The Finance Act (No. 2), 2024, has brought a significant change by imposing a time limit on TDS correction statements. Until now, there was no restriction on how long these corrections could be made, leading to frequent and sometimes dubious revisions. This change aims to bring more transparency and prevent misuse.
Although there is a time limit for submitting TDS & TCS returns, there was previously no such limit for correction statements. As a result, these statements were often revised multiple times, either voluntarily or in response to queries, causing significant challenges for deductees.
To curb this misuse, the Finance Act (No. 2), 2024, has amended Section 200(3) and Section 206C(3B) of the Income-tax Act. Now, correction statements must be filed within six years from the end of the financial year in which the original statement was submitted.
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Key Deadline:
Correction statements for FY 2007-08 to 2018-19 will only be accepted until March 31, 2025.
This amendment ensures that TDS corrections are made within a reasonable timeframe, reducing the scope for manipulation. However, it does not entirely eliminate the risk of last-minute changes by the deductor.
The Problem: A Loophole That Still Exist?
For years, certain deductors took advantage of the system in the following manner:
1. The TDS return was filed, and the deductee claimed the TDS credit in their Income Tax Return (ITR).
2. Based on this credit, the deductee received a refund.
3. Later, the deductor filed a correction statement and reallocated the TDS credit to another deductee.
The Big Issue?
Once the refund was granted, there was no system to track whether the TDS credit still existed in Form 26AS. If the deductor deleted the TDS entry, the tax department had no automatic mechanism to notify the deductee that their credit had disappeared.
As a result, many deductees unknoingly became liable for tax they had already claimed as a refund. Since the tax department did not conduct suo moto checks, these issues often surfaced much later, leading to notices, interest, penalties, and unnecessary litigation.
The amendment that completely ignores the chance to function properly as the issues would still persist.
More effective Suggestion to Fix This Issue
While the six-year limit is a step in the right direction, a better solution would be to introduce a mechanism in the ITR filing process that allows deductees to “lock” their TDS credits.
How it Should Work:
- When filing ITR, the deductee should be required to accept or reject the TDS credit shown in Form 26AS.
- Once accepted, the credit should be blocked and cannot be altered by the deductor.
- If a deductor needs to make a correction, it should require approval from the deductee through an automated request system linked to their PAN.
- No manual intervention by tax officers should be allowed, because we all know that once a case lands on an officer’s desk, it magically transforms into a never-ending saga—where delays multiply, paperwork piles up, and “chai-paani” expenses start creeping in.
A similar correction mechanism already exists in the system for Form 26QB and 26QC, where any corrections related to PAN, date, amount, and other minor details require only approval from the other party before processing.
Conclusion
This system would prevent misuse, reduce disputes, and make the tax process more transparent and hassle-free for taxpayers.
What’s Your Take?
Is the six-year limit sufficient, or should the government introduce stronger controls to safeguard taxpayers? Let us know your thoughts!
(REPUBLISHED WITH AMENDMENTS)
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