Where a taxpayer believes that its total income justifies withholding of tax at a lower rate, it can apply to the assessing officer for a certificate of withholding tax at a lower rate. The application by the taxpayer to the AO for a certificate of withholding tax at a lower rate is governed by Rule 28AA of the Income-tax Rules, 1962 (the Rules).
Recently, the Central Board of Direct Taxes (“CBDT”) has vide Notification No. 16 / 2011 dated 29 March, 2011 substituted Rule 28AA of the Rules, which requires the applicant to furnish additional details at the time of applying for a certificate for a lower / nil rate of withholding tax. The modifications are effective from 1 April, 2011.
The modifications made
|Current Provisions||Amended Provisions||Impact / Change|
|The AO can issue a certificate for nil withholding of tax, or for tax at a lower rate. The rate of tax withholding was to be determined as follows:(i) at the average rate of tax, i.e the total tax payable on estimated income, less the sum of advance tax already paid and taxes already withheld, as a percentage of the total paymentor(ii) at the average of the average rates of tax paid by the assessee in the last three years;whichever is higher.||
– tax payable on the assessed or the returned income of the three previous years;
– existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957;
– advance tax payment and taxes withheld for the assessment year;
– withholding tax up to the date of application relevant to the date of application year; and
– tax collected at source relevant to the year until the date of application.
– Details of returns/statements which have become due but are not filed
– Details of returned income/ assessed income for the last three assessment years
– Details of sales, profit, etc. for the three
– Details of existing liability under Income-tax
– Assessment year to which the payments relate.
This will make the process of application and certificate issuance more comprehensive at the initial stage.
|Quarterly statement of tax withholding is required to be furnished by the person responsible for withholding tax.||
This is an additional compliance requirement for the person responsible for withholding tax. This will also lead to the possibility of scrutinising of the transactions at the filing stage of the process.
Conclusion – The amended requirements further standardises the process by seeking specific details which make the process of application and certificate issuance more comprehensive. The additional information that is called for by the modified Rule 31A was already being provided by the assessee while furnishing the quarterly statement.