TAX DEDUCTION AT SOURCE
TDS is a non-obtrusive but powerful instrument to prevent tax evasion as well as to expand the tax net. TDS also minimizes tax avoidance by the taxpayer (income earners), as the payee’s transaction(s) are reported to the Department by a third person. The contribution of TDS to the overall gross direct taxes collections during FY 2015-16 was Rs. 325000 crore (Provisionsal) with a growth of 11.64% over an amount of Rs. 2,91,096 Cr collected during FY 2014-15. TDS contributes 37% to the gross direct taxes collections, emphasizing its ever growing importance.
The strategy to augment revenue through TDS ought to be, a mix of enforcement, capacity building (external and internal) and leveraging of information that is now available with the Department through the CPC(TDS).
A. CAPACITY BUILDING:
A:1 TDS Conferences /Meeting of Stakeholders:
Capacity building of deductors and AIN holders regarding awareness of latest updates in legal provisions and technology driven processes is paramount to ensure improved TDS compliance. Further, the taxpayers get adversely impacted due to incomplete and incorrect reporting by the deductors. Accordingly, it is vital to educate the deductors and other stakeholders in this regard through conferences/seminars/ workshops.
A:2 Corporate connect for TDS Compliance:
“Corporate connect for TDS compliance” has yielded significant results in improving the TDS compliance behavior by banks and big corporates having multiple TANs and a large number of branches. The attempt is to make the “Principal Officer” of the corporate entity aware about the TDS defaults being committed by underlying branches. The thought behind the exercise is to impress upon the Head office that any default on part of branches and consequential interest, penalty is ultimately the liability of the corporate.
A comprehensive view is available to the corporate entity (at PAN level) that displays TAN-wise defaults / compliance patterns for different years. This view is available to the corporates online under the heading ‘Aggregated TAN compliance’ on the portal of the CPC(TDS) [TRACES]. The FY-wise comprehensive view of defaults is also available in ‘Part G’ of Form 26AS of the PAN of the respective corporate.
The CsIT(TDS) may, therefore, organise workshops with big corporates/banks with large number of TANs to sensitize the ‘Principal Officers’ of respective corporates/ banks about various defaults being committed by their branches. The corporates have to be sensitized that the defaults committed by branches have implications on the ‘Total Income’ of the corporate entity in view of section 40(a)(ia) of the Act and also the fact that interest u/s 201(1A), fee u/s 234E do not qualify for deductions. The defaults also attract prosecution action against the deductor. The corporates can also be sensitized about the fact that the defaults on their part also impact their clients as they are unable to get credit in their Income Tax Returns.
In the workshops, a detailed presentation can be made highlighting various functionalities being provided to the deductors and various types of TDS defaults (some of which are listed below) :-
|S. No.||Type of TDS Defaults||Implication|
|1||Non filing / late filing of TDS Statements||Levy of fee u/s 234E of I.T. Act (no provision for appeal or waiver and not allowable as deduction)|
|2||Reporting incorrect and invalid PANs in the TDS statements||26AS statement and TDS certificate will not get generated for such transactions. Corresponding deductees are not able to take credit in the respective ITRs.|
|3||Reporting incorrect but valid PANs in the TDS statements||Downloading of incorrect TDS certificate due to which corresponding deductees are not able to take credit in the respective ITRs.|
|4||Short deduction / late deduction / short payment/ late payment etc.||Liability for interest u/s 201(1A) & principal default amount. The interest for late payment does not qualify for deduction while computing income.|
|5||Incomplete and incorrect information in point 27 of Tax Audit Form 3CD.||Penalty and prosecution under various provisions of the Act|
|6||Filing of TDS statements with incorrect/ incomplete particulars and subsequent filing of correction statements with C9 correction.||Prosecution u/s 277 of the Income Tax Act|
|7||Non reporting of 1 5G/1 5H transactions in the TDS Statements||Implies furnishing of incomplete/incorrect particulars which may result into appropriate action under the Income Tax Act|
Corporates may be requested to insist that their auditors file correct & complete audit report with reference to TDS defaults (point 27 of FORM 3CD) after duly incorporating the facts & figures available under ‘Aggregated TDS Compliance’ on the CPC(TDS) portal.
Some instances have been noticed where branches have multiple TANs, due to which TDS statements are not being filed on some of the TANs. These duplicate TANs need to be identified and appropriate action taken.
