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Issues on filing of e tds returns and statements

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Over the past few months, tax deduction at source in India has become a major pain point for most tax deductors. The complexities in the various provisions have given rise to various headaches for the tax deductors. Not only on the issue of which section to apply and what rate to apply, the issue of filing of the quarterly TDS statements has also become a serious problem. There are a number of problems that are encountered while preparing and filing the statements. This presentation highlights some of the important issues on e-filing of TDS statements.

Published in: Economy & Finance
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Issues on filing of e tds returns and statements

  1. 1. CA AMEET PATEL Partner, Sudit K Parekh & Co. Bombay Chartered Accountants’ Society 21st March, 2014 Practical Issues in E-filing of TDS Returns and Statements
  2. 2. • Who is supposed to mandatorily file TDS return through electronic media? - Corporate and government deductors /collectors - Deductor who is required to get his accounts audited under section 44AB of the Act - Where the number of deductee records in a statement are 20 or more • Government utility / private software can be used. • Validation of return is to be done through file validation utility (.fvu) • The following files are to be submitted to TIN facilitation centres through electronic media (pen drive / CD) alongwith signed Form 27A (physical) and filing fees (Cash): - .fvu - .txt - .html • Acknowledgement needs to be kept in safe custody as you may need it in future Introduction
  3. 3. • The acknowledgement is the most important document for carrying out any function on TRACES • The following important information from the acknowledgement is to be recorded: - Provisional Receipt Number (PRN) - Date of filing the return Introduction
  4. 4. Introduction
  5. 5. Filling of TDS Statement to make it ready for filing Filing it with NSDL Facilitation Centres The statement is then processed by NSDL and transferred to TRACES for further processing TRACES then processes the data and data is available for generation of TDS certificates Filing online (www.tin-nsdl.com) Filing of e-TDS statements – sequence of events
  6. 6. In case of errors, Intimation will be received from TRACES The correction statement can be filed online for details relating to PAN or challan details on www.tds-cpc.gov.in (registration of digital signature mandatory) TRACES processes the correction statement The correction statement can be filed with NSDL Facilitation Centres The correction statement is then processed by NSDL and transferred to TRACES Filing of e-TDS statements – sequence of events
  7. 7. Payment Issues
  8. 8. • It is mandatory for the following types of deductors to pay tax online: a) All the corporate deductors b) Any non corporate deductor to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable • ITNS 281 has to be used to deposit TDS • Tax is to be deposited by 7th of the next month and in case of deductions during March, by 30th April. • If the due date is a public holiday, tax can be paid on the next day following such a date. However, the system does not recognize such a clause and notices for interest on delay in payment may be received. - Rectification application will then have to be filed with the jurisdictional TDS officer Payment Issues - Introduction
  9. 9. • Points to be taken care of while depositing TDS: - Make the payment a day prior as instances of interest being levied due to late clearing by bank have arisen in the past - Round off the tax amount to the higher side (eg. round off Rs. 65,000.02p to Rs. 65,001) – (this is not in line with section 288BB) - Quote the correct TAN - Bifurcate tax and interest correctly and carefully - Section number to be carefully mentioned  What if payment pertaining to a particular section is fully deposited in the other section?  What if payment pertaining to two different sections is deposited through one single challan? Payment Issues – ITNS 281
  10. 10. • As per the section, a fee of Rs. 200 per day of delay in filing the return is levied • However, the fee is restricted to the amount of tax deductible • Constitutional validity of this section has been challenged - Aditya Bizorp Solutions Pvt. Ltd v/s. Union of India (Karnataka HC) - Narath Mapila LP School v/s Union of India (Kerala HC) - - In both cases, the courts have granted a stay on the recovery of fees charged u/s. 234E • No appeal lies against the levy of the fees Payment Issues – Fees u/s 234E
  11. 11. • Under which code should the fee be paid? Payment Issues – Fees u/s 234E
  12. 12. • In case of online payment of challan, request for rectification can be made with the jurisdictional TDS A.O. • In case of physical challan, request for rectification can be made to the bank within the specified time-frame as given below: - After the specified number of days as mentioned in the above table, rectification application can be filed with the jurisdictional TDS A.O. Payment Issues – Mistakes in the challan - Remedy Correction required in Field name Period of Correction Request (from Challan Deposit Date) TAN 7 days Assessment Year 7 days Amount 7 days Other fields (Major head, Minor head, Nature of payment) Within 3 months
  13. 13. Payment Issues – Mistake in the challan - Remedy The changes can be made by banks, subject to following conditions: - Correction in Name is not permitted. - Combination of correction of Minor Head and Assessment Year together is not allowed. - TAN correction will be allowed only when the name in the challan matches with the name as per the new TAN. - The change of amount will be permitted only on the condition that the amount so corrected is not different from the amount actually received by the bank and credited to Govt. Account. - For a single challan, correction is allowed only once. However, where 1st correction request is made only for amount, a 2nd correction request will be allowed for correction in other fields. - There will be no partial acceptance of change correction request, i.e. either all the requested changes will be allowed, if they pass the validation, or no change will be allowed, if any one of the requested changes fails the validation test.
