Tax Deducted at Source popularly known as TDS, is the tax that is deducted from the income which falls in the taxable category. The rates are well prescribed and tax has to be deducted as provided in the Section 206 AA of the Income Tax Act.

SECTION 206AA. REQUIREMENT TO FURNISH PAN

Section 206AA talks about the requirement to furnish PAN —(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

(i) at the rate specified in the relevant provision of this Act; or

(ii) at the rate or rates in force; or

(iii) at the rate of twenty per cent.

(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be valid unless the person furnishes his Permanent Account Number in such declaration.

(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source in accordance with the provisions of sub-section (1).

(4) No certificate under section 197 shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.

(5) The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.

(6) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and the provisions of sub-section (1) shall apply accordingly.”

ANALYSIS OF SECTION 206AA

1. This section overrides all other section of Income Tax Act,

2. Any person (resident or non-resident) receive any sum or income on which TDS is deductible, then

3. Such person shall provide PAN to a person responsible to deduct such tax.

4. If he fails then higher of the following shall be charged

• At the rate specified in the relevant provision of the Act under Chapter XVIIB

• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.

• At the rate of twenty per cent

5. Section 197(1), (1A) and (1C) talk about providing a declaration in Form No. 15G or Form No. 15H is not a valid declaration if it does not contain PAN of the person making the declaration. If the declaration is without the PAN, then tax is to be deducted at higher of following rates:

• At the rate specified in the relevant provision of the Act under Chapter XVIIB

• At the rate or rates in force, i.e., the rate prescribed in the Finance Act.

• At the rate of twenty per cent

6. If deductee provides invalid PAN then deductor shall deduct TDS at the rate as specified in subsection 1 of section 206AA above i.e. @20%. Section 206AA (1) shall be applied in all those cases where a person provides invalid PAN Number.

7. Further Section 197 Certificate for deduction at a lower rate, this certificate shall be granted by Tax Authority only when PAN No is provided by applicant

THE PROBLEM OF 20% TDS

TDS shall be deducted @ 20%: If the depositor fails to provide PAN to the bank or NBFC or Insurance company. Such entities will deduct TDS at the rate of 20%, which is 10% more than the standard TDS rate. Though technically this 20% cut is applicable for not furnishing the PAN many of times the bank make mistakes and Tax @20% is being deducted. Banks/ Insurance companies deduct the tax and file the quarterly returns for the same. The said deduction does reflect in Form 26 AS of the deductee. However, Non-reflection of TDS credit in Form 26AS can be due to several reasons like non-filing of TDS statement by the deductor, quoting incorrect PAN of the deductee in the TDS statement filed by the deductor. Thus, in case of non-reflection of TDS credit in Form 26AS, the deductee has to contact the deductor for ascertaining the correct reasons for non-reflection of the TDS credit in Form 26AS.In the case of Banks, the interest gained from such deposit accounts tends to be added to the total income and tax will be charged as per applicable rates. This income will be shown under the ‘Income from Other Sources’ section in an Income Tax Return (ITR) sheet.

TDS ON INTEREST ON BANK FDRs IS THE FIRST SOURCE

TDS, known as Tax Deducted at Source, is the tax that is deducted from the interest earned on FDs if they fall in the taxable category. FDs may remain to be one among the safest and popular investment options among traditional investors and senior citizens but not many people still know about the tax aspect when it comes to term deposits. Whether a customer is investing in a fixed deposit at a bank or NBFC, TDS will be applicable in both cases. It is very important for those who have fixed deposits and those who plan to invest in one, to know the various rules and regulations when it comes to TDS.

• When is TDS applicable: TDS will be applicable only if the interest earned on an FD is more than Rs.10,000 in a given financial year, ie: from April 1 to March 31.

TDS for senior citizens on Interest Income: For those who are 60 years or older, TDS will only be deducted if the interest income exceeds Rs.50,000 in a given financial year. Earlier, the limit was Rs.10,000 but this limit was increased to Rs.50,000 in the Union Budget 2018 by inserting section 80TTB.

• Calculation of TDS: In most cases, banks or financial institutions will cut TDS at the rate of 10% on the interest that is earned, if it is more than Rs.10,000 in a year.