CDs containing e-tutorials may be given to the participants. The e-tutorial may have information on objectives and functionalities available to the deductors on TRACES [CPC(TDS) portal], various Forms and due dates, Do’s and Don’ts regarding filing of regular statements, types of corrections, guidelines for filing correction statements and useful links to FAQs with a request that they may be further disseminated to all branches.
A:3 Sharing of Quality work/new issues with counterparts across the country:
Synergy amongst various TDS units across the country promises to enhance the overall performance. An issue identified by one TDS charge can be replicated through proper communication to other charges. The CPC(TDS) has introduced a platform to ensure that the quality work done in one corner of the country becomes a force multiplier and gets replicated across the country.
The platform so introduced provides for the field officers to log in quality work on the TRACES portal itself. The quality work that may pertain to unearthing new area(s) involving non deduction of tax, interpretation of TDS provisions, recovery of TDS, interpretation of Court cases and implementation thereof etc. can be logged into the AO portal of the CPC(TDS) by respective field TDS officers. This shall be visible to all the TDS officers across the country who can then take guidance from such work and explore the possibilities of replicating the same in their area.
A:4 Connect with Professionals/ Chartered Accountants :
To have a comprehensive capacity building plan, it is important to include the professionals who are engaged in conducting revenue audit of the respective principal corporate entities to whom the deductors are mapped. As has been indicated in section A:2 (Corporate connect for TDS compliance), as against past years, it is now possible to integrate defaults / compliance of each of the deductors mapped to a PAN.
This is important from audit viewpoint and for reporting TDS compliance in Form 3CD.
The CIT(TDS) should hold separate conferences with the tax professionals to impress upon them the above issue and to sensitize the auditors about the implications involved. The auditor ought to make sure that:
a. The default interest(s)/ late filing levy etc. are not claimed as deductions;
b. Disallowance u/s 40(a)(ia) ought to be quantified keeping in view the TAN wise defaults reflected in the Form 26AS of the ‘principal’ PAN also;
A:5 Exchange of notes between field TDS officers & the CPC(TDS):
Since technology driven solutions from the CPC(TDS) form an integral part of the overall TDS administration, it is important to ensure that there is a regular communication between the field officers and the CPC(TDS). Such interactions may take place on quarterly basis through video conferencing or other facilities. Further, to ensure that the field officers understand the solutions offered through the CPC(TDS), training sessions for two young officers deputed in each Pr. CCIT charge shall be done at Vaishali. These officers would then act as trainers for the other officers/officials of the respective TDS charge.
CPC-TDS has initiated con-call on every second and fourth Tuesday of the month to address queries of the field authorities regarding technology driven processes. Field authorities need to make the best use of this facility.
Concept of nominating one nodal officer at each station has been introduced last year. The idea behind the same is to facilitate deductors in proper understanding of technical processes and to provide handholding to effectively utilize the e-enabled services. CPC-TDS will impart requisite training to such nodal officers on quarterly basis. CPC-TDS has earmarked one inspector at CPC-TDS as the contact person for each CIT(TDS) charge to facilitate the capacity building of field officers.
B: CASH COLLECTION/REDUCTION OF SELECT DEFAULTS:
B:1 Demand generated by the Systems/CPC(TDS):
The CPC(TDS) has comprehensive data of defaults for all the statements filed for FY 2007-08 and onwards. Further, it has now developed a mechanism to:
i) Identify deductors having various defaults including top deductors having defaults;
ii) Notify the deductors about the reasons of determining defaults through online justification reports – from FY 2007-08 onwards;
iii) Facilitate resolution of defaults viz. short payment, late payment interest, late deduction interest, late filing fee etc.
With the facility to file corrections both – online and offline (through NSDL), available to the deductors and the capacity to process the correction statements within 4 – 5 days of their receipt in the CPC(TDS), it is possible to resolve the demand expeditiously.
The default data with the CPC(TDS) reflects that substantial demand on account of short payment, short deduction, late payment interest, late deduction interest, interest u/s 220(2), late filing fee etc is outstanding against the deductors. The default data indicating demand outstanding as on 01 .04.2016 is as under:
Demand outstanding as on 01-Apr-2016 at all India level
|Default Type||Amount (INR in |
|Interest on Payment & Deduction Defaults||12,704.00|
|Late Filing Fees||3,886.70|
|Interest u/s 220(2)||136.04|
|Total CPC + System Generated Demand||44,831.21|
The AO wise details of above demand are available at AOs Portal of CPC (TDS).
