Under Income Tax Act 1961, specified payments to a resident or non-resident should be accompanied by tax deducted at source, or TDS. This is seen as convenient for revenue mobilisation, as tax is collected as and when income accrues or is paid to the recipient. Over the years, various payments/ incomes have been brought under the TDS mechanism. TDS is allowed as a credit against the taxpayer’s final tax liability.
TDS involves the following compliances:
Issuing TDS certificates in Form 16A (for payments other than salary), and Form 16 (salary).
With computerisation, the process of filing TDS returns, rectifications and verification of available credit has become seamless. The credit details can be viewed electronically in Form 26AS on the TDS Reconciliation Analysis and Correction Enabling System (TRACES) website.
Though computerisation has proved a boon to taxpayers, several issues have cropped up too:
The deductor may fail to mention correct particulars in the TDS return, leading to a mismatch between the amount claimed in the taxpayer’s return and the figure in Form 26AS.
The mismatch between TDS and the claim in tax return could also arise due to the accounting method used. The taxpayer may also offer income to tax in two or more different years. In that case, while there may be TDS in the first year, the taxpayer may disclose the income in his returns for more than one year and claim proportionate TDS credit.
The deductor may have mentioned the correct particulars in the TDS return, but the amount may not reflect at all or the correct figure may not reflect in Form 26AS due to technical reasons, leading to denial of TDS credit.
The Delhi High Court dealt with some of these issues in a public interest litigation. The court directed the Central Board of Direct Taxes (CBDT) to reduce the inconvenience caused to taxpayers due to the fault of deductors (resulting in mismatch). CBDT should also ensure that legitimate TDS credit is not denied due to the taxpayer’s method of accounting or income offered to tax in different years.
CBDT has instructed assessing officers to ask deductors to file correct TDS statements and take necessary action by December 31, 2013. Further, if income (with TDS in one year only) is offered to tax in different years due to the method of accounting, the financial statements and books of accounts may be produced before the officer, together with an indemnity bond. The officer would allow TDS credit after verification.
Thus it’s clear that a taxpayer cannot be denied legitimate TDS credit merely due to an error by the deductor (incorrect TDS statement/ non-issue of TDS certificates), or due to technical reasons (TDS amounts not reflected in the systems of the income tax department).
Taxpayers, too, should provide correct TDS information in their return and maintain records to ensure they do not lose TDS credit.
While the courts and CBDT have resolved some of the issues, as technology use is still in nascent stage, other issues may still remain unresolved.
The authors are chartered accountants.