• When is TDS deducted at 20%: If the depositor fails to provide PAN card information at the time of applying or opening the FD account, then the bank or NBFC will deduct TDS at the rate of 20%, which is 10% more than the standard TDS rate.

• TDS for joint account holders: In the case of those who have a joint account, TDS will only be deducted against the primary account holder’s PAN. Therefore, the secondary account holder will not be subject to tax treatment.

TDS ON INSURANCE PROCEEDS ABOVE Rs 100000/- IS ANOTHER SOURCE

However, in the case of maturity of Insurance policy, the receipt may or may not attract the tax liability hence not furnishing a PAN and deduction of TDS @20% is a bad deal. The worst part of the deduction of Tax from the maturity proceeds of Insurance is that the deductee never gets information of tax deduction as payments are being furnished through electronic means and the tax deduction from Insurance policy was introduced from the year 2014 and there was no provision of furnishing PAN while subscribing to an insurance policy. The insurance companies work in insolation while making the maturity proceeds. As PAN is not available with them, the insurance companies are deducting 20% tax in a purely arbitrary manner. Though, the taxability of such proceeds is very limited and defined in Section 10(10D) of the Income Tax Act. As per the section maturity of LIC policy will be included in the income of the Individual i.e. it is taxable if “the policy where premium in any year is more than 20% of the sum insured if it were bought after 1st April 2003 but before 31st April 2012 or is more than 10% of the sum insured if it were bought after 1st April 2012.

TDS IS A COMPLICATED AFFAIR NOW

TDS has become so complicated that for the failure of Deductor in paying to Government or non-submission of proper Returns or misquoting PAN by them, individuals are put to a lot of difficulties and TDS cannot be taken lightly by them.  The deductor blames it on the professionals who are providing the services to the bank or institution for uploading the TDS returns. The professionals are also minting the money by uploading a faulty data as there is a monopolistic status to rectify the mistake and charge hefty fees from the deductee for rectification. As long as, such rectification shall not be done, the TDS shall not appear in Form 26AS and the assessee is unable to upload his returns due to non-availability of a tax credit in his Form 26AS. “TDS certificates in Form 16 and Form 16A are equally crucial and it is essential to compare the entries in Form 26AS with those in your not TDS certificates to make sure you are claiming the right credits and also offering all your income appearing in Form 26AS to tax.

WHY CAN’T THE GOVERNMENT INTRODUCE A MANUAL FORM SO THAT INDIVIDUALS THEMSELVES UNDERTAKE TO DO THE TDS

The government is keeping her eyes closed towards this emotional taxation. After receiving the 20% tax which is much higher to average taxation rate, the government remain mum on the issue. The most sufferers are senior citizens & women who generally don’t obtain the PAN, not to complicate their lives for submitting the ITR every year. Those who are indirectly paying this 20% tax, the majority of them are those where they are out of taxable limits. Even in a case for some mistake if TDS have not been uploaded, there is a difficult path to achieve the desired result. Now the problem has gone further worst as ITR has to be filled by due dates and penalty provisions are ready for late filing. TDS credits appear in the month of June and July is the date of filing the ITR. The mechanism is not so effectively operational so it’s painful for all those whose tax being deducted @20%.

DEDUCTEE IS AT THE MERCY OF DEDUCTOR FOR CREDIT

Form 26AS is an annual consolidated credit statement issued under Section 203AA of the Income-tax Act, 1961. It contains details of various taxes deducted on income by the deductor. TDS is not something that you will have to pay. It will be deducted from the income that is earned automatically by the bank or financial institution. All banks/insurance companies have to send a detailed TDS certificate that specifically outlines the amount of deduction and the rate of deductions that are made. However, in the case of 20% tax, no such information is required to be sent to a depositor. Why can’t Bank/ Institution/insurance companies issue the 20% tax deduction certificate in the name of a depositor and so that depositor can claim the tax. An incorrect entry, especially with regards to PAN or an amount, may lead to unnecessary delays in filing the ITR. One needs to get them rectified before filing to avoid future hassles. “Practically, the remedy for rectifying the mismatch lies in requesting the deductor to reconcile the same. You will have to request the deductor to revise the TDS return. The deductee has no power under the Act, to enforce the deductor to the revision of the returns so wrongly filed. Once the revised TDS gets uploaded and the revised figures are reflected in Form 26AS, only then can you file the return. You may have to wait a little longer for this. “Note that it does take some time for the person who has deducted your TDS to file revised TDS return. Even after uploading the Revised TDS Return, Form 26AS to does not instantly get updated.