Huge demand lying in the records is a cause of concern and is also an opportunity to augment revenue collections. There may be some reason for not pursuing the demand relating to ‘Short deduction’ as the deductee may have paid the taxes. However, other defaults, particularly of short payment, late payment interest, late deduction interest, late filing fee, interest u/s 220(2) are clearly liabilities of the deductor that have arisen based on the information furnished in the respective statements and corresponding matching with the challans reported by the banks must be acted upon appropriately.
The CPC(TDS) has matched challans even with relaxed match logic. Further to make the process of matching the challans simpler, online facility is available on the portal to match/tag the challan. The field officers should, therefore, ensure that the resolution/matching is done during the financial year itself.
Relevant MIS reports available on the AO portal of CPC (TDS):
The CPC(TDS) facilitates identification of deductors through comprehensive MIS that is available to the field TDS officers from the level of the CIT to the Assessing Officer. Some of the important MIS reports, available to the field officers on the Assessing Officer portal of the CPC(TDS), that would be of help to the field officers in resolution of demand are:
i) Defaulters report : Gives view of various defaults pertaining to deductor (s) across the financial years. The report can be viewed Default-wise, TAN wise, FY wise etc.;
ii) Unconsumed challans report : The report gives 360 degree view of cases where short payment default is identified and informs whether any challan is available for matching.
B:2 Demand lying in the Manual Registers of TDS officers
The field officers have been raising the demand manually on account of orders u/s 201 (consequent to survey/ spot verifications), penalty, compounding etc. The deductors may have paid some of the demand for which challan is lying in the system. The manual demand raised has since being uploaded to CPC(TDS). Henceforth, all the demand should be entered on the AOs portal of the CPC(TDS) only. The TDS Officers should make efforts for maximizing collection/reduction of the manual demand uploaded on the CPC(TDS).
C: RECONCILIATION of TDS (reported by State Govt. AINs) & AMOUNT DEPOSITED BY RESPECTIVE STATE ACCOUNTANT GENERAL for FY 2014-15 & earlier years
There was short payment/ mismatch of TDS amount by various State Governments. The mismatch can be attributable to any of the following:
i. There is actually a gap between the tax that has been deducted by the deductors and the tax remitted to the Central Government by the respective State Accountants General; and/or
ii. The respective Accountants General have committed errors in filling Assessment Year while remitting the tax; and/or
iii. The Principal Accounts Officers (AINs) have reported wrong TDS against the respective DDOs that are mapped to them.
The gap, as outlined above can only be reconciled by the field officers through spot verifications. Since the revenue involved is substantial, the exercise may be carried out for FY 2015-16 & earlier years. In case there is a mistake in reporting the Financial Year in the challan, the same can be changed by the TDS Officer through ‘challan correction mechanism’. In case there is an error in reporting of TDS by the Principal Accounts Officer, the same is required to be corrected through filing of correction statement, as otherwise wrong BIN would be generated. This exercise would help in identifying the amount that is collectible for the respective Financial Years.
D: ISSUANCE OF CERTIFICATES UNDER SECTION 197 OF THE INCOME TAX ACT
The data in the system reflects that the certificates under section 197 of the Income Tax Act are being issued even in cases of those PANs where:
i. There is an existing liability under the Income-tax Act including short payment or interest / late filing default; and/or
ii. The PAN holder is a non-filer of the Income Tax Return; and/or
iii. The case does not fall within the conditions prescribed u/s 197 i.e. where the income is taxable and TDS is being substituted by payment of advance tax;
iv. The ‘tax foregone’ is very substantial.
It is, therefore, suggested that due care has to be exercised while issuing these certificates. Further, to ensure better compliance, the field officers may ensure that the existing liability is either liquidated or the applicant has made sufficient arrangements for payment of such liability. The CPC (TDS) has introduced a new feature in Form 26 AS as Part-G showing various TDS demands of the concerned PAN (including of TANs mapped with that PAN). Also, ‘Aggregated TDS Compliance’ view is available to field TDS Officers on the AOs Portal of the CPC(TDS) for this purpose. In addition, IT demand outstanding against PAN of the applicant is also available on the system. This feature will help the AOs in visualizing the demands against the tax payer, which may be used for recovery and also while considering issuance of certificate u/s 197 of the Income Tax Act.
