Income Tax - Third Party Administrators - liable to pay TDS – but go easy - CBDT
ON 8th October we reported the Karnataka High Court judgement in the case of THE MEDI ASSIST INDIA TPA P LTD –
Third Party Administrator (TPA) providing health insurance claim services, makes payments to hospitals – liable to deduct TDS: A perusal of the agreement itself discloses that the TPA is responsible for making the payment to the hospital for rendering the medical service to the policy holders. The TPAs enter into an agreement with the hospitals for the aforesaid purpose. It is not necessary as to when the services are required to be provided by the TPA. Services can also be said to have been provided if they are provided through someone else on the request of the TPA. Indeed the TPA is given unbridled power in this regard. This would be in the nature of TPA taking over a part of the work of the insurance company. The TPA who is the authority or the person to pay the amount to the hospital is required to deduct tax at source under section 194J
The Income tax Department got hyper-active and started issuing notices. In Mumbai alone six TPAs were asked to pay nearly Rs. 120 Crores.
Several representations have been received by the CBDT from various stakeholders regarding applicability of provisions under Section 194J of Income Tax Act '61 on payments made by Third Party Administrators (TPAs) to hospitals on behalf of insurance companies for settling medical/insurance claims etc with the hospitals.
Board has examined the issue and confirmed that the TPAs are liable to deduct tax – without referring to the Karnataka HC judgement.
However the CBDT has decided that:-
1. No proceedings u/s 201 may be initiated after the expiry of six years from the end of financial year in which such payment have been made without deducting tax at source etc by the TPAs.
2. The tax demand arising out of Section 201 (1) in situations arising above, may not be enforced if the deductor (TPA) satisfies the officer in charge of TDS that the relevant taxes have been paid by the deductee assessee (hospitals etc.).
3. A certificate from the auditor of the deductee assessee stating that the tax and interest due from deductee assessee has been paid for the assessment year concerned would be sufficient compliance for the above purpose.
4. However, this will not alter the liability to charge interest under Section 201 (1A) of the Income Tax Act till payment of taxes by the deductee assessee or liability for penalty under Section 271C of the Income Tax Act as the case may be.
CBDT Circular No. 8 /2009 Dated: November 24, 2009