We always noticed that whenever there is a topic of refund in discussion most of the people talk about Income Tax Refund or GST refund but hardly anybody is concern about TDS refund. Some people even not aware about TDS refund. Hence today I am writing this article on TDS refund, what are the related circulars, procedures, and interest on TDS, etc.
Section 200A of the Income Tax Act, 1961 had brought a change in the process of refund of excess TDS deducted. The Section 200A describes the processing of TDS return and also the process to refund the amount in case any amount paid by the deductor is in excess of the amount for which he is liable to deduct.
Earlier to this, the procedure for regulating refund of amount paid by the deductor in excess of the TDS was governed by the Board Circular No. 285, dated 21-10-1980. After that CBDT has issued the Circular No. 2/2011 Dated 27-4-2011 in supersession of the Circular No. 285. While issuing this circular, it was clearly mentioned that the provision of section 200A will be applicable for issue of refund w.e.f. 1-4-2010 and this circular will be applicable for claim of refunds for the period upto 31-3-2010. Further, it was also described that this circular will not be applicable to TDS on non-residents falling under sections 192, 194E and 195 which are covered by circular No. 7/2007 dated 23.10.2007 issued by the Board. On the basis of this, the procedure of refund of TDS can be described under the following three categories:
(i) TDS on payment to non-residents falling u/s 192, 194E and 195
(ii) TDS deducted to the deductor for the period upto March 31, 2010.
(iii) TDS deducted to the deductor for the period after March 31, 2010.
It includes those circumstances where after depositing the TDS into Govt. account by the deductor,
a) the contract is cancelled and no remittance is made to the non-resident;
b) the remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source;
c) the contract is cancelled after partial execution and no remittance is made to the non-resident for the non-executed part;
d) the contract is cancelled after partial execution and remittance related to non-executed part is made to the non-resident. In such cases, the remitted amount has been returned to the person responsible for deducting the tax at source or no remittance is made but tax was deducted and deposited when the amount was credited to the account of the non-resident;
e) there occurs exemption of the remitted amount from tax either by amendment in law or by notification under the provisions of Income-tax Act, 1961;
f) an order is passed under section 154 or 248 or 264 of the Income-tax Act, 1961 reducing the tax deduction liability of a deductor under section 195;
g) there occurs deduction of tax twice from the same income by mistake;
h) there occurs payment of tax on account of grossing up which was not required under the provisions of the Income-tax Act, 1961;
i) there occurs payment of tax at a higher rate under the domestic law while a lower rate is prescribed in the relevant double taxation avoidance treaty entered into by India.
In the type of cases referred to in point a), the non-resident not having received any payment would not apply for a refund. For cases covered by from b) to i) no claim may be made by the non-resident where he has no further dealings with the resident deductor of tax or the tax is to be borne by the resident deductor. This resident deductor is, therefore, put to genuine hardship as he would not be able to recover the amount deducted and deposited as tax. Refund can be issued in these cases under the following guidelines:
a. This amount can be refunded, with prior approval of the Chief Commissioner of Income-tax or the Director General of Income-tax concerned, to the person who deducted it from the payment to the non-resident, under section 195.
b. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident or if the income is accruing no tax is due or tax is due at a lesser rate. The amount paid into the Government account in such cases to that extent, is no longer ‘tax’. In view of this, no interest under section 244A is admissible.
c. A refund in terms of this circular should be granted only after obtaining an undertaking that no certificate under section 203 of the Income-tax Act has been issued to the non-resident.
d. The limitation for making a claim of refund under this circular shall be two years from the end of the financial year in which tax is deducted at source.
e. It needs to be ensured by the Assessing Officer that they disallow corresponding transaction amount, if claimed, as an expense in the case of the person, being the deductor making refund claim. Besides, in all cases, the Assessing Officer should also ensure that in the case of a deductor making the claim of refund, the corresponding disallowance of expense amount representing TDS refunded is made.
All the cases for the period upto March 31, 2010 except those which are related to non-resident will come under this clause. The excess payment to be refunded would be the difference between:
a) the actual payment made by the deductor to the credit of the Central Government; and
b) the tax deductible at source.
The following guidelines should be followed to claim the refund:
a) In case refund is related to the same FY the credit of the excess payment can be adjusted in the quarterly statement of TDS of the next quarter during the financial year and in cases where the detection of such excess amount is made beyond the financial year concerned, such claim can be made to the Assessing Officer (TDS) concerned. However no claim of refund can be made after two years from the end of financial year in which tax was deductible at source.
b) Prior administrative approval of the Additional Commissioner or the Commissioner (TDS) concerned shall be obtained, depending upon the quantum of refund claimed in excess of Rupees One Lakh and Rupees Ten Lakh respectively.
c) After meeting any existing tax liability of the deductor, the balance amount may be refunded to the deductor.
Section 200A is inserted by the Finance Act (No. 2), 2009, where it has stipulated the procedure to process the e-tds return filed by the Tax deductor. This procedure includes that:
1. The sums deductible as TDS should be computed after making the following adjustments, namely:—
2. The interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;
It provides that the refund will be provided to the deductor in cases where he has paid the amount more than the amount for which he is liable to pay after adjustment of interest on any outstanding u/s 200 and u/s 201 and any amount paid otherwise by way of tax and interest. However, no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed
The new provision i.e. Section 200A, defines the procedure of processing of e-tds return, however it does not talk about the interest on refund of the TDS to the Deductor, if the same has been deducted by him more than the amount for which he is liable to deduct and paid to the Central Government account. While examining the aspect of interest on refund of the TDS following observations can be made:
(a) Provisions in respect of the interest on refund i.e. section 244A is only in respect of the interest on refund which is to be paid to the assessee who has filed the return of income and has paid the amount as advance tax, TDS, TCS or in any other manner more than the amount for which he is liable to pay as income tax.
(b) Circular No. 7/2007 Dated 23-10-2007 (refund of TDS deducted on payment to non-resident) specifically mention that the amount paid into the Government account in such cases to that extent, is no longer ‘tax’. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this circular or on the refunds already granted in accordance with Circular No. 769 or Circular No. 790.
(c) Circular No. 2/2011 Dated : 27-4-2011 mention that this circular will not be applicable to TDS on non-residents which are covered by Circular No. 7/2007, however, it further mention that this circular will be applicable only on the claim of refunds for the period upto 31-3-2010 and for the subsequent period procedure u/s 200A will be applicable. It is not clear that in case of refund of TDS on payment to non-resident Circular No. 7/2007 will be application or Section 200A will be applicable (where it does not talk about the interest on excess payment of TDS deducted)
If the TDS certificate is issued by the deductor to the deductee and basis on the same refund is claimed by the deductee, he will be eligible to interest u/s 244A w.e.f. 1st April of the assessment Year. However, if the same is claimed by the Deductor u/s 200A or the other clauses as mentioned above, there is no such provision to claim the interest on the same. When it looks too difficult to get the refund by the deductor of the amount excess deducted due to procedural issues, interest upon the same looks like a dream without any specific section in respect of the same.
Since Currently TDS now contributes very vital part to the gross direct taxes collections, emphasizing its ever growing importance. Today, where the TAX REGIME is concentrating more on payment of taxes at the source instead of at the time of filing of return, it requires to incorporate specific provision for interest on refund of TDS to the deductor and clarify the stand of the CBDT.
(Author may be contacted at firstname.lastname@example.org )
(Republished with Amendments by Team Taxguru)