E. ENFORCEMENT ACTIONS
E:1 Surveys / Inspections:
Surveys / Inspections are effective tools for detection of non-compliance in TDS/ TCS. It also helps in identifying defaults u/s 40(a)(i)/(ia)/(iii) of the Income Tax Act – an information that can be passed on to the A.O. of the deductor.
CPC (TDS) would regularly provide useful reports/ inputs to field officers which may be used for identifying survey / inspection cases. The Standard Operating Procedure (SOP) for selecting a case for survey / spot verification could be as follows:-
i. Cases in prosecution list (Cases where TDS/TCS withheld after deduction);
ii. Trend of TDS payment in stark contrast to other deductors in similar business;
iii. Cases showing negative trend in payment (under a particular Section as compared to preceding FY);
iv. Tax evasion petitions (regarding non deduction of TDS);
v. Cases reported by the Assessing Officer with huge disallowance u/s 40(a)(ia)
of the Income Tax Act;
vi. Habitual late filers/non filers of TDS Statement (late filing/non filing is closely
linked to late payment or non/short deduction);
vii. Negative growth in TDS payment as against healthy growth in Advance tax payment;
viii. Cases of sick units or units with negative operating margins (as indicated in Audit report u/s 44AB of the Act);
ix. Grievance petition filed by the deductee;
x. Analysis of newspaper reports/information available through internet;
xi. Analysis of case laws decided in favour of Revenue.
E:2 Initiation of Prosecutions & Disposal of Compounding Applications:
There are a number of cases where the deductors have failed to pay the TDS/ TCS or have kept the amount with them & paid such amount after substantial time into the credit of the Central Government as required in Chapter XVII-B. Initiating prosecution in these cases is an effective deterrence to non-compliance of TDS/TCS provisions.
As per the Income-tax Act, all cases wherein TDS/TCS is made but not deposited within the due date, as prescribed, are punishable u/s 276B / 276BB or 278A for second and subsequent offences.
Adequate publicity in local newspapers could be given to the action taken on Prosecution & also acceptance of compounding proposals, as this would prompt other defaulters to come forward with compounding proposals.
E:3 Penalty u/s 271 C for failure to deduct whole or any part of TDS:
On the spot verifications including surveys reveal that either the deductor has not been deducting the tax at all or has been deducting at low rates. In appropriate cases, initiation of penalty proceeding u/s 271 C is warranted to dissuade the deductor from indulging in such exercise that has a direct bearing on tax revenue. The CPC(TDS) gives a detailed list of deductors in whose case short deduction demand has been raised. The TDS officers are advised to look into such cases, also besides spot verification cases for initiation of penalty proceedings.
E:4 Tax Default Reports (TDRs):
The CPC(TDS) shall compile information about the compliance of the deductor in terms of filing of TDS statements, payment of taxes, reporting of inconsistent data and default patterns. On the basis of this compilation ‘Tax Default Report’ for a TAN (deductor) would be made available to the field TDS Officer for examination and further follow up, as deemed fit. The reports can also be of assistance to pick up cases for verifications/surveys/prosecutions.
E:5 Reporting transactions with “High Value” under ‘PAN NOT AVAILABLE’:
A large number of instances have been noticed where the deductors are making PAN errors in the deductee rows in the TDS statements by way of either mentioning ‘Invalid PANs’ or ‘PAN not available’ in the corresponding column. Accordingly, CsIT (TDS) may advise the deductors to insist upon furnishing of valid PAN by the taxpayers in case of high value transactions. Deductor-wise list of transactions is available as MIS on the AOs portal of the CPC(TDS) -[please see ‘PAN error’ report & ‘Deductors with highest no of PAN errors’ report.] Pursuance of these cases could result in minimizing TDS mismatch cases on the one hand while helping in identification of new assessees on the other, thus augmenting revenue.
E:6 Action on information of Defaulters available in 3CD Reports :
In online 3CD Reports, the information is available on non deduction, short deduction, failure to deduct, failure to deposit, short deposit and delay in deposit. Moreover, the information of failure to deduct and lower deduction under wrong section is not available in TDS statements. Therefore, the data of 3CD reports is very useful. Action can be taken in this regard by the AOs to boost revenue and improve compliance.
E:7 Action on defaults in immovable properties transactions based on AIR Information:
Data of sale of immovable properties over threshold limit from AIR returns can be matched with transactions on which TDS has been deducted u/s 1 94IA of the Income Tax Act to generate list of defaulters, on which action can be taken by TDS AOs.