  14. 14. PA(i)N Issues PAN Valid or Invalid...!!!
  15. 15. • 206AA(6) says “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.” • Hence deductor would be liable for short deduction in case of invalid PAN • Therefore, verification of the PAN provided by all deductees advisable (online verification facility available – see next slide) • Rectification of more than 4 characters in the PAN not permissible (2 digits & 2 letters) (whether valid to valid or invalid to valid) • Penalty u/s. 272B may be levied for not quoting correct PAN PAN Verification
  16. 16. Online PAN Verification on TRACES
  17. 17. Online PAN Verification on TRACES
  18. 18. Online PAN Verification on NSDL (paid facility)
  19. 19. Issues while processing and filing
  20. 20. • The government utility is not user-friendly • Private software saves effort in case of returns with huge line items • Errors shown in the error statement generated cannot be read easily Issues while processing and filing
  21. 21. Issues while processing and filing • Challan – quarterly adjustment and yearly adjustment – If challan pertaining to the past quarter adjusted against an entry in the current quarter – such an adjustment is allowed. – If challan pertaining to last financial year adjusted against an entry in the current quarter – such an adjustment is allowed. • Interest calculation is not prompted. In case of massive data, checking each entry for delay in payment becomes cumbersome.
  22. 22. Issues while processing and filing • Refund of Tax deposited would be the course of action when: - Excess is paid in a challan pertaining to the previous financial year - No further transaction liable for TDS are expected in the current financial year - The business of the deductor is closing • Refund can be requested online. However the process requires a Digital Signature Certificate (DSC)
  23. 23. • Some excel based software provide the option of filtering the data. Ensure that the filter is removed before the processing of the return • Ensure that the readable media is duly scanned and non corrupt • While processing the returns, ensure that no error file is generated. These error files are in html format and over & above the main html generated • Ensure that the 3 files (.fvu, .txt and .html) are duly saved on the CD / pen drive • Verify the acknowledgement received • Do not keep the filing pending for the last minute • If the due date of filing TDS is a holiday, the General Clauses Act shall apply and the next working day is to be considered. However the system does not consider the above fact and hence fees for late filing are payable Points to be considered while filing the return
  24. 24. • Generation of Form 16 and 16A is to be done within 15 days from the due date of filing the return. • Else liable to penalty u/s 272A(2)(g) • Earlier, the TDS certificates could be physically prepared by the deductee and duly signed. Hence manipulation of the date of issue of the certificate was a common practice. Now, mandatorily to be done online and through TRACES alone • Recently calls are received from the department to generate Form 16 and 16A for past quarters • The online generation of TDS certificates through TRACES requires the TDS statement filed to be duly processed. In case of revision, the revised return needs to be processed for issue of fresh certificate to the relevant vendors • The processing of the return (especially revised return) is delayed by several days, either by NSDL or CPC • Post processing of return, processing the request for a file to generate Form 16 and 16A is delayed Issues in TDS certificates
  25. 25. Phew..!! Return filed TDS DEFAULTS
  26. 26. • Similar to Intimation u/s. 143(1) issued in case of Income-tax returns • Intimation can be in respect of arithmetical errors and incorrect claim apparent from information in the statement • Currently these statements are received from TRACES and are computer generated • Intimation u/s. 200A is to be treated as a notice of demand as per the deeming provision u/s. 156 • The Intimation u/s. 200A does not contain much details and information about the calculations of the amount of demand raised except for basic classification Default Notices under section 200A
  27. 27. What to do when I receive intimation u/s. 200A? Demand of Rs. 10,00,000 u/s. 200A This is what generally happens to an Aam Aadmi