UPLOADING FORM 15 G/15 H IS A COMPLICATED AFFAIR NOW.

Earlier the deductee was to submit the manual form signed by him/her to deduct for no deduction, however, the system has been changed and now online filing of Form 15 G/15H have been introduced. Now, a marathon of activities is requiring to be done to upload the form to get a no deduction from the interest if it is crossing the prescribed limit. That requires registration and submission of Form 15G / 15H in the Income Tax India e filing portal. The user must have the mandatory details like TACN, Mobile number. Valid Email Address, preferable belonging to principal contact Number, password, details of the authorised person, organization details, postal address of the organization, one need to click on the link which is provided in the email ID and in the webpage and then enter the required details along with the correct OTP and submit. If PAN of the organization is available, the registration request is sent to the PAN of organization for approval. After approval, the registration process will complete. OTP expire after 24 hours from the actual time of receipt. As a result, the registration process expires and you need to register again from the beginning. One requires the digital signature to complete the e filing and digital signature also require to be renewed every year. After uploading the files, the status will be shown as “Uploaded”. This uploaded file will be processed and validated. This will take up to 24 hours, after which, if the validation is successful, then it will show as “Accepted” or otherwise “Rejected”. If the file is accepted, it is sent to the CPC-TDS for further processing. If the file is rejected then the reason for rejection will be there in the list. After correcting the necessary details, it can be re-uploaded.

BLACK INCOME VS BLACK TAX OF THE GOVERNMENT

The government usually talk about the black money. Black money is money earned through any illegal activity controlled by country regulations from underground economic activity and as such, are not taxed. The same parameters are applicable to this forced taxation without representation as the same is being originated through authorised activity controlled by country regulations on ground economic activity and as such are taxed in an arbitrary manner. There is no data available with the government about receiving the taxes through this 20% forced deduction which assessee is not able to claim due to technical glitches. The government seems not to give her ears for the on-going extortion of this 20% tax. The Government try to attempt to give it a goody-goody appearance of legitimacy collected tax, though the real story is the total reverse.

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Qualification: CA in Practice
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Location: Meerut, Uttar Pradesh, IN
Member Since: 17 Jun 2018 | Total Posts: 119
Author was Member of ICAI- Regional Research Committee 2013-14 and ICAI- Committee For Direct Taxes 2011-12 and can be reached at email [email protected] or on phone Phone: 0 1 2 1-2 6 6 1 9 4 6. Cell: 9 8 3 7 5 1 5 4 3 2 having office at 1 1 5, Chappel Street, Meerut Cantt, UP, INDIA) View Full Profile

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3 Comments

  1. AJEET says:

    In my ITR 1 TDS Credit is showing Less against 26AS.
    In this situation should i file ITR or not. Please suggest for the same, .

  2. Subramanian M says:

    In the case of interest on FD’s in Banks, the deductee is at the mercy of the Bank and has no legal means to get remedies. Often banks show a higher amount as interest paid in the 26As form compared to the interest statement furnished by the bank. There is absolutely no check as to whether the data uploaded into form 26As is correct. There is no check as to whether TDS is deducted in all applicable cases . Uploading to 26As should be done only after the deductee accepts the data. Also the instrument (FD) number should be included as part of 26As

  3. GANDHI MOHAN BHARATI says:

    I very much appreciate the oint about our running behind the deductors. I am a great sufferer each year. Think of the poor employees who wwere under Mallaya. He deducted, did not give it to Government and scooted; it is the employees who are fighting. I overheard an Officer telling an assessee ” Look. You send money through a servant of yours to the Bank. He does not pay it into the Bank. Is the Bank resposible? Similarly, some one deducted and did not pay to Govt. Is Govt resposible? Go fight with the deductor, but pay up the Govt due first” STRANGE LOGIC.
    Maximum tirture, minimum work seems to be the going rule.

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