NEW
TDS AND TCS PAYMENT AND INFORMATION REPORTING SYSTEM- NOTIFICATION NO. 858(E),
DATED 25th MARCH, 2009
PUBLISHED IN OFFICIAL GAZETTE
CIRCULAR NO. 02 / 2009, DATED 21-5-2009
The Finance Act,
2008 inserted a new sub-section (1A) in section 143 of the Income-tax Act, 1961
empowering the Board to make a scheme for centralised processing of returns
with a view to expeditiously determining the tax payable by, or the refund due
to, the assessee. For the purposes of enabling
centralised processing of returns, it is necessary to ensure the integrity of
the database, in particular, the information relating to tax deduction at
source, advance tax and self assessment tax.
2. One
of the fundamental principles of financial accounting is that if a person
claims credit for payment of money to a third person, the credit should be
allowed only if the payment and the information relating to the transaction
have been received from the third person.
The advance tax and self assessment tax is paid directly by the assessee
by filling a challan which bears a
unique Challan Identification Number (CIN) and the PAN of the
assessee. These two number systems are
used to cross verify the claim of tax payment made by the assessee and allow
appropriate credit.
3. In
the context of TDS, the first best principle is that no claim for TDS / TCS
should be admissible unless the deductor / payer has paid the amount so
deducted / collected to the credit of the Central Government and the
information relating to the transaction is received. Since the business process
of the Income Tax Department was manually organised and the volume of TDS
related information was large, it was not feasible to undertake 100 per cent
matching of TDS claims with information furnished by the deductor. Consequently, the Income Tax Department
adopted a risk management strategy for allowing claim for TDS as a second best
option. With the advances in information
technology, it is technically feasible to design a business process which would
enable 100 per cent matching in real time, thereby, eliminating the risk. Pursuant to the recommendation of the Task
Force on Direct Taxes (chaired by Dr. Kelkar), as a first step in this
direction, the deductors were required to electronically furnish the TDS
related information (through the NSDL).
This system was introduced in early 2004 as one of the modules of the
Taxpayer Information Network (TIN).
4. The
quantity and quality of data flowing through this module is far from
satisfactory. The data is largely
unverifiable. The matching of the
deduction reported by the deductor and claimed by the deductee assessee
continuous to be poor for the following reasons:-
(i) Non-compliance,
especially by Government deductors, with TDS return filing requirement.
(ii) Low
quoting of PAN number in TDS returns that are filed on account of
non-furnishing of PAN by deductees to their deductors and negligence by
deductors.
5. Unlike
in the case of advance tax and self assessment tax, the TDS information does
not bear a unique transaction identification number. As a result, the PAN forms the only basis for
matching. To the extent PAN quoting is
inadequate or deficient, it is not feasible to match the claim made by the
deductee assessee with the TDS information reported by the deductor. Hence, it becomes necessary to make ad-hoc
rules for allowing credit for TDS or in the alternative, interface with the
assessee for physical verification of the TDS certificate. Both these approaches are flawed since there
is no reconciliation of deductees claim with the information provided by the
deductor and the integrity of the system is questionable. The efforts of the Income Tax Department over
the last four years for improving the TDS and TCS database have not yielded
desired result.
6. Further,
Government (both Central and State together) is the largest deductor of tax
being the largest employer and the largest spender on works contract. Under the extant procedure, tax deducted by
the Central Government departments is paid to the account of the Central
Government through book transfer. Unlike
other deductors, these departments do not make any direct payment of the TDS
amount in the banks. Similarly, the Central
Government Ministries, departments and their sub-ordinate and attached offices
are large scale defaulters in complying with the TDS information reporting
requirements. Even the certificates
issued by these organisations are often illegible and of poor quality. Hence, these are unreliable. This has been a constant source of public
grievance. It also creates an opportunity for interface with the taxpayer. This
process also does not assure the department of the legitimate revenues and
enforce compliance. Hence, the mechanism
of payment of tax so deducted and compliance with the reporting requirements is
not satisfactory.
7. Unlike
the Central Government, the State Government is required to make a consolidated
payment of the TDS amount in respect of all its deductors and deductions
directly into the Reserve Bank of
8. In
the light of the above, the Department adopted the second best option of a risk
management strategy for allowing TDS claims.
Under this strategy, the Department has been allowing credit for TDS
claims even though the transactions do not fully match/reconcile with the
information provided by the deductor.
Further, the Department have also been unable to undertake follow up
verification of such claims at the deductors end on account of inadequate
resources. As a result the system is
vulnerable and exposes public revenues to extreme risk of fraud and
leakage.
