

Section 197A

The existing Section 197A provisions enable an individual to avoid TDS by furnishing a declaration in writing in duplicate, in the prescribed form, to the effect that the tax on the estimated total income of the previous year will be nil. This scheme has been in vogue from June 1, 1982. The beneficiary of the section has been the senior citizen. A tax rebate of Rs 15,000 is available to the seniors under Section 88A.This will raise the exempted income for them to Rs 1,30,000. Add to this the exemption of Rs 9,000 under Section 80 L and the rebate under Sections 88. Senior citizens can file a declaration in Form 15 H and avoid all TDS.

According to amended Section 197 A, with effect from June 1, 2002, if an individual's income exceeds Rs 50,000 in a financial year, he/she is barred from submitting the declaration form to the payer. This will be hard on all those who will not have to pay tax ultimately because of the exemptions under Sections 80L, 88 and 88A.

It is, of course, open to these parties to apply to the Department under Section 197 for a TDS certificate at a lower rate. The other alternative will be to suffer TDS and claim refund by filing the return of income in the relevant assessment year. Both these procedures call for patience on the part of the taxpayer. The latest amendment has also reduced the interest payable to the assessee from 9 per cent to 8 per cent by amending Section 244A and sub - rule (3) of rule 68A of the Second Schedule to the I-T Act.

A beneficial amendment enables an assessee to get credit for TDS on production of certificate within two years from the end of the assessment year in which income is assessable, if such certificate could not be produced earlier at the time of assessment. Non - furnishing of certificate in the initial year along with return of income will not render the return defective, provided it is produced within the said two yers. This is a welcome amendment.

The streamlining of the TDS provisions will no doubt create hardship for the middle-class taxpayers as for unit holders of the UTI and other notified mutual funds who will suffer TDS at 10 per cent on the income from units without any threshold limit.

But this is the price to be paid by the honest citizen for leakages in legitimate tax dues because of the errant taxpayers' attitude to filing of tax returns.

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