New TDS and TCS payment and information reporting system – CBDT views this as an opportunity to minimize rent seeking behaviour
CBDT is of the view that no claim for TDS / TCS should be admissible unless the deductor / payer has paid the amount so deducted / collected to the credit of the Central Government and the information relating to the transaction is received.
As the processing of data in the department was done manually and the volume of information being large, it was not feasible to undertake 100% matching of TDS claims with information furnished by the deductors. In view of this, the Department adopted a risk management strategy for allowing claim for TDS and as a part of this initiative, the deductors were required to electronically furnish the TDS related information (through the NSDL). This system was introduced in early 2004 as one of the modules of the Taxpayer Information Network (TIN). However, CBDT is of the view that this reporting mechanism was far from satisfactory for the following reasons:
(i) Non-compliance, especially by Government deductors, with TDS return filing requirement.
(ii) Low quoting of PAN number in TDS returns that are filed on account of non-furnishing of PAN by deductees to their deductors and negligence by deductors.
With a view to resolve the problems in granting credit for pre-paid taxes, the CBDT constituted a sub-group to analyse the various problems in granting credit for prepaid taxes and make appropriate recommendations. The sub-group was of the view that, the problem of matching and reconciliation of prepaid taxes is rooted in the three sets of data pertaining to TDS entering the system separately at different times from different sources, thus causing mismatch. It was of the view that the problem can be solved if the agency receiving the TDS amount and the TDS returns (and the documents by which this is done) is the same.
Therefore, to mitigate and minimize the risk of financial fraud and protect the interest of all the stakeholders – Government, Income Tax Department and Tax payers, the Board has decided that, henceforth, claim for TDS and TCS shall be allowed only if the–
(i) amount has been deposited by the deductor / collector;
(ii) information relating to the deductee has been furnished by the deductor / collector; and
(iii) claim matches the information furnished by the deductor / collector.
To implement this, CBDT notified the new TDS and TCS payment and information reporting system vide notification No. 858(E) dated 25th March, 2009. The salient features of the new TDS and TCS payment and information reporting system are as follows : -
(i) The new system has been harmonized for all deductors (including Central and State Governments). Therefore, like non-governmental tax deductors, every deductor in the Central and State Government have also been made responsible for making direct payment of TDS in the bank. They are no longer allowed to make payments of the TDS and TCS by making book adjustments or consolidated payments. As a result, the TDS payment and information reporting system will be uniform across deductors.
(ii) Rule 30 and Rule 37 CA of the Income-tax Rules, 1962 have been substituted to provide, inter alia, for the following: -
(a) All sums of tax deducted at source under Chapter XVII-B and of tax collected at source under Chapter XVII-BB shall, in general, be paid to the credit of the Central Government within one week from the end of the month in which the deduction, or collection, is made. Similarly, the same time limit for payment will also apply for income-tax due under sub-section (1A) of section 192.
(b) It is mandatory for all deductors (including Central Government and State Governments) to pay the amount by electronically remitting it into the RBI, SBI or any authorized bank.
(c) It is mandatory for all deductors (including Central Government and State Governments) to make the payment by electronically furnishing an income-tax challan in Form No. 17.
(iii) In the process of electronically furnishing the income-tax challan in Form No. 17, the deductor will be simultaneously required to furnish to the Taxpayer Information Network (TIN) system maintained by National Securities Depository Limited (NSDL) either through screen based upload or file upload, three basic information relating to the deduction i.e., PAN, name of the deductee and amount of TDS/TCS.
(iv) Upon successful remittance of the TDS/TCS to Central Government account and the uploading of the basic information as mentioned above to the TIN system, every deduction record will be assigned a unique transaction number (UTN).
(v) NSDL will create a facility to e-mail the UTN file to the deductor if the e-mail address of the deductor is available with them. In addition, they will also create a facility for the deductor to download the UTN file.
(vi) The UTN will be required to be quoted by the deductor on the TDS/TCS certificate issued by him to the deductee.
(vii) NSDL will also create a facility to allow independent viewing of the UTNs by the deductee.
(viii) With a view to enabling the Income Tax Department to monitor compliance by the deductor with the TDS provisions, every person (including Central Government and State Government) who has obtained a Tax Deduction or Collection Account Number (TAN) shall electronically furnish a quarterly statement of compliance with TDS provisions in Form No. 24C.
It is mandatory for all TAN holders to furnish this form irrespective of whether any payment liable to TDS has been made or not. This form shall be furnished on or before the 15th July, the 15th October, the 15th January in respect of the first three quarters of the financial year, respectively, and on or before the 15th June following the last quarter of the financial year. This e-form No. 24C has to be furnished at http://incometaxindiaefiling.gov.in. The first quarter in respect of which Form 24C is required to be furnished is the quarter ending on 30th June, 2009.
(ix) In order to enable the deductor to furnish the UTN to the deductee, the existing Form 16 and Form 16A have been appropriately modified.