9. With
a view to resolving the problems in granting credit for pre-paid taxes, the
Central Board of Direct Taxes constituted a sub-group to analyse the various
problems in granting credit for prepaid taxes and make appropriate
recommendations. According to the
Sub-group, the problem of matching and reconciliation of prepaid taxes is
rooted in the three sets of data pertaining to TDS entering the system
separately at different times from different sources, thus causing
mismatch. Therefore, the Sub-group
recommended that the ‘problem can be solved if the agency receiving the TDS
amount and the TDS returns (and the documents by which this is done) is the
same. In such a situation the TDS
payments can be immediately credited to the accounts of the deductees by the
agency handling both the operations. For
example, if the detailed list giving break-up and identity particulars of deductees
are given to the bank along with the TDS challans for the consolidated amount
of TDS at the time of payment, the accounts of deductees can be simultaneously
credited, thus eliminating the reconciliation issues between challan data in
OLTAS and in TDS returns. Owing to the advances in technology, it is now
feasible to implement this recommendation.
10. The
Sub-group also examined the issue of granting credit for TDS deducted by
government deductors and recommended that Central Government deductors should
also be brought into the discipline of deposit of TDS in bank accounts like
other deductors.
11. As
stated above, the Government has introduced the centralised processing of
returns which envisages no interface with the taxpayer. Further, the processing is also required to
be done in an automated jurisdiction-less manner. Therefore, it is necessary to have in place a
perfect TDS payment and information reporting system so as to
optimise the efficiency of the centralised return processing system. It is imperative to move to the first best
solution to also minimize the risk of financial fraud. This is in the interest
of all stakeholders – Government, Income-tax Department and taxpayers. Therefore,
the Board have decided that, henceforth, claim for TDS and TCS shall be allowed
only if the–
(i) amount
has been deposited by the deductor / collector;
(ii) information
relating to the deductee has been furnished by the deductor / collector; and
(iii) claim
matches the information furnished by the deductor / collector.
12. With
a view to enabling the implementation of the aforesaid decision, the TDS and
TCS payment and information reporting system has been redesigned vide notification No. 858(E) dated 25th March,
2009 published in Official Gazette.
The salient features of the new TDS
and TCS payment and information reporting system are the following: -
(i) The
new system has been harmonized for all deductors (including Central and State
Governments). Therefore, like
non-governmental tax deductors, every deductor in the Central and State
Government have also been made responsible for making direct payment of TDS in
the bank. They are no longer
allowed to make payments of the TDS and TCS by making book adjustments or
consolidated payments. As a result, the TDS payment and information reporting
system will be uniform across deductors.
(ii) Rule
30 and Rule 37 CA of the Income-tax Rules, 1962 have been substituted to
provide, inter alia, for the following: -
(a) All
sums of tax deducted at source under Chapter XVII-B and of tax collected at
source under Chapter XVII-BB shall, in general, be paid to the credit of
the Central Government within one week from the end of the month in
which the deduction, or collection, is made.
Similarly, the same time limit for payment will also apply for
income-tax due under sub-section (1A) of section 192.
(b) It
is mandatory for all deductors (including Central Government and State
Governments) to pay the amount by electronically remitting it into the RBI,
SBI or any authorized bank.
(c) It
is mandatory for all deductors (including Central Government and State
Governments) to make the payment by electronically furnishing an income-tax
challan in Form No. 17.
(iii) In
the process of electronically furnishing the income-tax challan in Form No.
17, the deductor will be simultaneously
required to furnish to the Taxpayer Information Network (TIN) system maintained
by National Securities Depository Limited (NSDL) either through screen based
upload or file upload, three basic information relating to the deduction i.e.,
PAN, name of the deductee and amount of TDS/TCS.
(iv) Upon
successful remittance of the TDS/TCS to Central Government account and the
uploading of the basic information as mentioned above to the TIN system, every
deduction record will be assigned a unique transaction number (UTN).
(v) NSDL will create a facility to e-mail the UTN file to the
deductor if the e-mail address of the deductor is available with them. In
addition, they will also create a facility for the deductor to download the UTN
file.
(vi) The UTN will be required to be quoted by the deductor on the
TDS/TCS certificate issued by him to the deductee.
(vii) NSDL will also create a facility to allow independent viewing
of the UTNs by the deductee.
(viii) With
a view to enabling the Income Tax Department to monitor compliance by the
deductor with the TDS provisions, every person (including Central Government
and State Government) who has obtained a Tax Deduction or Collection Account
Number (TAN) shall electronically furnish a quarterly
statement of compliance with TDS provisions in Form No. 24C. It
is mandatory for all TAN holders to furnish this form irrespective of whether
any payment liable to TDS has been made or not. This form shall be
furnished on or before the 15th July, the 15th October,
the 15th January in respect of the first three quarters of the
financial year, respectively, and on or before the 15th June
following the last quarter of the financial year. This e-form No. 24C has to
be furnished at http://incometaxindiaefiling.gov.in. The first quarter in respect of which Form
24C is required to be furnished is the quarter ending on 30th June,
2009.