F. ACTION AGAINST NON-FILERS
Non-filing of TDS statements results in consequential mismatch of TDS in the case of deductee taxpayers. The CPC(TDS) shall provide a window to the taxpayers to flag non-compliance on the part of the deductor. This feedback shall be made available to the relevant field TDS officer for further action. List of non-filers of TDS statements would also be available to the field TDS Officers on the MIS section of the AOs portal.
2. SOLUTIONS in addition to TECHNOLOGY IN TDS ADMINISTRATION
G. MONITORING OF TDS & DEDUCTORS — Based on MIS available on TRACES portal
i) Monitoring of TDS statements of top 100 deductors vis-a-vis the deduction made by them in the corresponding period of the previous FY by each AO TDS in their respective charges. Cases of decrease in TDS payments, noticed during a particular period, as compared to the preceding year, could be a possible trigger for initiating pro-active measures.
ii) Monitoring compliance in filing of Form 24G by the PAO / Treasury Officers (the AIN holders) would also sensitize them towards dissemination of BIN to the Govt. deductors. The 24G Statements filed by the AIN holders could be utilized to issue notices to Government deductors to file their TDS statements in time.
iii) Monitor timely receipt of TDS payments of State Government through Accountant General, as it has been the experience that either there is delay of more than two months on part of the A.G. office to issue draft for the TDS made by the DDOs in the State Government or no payment at all is made in few cases.
iv) Monitoring of Monthly TDS remittance from salaries is required, both from the private sector as well as Government Departments.
v) Monitoring of top 100 deductors who are in the habit of late deposit of tax deducted at source
vi) Monitoring of top 100 deductors with negative growth or lower than average growth in TDS collection
vii) Monitoring of top 100 deductors with maximum amount of unconsumed challans
viii) Monitoring of top 100 deductors with maximum number of PAN errors
ix) Monitoring of top 100 deductors with maximum amount of TDS default (short payment/late payment interest/late filing fee)
H. IDENTIFYING AREAS OF NO / LOW DEDUCTION
H:1 TDS compliance w.r.t. State Governments:
i. To collect information from the State Government about the Plan Outlay of all major contracts in the various departments and monitor TDS payments from the same and also the sub-contracts involved therein.
ii. While it is settled law that State Government undertakings are separate legal entities than the State and are therefore, liable to Income-tax. It has been observed that the Banks have been defaulters in non-deduction of TDS on interest to these State Governments PSUs, Corporations, Autonomous Bodies and Development Authorities. This area needs sensitization and education of deductors.
H:2 Probable cases of non-deduction / short-deduction:
i. In order to augment TDS from salaries, the focus should be on top Companies / PSUs / large employers where a look at the entire compensation structure of top executives is required with a view to examine the nature of allowances/ perks & reimbursements made to them. The treatment of employees as consultants also needs to be probed.
ii. TDS on payments to sub-contractors by infrastructure companies and catering contracts in Star hotels is another new area worth monitoring.
iii. E-commerce has emerged as a huge business in the past few years. This involves advertisement on the websites/portal of various organized and unorganized agencies, payments for job work – building website, translation of pages, data entry of text, research etc. This area promises to yield significant revenue.
iv. Large scale non compliance of TDS Provisions by local bodies (especially Panchayats) has been noticed in some regions. A special drive to ensure compliance by the local bodies can be helpful in boosting revenue. Such drive can have three-pronged strategy to ensure (i) that all local bodies having liability to deduct TDS obtain TAN (ii) coordination with their administrative department and special drive for their education and (iii) spot verification.
v. Collection of tax at source is now applicable at the rate of 1% from the purchaser; on sale of motor car with value exceeding Rs. Ten Lakh, sale of any any goods (other than buillion and jewellery which are covered hitherto) to provision of services (other than payments on which tax is deducted at source under Chaper XVII-B) with consideration exceeding Rs. Two Lakhs. (The above amendments will take effect from 1st June 2016).
vi. A new levy called as the ‘Equalization Levy’ has been introduced in this budget which mandates that a person making payment to a nonresident, not having a permanent establishment in India, exceeding an aggregate amount of Rs. 1 lakh in a year, as consideration for specified services, will withhold tax at 6% of gross amount paid, as Equalization Levy and pay the same to the Government, similar to tax deducted at source.
vii. Lastly, Standard Operating Procedure (SOPs) for administering TDS incorporating the re-engineered processes circulated by the CPC-TDS should be adhered to.
(Above been Republished with Amendments to earlier Article on the Subject)