(x) The quarterly returns of TDS and TCS hitherto required to be filed in Form No. 24Q, Form No. 26Q, Form No. 27Q and Form No. 27EQ shall now be required to be filed for all quarters on or before the 15th June following the Financial Year. Effectively, the quarterly returns have now been replaced by an annual return.
The above new system will be effective for all tax deducted at source or tax collected at source on or after the 1st April, 2009. However, any TDS or TCS effected on or after the 1st April, 2009 but not later than 31st May, 2009 shall continue to be paid to the credit of the Central Government by using the old challan form. The TDS or TCS effected on or after the 1st June, 2009 shall be required to be paid electronically by electronically furnishing income tax challan in Form No. 17.
Where the payment of TDS or TCS effected on or after the 1st April, 2009 but not later than 31st May, 2009 is paid to the credit of the Central Government by using the old challan form, the deductor / collector shall, nevertheless, be required to fill up Form No.17 in respect of such payments any time between 1st July, 2009 to 15th July, 2009. Therefore, the deductors/collectors are advised to prepare the schedule relating to details of TDS / TCS from deductees in Form No.17 in advance (in an excel sheet) and be in a state of preparedness to file the same by 15th July, 2009 so that the UTNs relating to TDS / TCS transactions carried out in the month of April and May can be generated / obtained for onward transmission to the deductees.
Further, a deductor can split the total amount of TDS and TCS which he is required to deposit to the credit of the Central Government so that every deposit to the account of the Central Government is made through a separate challan in Form 17.
The returns of income in Form No. ITR-1 to Form No.ITR-8 for Assessment Year 2009-10 have also been notified which requires the quoting of the relevant UTN for every TDS or TCS claim made by the assessee. Therefore, the credit for any TDS or TCS claim will be allowed, amongst others, if the assessee quotes the relevant UTN for every TDS and TCS claim and the said UTN matches with the UTN in the database of the Income Tax Department.
With a view to enabling the processing of returns relating to Financial Year 2007-08 (Assessment Year 2008-09) and enabling the assessee to receive the UTN for TDS and TCS transactions in the Financial Year 2008-09 (relevant for Assessment Year 2009-10), the following procedure shall be followed:
(a) National Securities Depository Limited (NSDL) shall assign a UTN for every TDS and TCS transaction records in Financial Years 2007-08 and 2008-09, reported in the quarterly returns received by it.
(b) NSDL will create a facility to e-mail the UTN file to the deductor if the e-mail address of the deductor is available with them. In addition, they will also create a facility for the deductor to download the UTN file.
(c) Upon receipt of the UTN, the deductor will inform the UTN to the deductee. In cases where the UTNs are available to the deductor before the issue of the TDS/TCS certificate to the deductee, the deductor will indicate the UTNs on the certificate. However, if the UTNs are not available to the deductor before the issue of TDS/TCS certificate, the deductor shall, subsequently, send a consolidated statement of all TDS/TCS transactions indicating the UTNs.
(d) NSDL will also create a facility to allow independent viewing of the UTNs by the deductee. As a result, even if the UTNs are not received by the deductee from the deductor, they can be directly obtained from the NSDL database and quoted while making claims of TDS and TCS in the return of income.
The old forms have been substituted by the new Form 16, Form 16A and Form 27D with effect from the 1st day of April, 2009. In the new Forms, it is mandatory for the deductor/collector to quote the UTN. Therefore, where the certificate is required to be issued in respect of deduction or collection made before the 1st April, 2009, the deductor/collector may adopt any of the following course of action:-
(a) The deductor/collector may issue certificate of deduction or collection in the Form 16, Form 16A or Form 27D, as the case may be, as it existed prior to 1st April, 2009 and send a consolidated statement of UTNs to the deductee/buyer/lessee etc., as soon as the same is received by him; or
(b) The deductor/collector may issue certificate of deduction or collection in the new Form 16, Form 16A or Form 27D, as the case may be.
As regards, TDS/TCS certificates in respect of deduction or collection effected on or after the 1st April, 2009, it is mandatory to issue the certificates in the new Forms and quote the UTN relating to the TDS/TCS transactions.
A new Form 24C has been notified to monitor compliance with the provisions of TDS/TCS. This new Form 24C is required to be furnished by all TAN holders irrespective of whether a TDS/TCS transaction has been effected during the quarter or not.
The CBDT is of the view that the new TDS and TCS payment and reporting system will enable faster payment, accurate accounting and uniformity across deductors. It is felt that the new system will facilitate accurate, quicker and full credit for taxes paid enabling faster refunds to taxpayers and minimize interface of tax administration with taxpayers and intermediaries, thereby eliminating any opportunity for rent seeking behaviour.
CBDT CIRCULAR NO 2/2009., Dated: May 21, 2009
Please also see our well researched articles on the complexities and difficulties involved in the implementation of the new TDS regime:
New TDS Regime - A grand fiasco for CBDT; Is outgoing FM 'aware' of policy change, richly contributing to 'Tax Misery Index'!
and
New TDS Regime - A tale of goof-ups; TPL, TRU need to develop grip over taxpayers' pulse for improved compliance!