(ix) In
order to enable the deductor to furnish the UTN to the deductee, the existing
Form 16 and Form 16A have been appropriately modified.
(x) The
quarterly returns of TDS and TCS hitherto required to be filed in Form No. 24Q,
Form No. 26Q, Form No. 27Q and Form No. 27EQ shall now be required to be filed
for all quarters on or before the 15th June following the Financial
Year. Effectively, the quarterly returns have now been replaced by an annual
return.
13. The
above new system will be effective for all tax deducted at source or tax
collected at source on or after the 1st April, 2009. However, any TDS or TCS effected on or after the 1st
April, 2009 but not later than 31st May, 2009 shall continue to be
paid to the credit of the Central Government by using the old challan
form. The TDS or TCS effected on or
after the 1st June, 2009 shall be required to be paid electronically
by electronically furnishing income tax challan in Form No. 17.
14. Where
the payment of TDS or TCS effected on or after the 1st April, 2009
but not later than 31st May, 2009 is paid to the credit of the
Central Government by using the old challan form, the deductor / collector
shall, nevertheless, be required to fill up Form No.17 in respect of such
payments any time between 1st July, 2009 to 15th July,
2009. Therefore, the
deductors/collectors are advised to prepare the schedule relating to details of
TDS / TCS from deductees in Form No.17 in advance (in an excel sheet) and be in
a state of preparedness to file the same by 15th July, 2009 so that
the UTNs relating to TDS / TCS transactions carried out in the month of April
and May can be generated / obtained for onward transmission to the
deductees.
15. Further,
a deductor can split the total amount of TDS and TCS which he is required to
deposit to the credit of the Central Government so that every deposit to the
account of the Central Government is made through a separate challan in Form
17. For example, if a deductor is liable
to deposit Rs. 1 lakh, he can split the amounts into four payments of Rs
25000/- each and deposit each of the amounts through a separate challan in Form
17 at four different times.
16. The
return of income in Form No. ITR-1 to Form No.ITR-8 for Assessment Year 2009-10
have been notified which requires, amongst other, the quoting of the relevant
UTN for every TDS or TCS claim made by the assessee. Therefore, the credit for
any TDS or TCS claim will be allowed, amongst others, if the assessee quotes
the relevant UTN for every TDS and TCS claim and the said UTN matches with the
UTN in the database of the Income Tax Department. With a view to enabling the
processing of returns relating to Financial Year 2007-08 (Assessment Year
2008-09) and enabling the assessee to receive the UTN for TDS and TCS
transactions in the Financial Year 2008-09 (relevant for Assessment Year
2009-10), the following procedure shall be followed: -
(a) National
Securities Depository Limited (NSDL) shall assign an UTN for every TDS and TCS
transaction records in Financial Years 2007-08 and 2008-09, reported in the quarterly
returns received by it.
(b) NSDL
will create a facility to e-mail the UTN file to the deductor if the e-mail
address of the deductor is available with them. In addition, they will also
create a facility for the deductor to download the UTN file.
(c) Upon
receipt of the UTN, the deductor will inform the UTN to the deductee. In cases
where the UTNs are available to the deductor before the issue of the TDS/TCS
certificate to the deductee, the deductor will indicate the UTNs on the
certificate. However, if the UTNs are not available to the deductor before the
issue of TDS/TCS certificate, the deductor shall, subsequently, send a
consolidated statement of all TDS/TCS transactions indicating the UTNs.
(d) NSDL
will also create a facility to allow independent viewing of the UTNs by the
deductee. As a result, even if the UTNs are not received by the deductee from
the deductor, they can be directly obtained from the NSDL database and quoted
while making claims of TDS and TCS in the return of income.
17. TDS
certificates were hitherto required to be issued in Form 16 or Form 16A as the
case may be. Similarly, TCS certificates
were issued in Form 27D. These forms
have been substituted by the new Form 16, Form 16A and Form 27D with effect
from the 1st day of April, 2009.
In the new Forms, it is mandatory for the deductor/collector to quote,
inter-alia, the UTN. Therefore, where the certificate is required to be issued
in respect of deduction or collection made before the 1st April,
2009, the deductor/collector may adopt any of the following course of
action:-
(a) The
deductor/collector may issue certificate of deduction or collection in the Form
16, Form 16A or Form 27D, as the case may be, as it existed prior to 1st
April, 2009 and send a
consolidated statement of UTNs to the deductee/buyer/lessee etc., as soon as
the same is received by him; or
(b) The
deductor/collector may issue certificate of deduction or collection in the new
Form 16, Form 16A or Form 27D, as the case may be.
18.
Rule 31 of the Income Tax Rules, as it existed prior to its substitution,
provides that, in general, the TDS certificates in Form 16 and Form 16A should
be issued within one month from the end of the month in which the deduction is
made. Similarly, Rule 37D, as it existed
prior to its substitution, provides that, in general, the TCS certificates in
Form 27D should be issued within one month from the end of the month in which
the collection is made. Therefore, if
the deductor/collector chooses to adopt the course specified in item (b) of
para 13 above, the TDS/TCS certificate may be issued beyond the stipulated
period of one month but not later than 30th June, 2009.
19. As
regards, TDS/TCS certificates in respect of deduction or collection effected
on or after the 1st April, 2009, it is mandatory to issue the
certificates in the new Forms and quote the UTN relating to the TDS/TCS
transactions.
20. As
stated above, a new Form 24C has been notified to monitor compliance with the
provisions of TDS/TCS. The first part of
the Form relates to personal information and filing status. The Schedule COM-I relates to details of
TDS/TCS compliance in the first month of the relevant quarter. Likewise details of TDS/TCS compliance for
the second and third month of the relevant quarter would have to be reported in
Schedule COM-2 and Schedule COM-3 respectively. In this Schedule in column (3),
for example, against section 194A in column (1), the TAN holder is required to
furnish the total amount of interest paid during the month. Let us assume that
this total amount is Rs. 1 crore. In
column (4) of the corresponding entry, the deductor is required to furnish the
total amount on which TDS was liable or eligible to be deducted out of Rs. 1
crore. As is well known, no TDS is
required to be deducted if the interest payment is less than Rs. 10,000. If the total of the amounts of
interest payment/credit less than Rs. 10,000 is Rs. 30 lakhs, then the deductor
must report in column (4) an amount of Rs. 70 lakhs (Rs. 1 crore – Rs. 30
lakhs). In column (5), the deductor has
to report that the total amount on which tax was deducted at prescribed rate
out of the amount reported in column (4).
In the instant case the rate of tax to be deducted at source is 11.33
percent (including surcharge and education cess). However, in many instances the recipients of
interest exceeding the threshold limit of Rs. 10,000/- would either furnish
certificate for non deduction of tax or deduction at a lower rate than the prescribed
rate. Let us assume that the amount of
interest paid to such recipients is Rs. 15 lakhs. Therefore, the amount of interest payment
liable to TDS at the prescribed rate would be Rs. 55 lakhs (Rs. 70 lakhs – Rs.
15 lakhs), which is required to be reported in column (5). Since the prescribed rate is 11.33%, and the
amount of interest liable to TDS at the prescribed rate is Rs. 55 lakhs, the
amount of TDS on such payment is Rs. 6,23,150/-. This amount is required to be reported in
column (6). In column (7), the deductor
is required to report the amount of Rs. 15 lakh i.e., the amount of interest
payment liable to TDS at less than the prescribed rate. Let us assume that the TDS at ‘nil’ or lower
rate on the amount of Rs. 15 lakh is Rs. 50,000/-. This amount would be required to be reported
in column (8). The total amount of TDS
of Rs. 6,73,150/- (Rs. 6,23,150 + Rs. 50,000) is required to be reported in
column (9). The above example is
reproduced below in the tabular form as would appear in Form 24C:-
|
Section |
Nature of payment |
Total Expense or Capital outgo under the
section |
Total Amount on which
TDS / TCS was liable
or eligible to be deducted or collected out of (3) |
Total Amount on which tax was deducted or collected at prescribed rate out of (4) |
Amount of tax deducted or
collected on (5) |
Total Amount on which tax was deducted or
collected at less than prescribed rate out of (6) |
Amount of tax deducted or collected on (7) |
Total Amount =(6) + (8) |
|
(1) |
(2) |
(3) |
(4) |
(5) |
(6) |
(7) |
(8) |
(9) |
|
194A |
Interest other than interest on securities |
1,00,00,000 |
70,00,000 |
55,00,000 |
6,23,150 |
15,00,000 |
50,000 |
6,73,150 |
21. Form
24C is required to be furnished by all TAN holders irrespective of whether a TDS/TCS
transaction has been effected during the quarter or not. In the event of the column (3) of the
Schedules in From 24C is zero for all nature of payments, the
deductor/collector should specify in the section on filing status in Form 24C
that it is a case of ‘Nil Return’ and it would not be necessary to fill
in the Schedules.
22. In
Schedule PAY of Form 24C, the deductor/collector is required to indicate the
details of the payment of the TDS/TCS to the credit of the Central Government.
23. The
new TDS and TCS payment and reporting system will enable faster payment,
accurate accounting and uniformity across deductors. It will facilitate accurate, quicker and
full credit for taxes paid enabling faster refunds to taxpayers. It will also minimize interface of tax
administration with taxpayers and intermediaries, thereby eliminating any
opportunity for rent seeking behaviour.