  28. 28. 1. Demand the “Justification Report” from TRACES 2. Analyse the default 3. Revise the TDS statement if the errors intimated in the notice are valid and intimate the officer in this regard. Intimation to the officer is advisable but not mandatory as per the Act 4. File an application for rectification if errors shown are invalid Steps to follow
  29. 29. • Justification Report is the detailed calculation in respect of the demand raised in the intimation u/s 200A which is available at the TRACES website • The file can be requested from TRACES by punching in details of the TDS statement filed – PRN No. is compulsory • The file is then shown as “available” at the website after sometime. However, sometimes long delays in getting the file have been noted • Sometimes there is an error in opening the downloaded report • However, the calculations explained for arriving at the demand are clearly explained Step 1 – Demand the Justification Report from TRACES
  30. 30. • Though the Justification Report provides detailed calculation, instances of the same being wrong, inaccurate, not as per the legal position, etc are many • Demands raised on calculations, the legal position of which is arguable • Demands raised on calculations based on procedural and processing errors at the department Step 2: Analyse the default
  31. 31. • The option of lower deduction certificate (‘A’) not recognised in the Justification Report Step 2: Analyse the default In such cases, what should the deductor do? • File a rectification with AO? • File a rectification with Traces? • File an appeal?
  32. 32. • Education Cess and surcharge not to be levied in case of tax deducted as per DTAA or u/s. 206AA. However in almost all such cases, cess and surcharge are levied in the Justification Report Step 2: Analyse the default
  33. 33. Step 2: Analyse the default • Instance of a portion of interest paid is unrecognized in spite of the challan shown as unutilized. Demand for entire amount of interest raised without adjusting interest already paid (See next slide for example)
  34. 34. • In case when tax was deducted on 12/02/2014 and tax is paid on 10/03/2014, for how many months should the interest be paid – 1 or 2? • What if you have obtained the TAN but no deduction of tax is required under a particular quarter and hence you have not filed the return and an entry is subsequently passed? • If, according to me, the section in the NIL/lower deduction certificate is not the correct legal position for deduction, then: - Will I be liable for default in adopting the wrong legal position in spite of the 197 certificate adopting that position? - My jurisdictional officer not concerned with the view by the deductee’s TDS officer - If I deduct under a different section and file the return, how do I provide the deductee with the benefit of lower deduction under a different section? Step 2: Analyse the default
  35. 35. • TDS Statements can be revised suo moto or in response to notice u/s 200A • Unlike ROI , there is no time limit for revision of a TDS Statement Step 3 - Revision of TDS Statement
  36. 36. • The interface of the Govt utility is not user-friendly: - Drop downs at most places - “Easy to use” paste option not available - No easy option to transfer data from excel or tally to the interface - Manual punching of data - At times several clicks are required in a particular cell to change the data - Becomes extremely time consuming when too many line items are to be revised Step 3 - Revision of TDS Statement
  37. 37. • The revision cannot be done simply as various fields entered in the original Statement cannot be changed, deleted or modified. In the challan sheet, only the interest amount, challan amount and section can be modified • Example- Deductee Mr A’s tax of Rs 6,000 was deducted and paid u/s 194J via challan No 2. However, I inadvertently mentioned 194I in the deductee sheet and linked it to 194I challan numbered 3. So there is short fall of Rs 6,000 in 194I challan and an excess unutilized balance Rs 6,000 in 194J challan • Remedy 1: Can I not change the mapping to the correct position from challan 3 to challan 2? - The Govt utility does not permit this. Private software permit this (see next slide) • Remedy 2 : Can I not delete the deductee row, and re-enter Mr A’s information in the deductee row again? - The Govt utility does not permit this. Private software permit this (see next slide) Step 3 - Revision of TDS Statement
  38. 38. Step 3 - Revision of Return • Remedy 1 cannot be applied as per Govt utility
  39. 39. • Remedy 2 cannot be applied Step 3 - Revision of Return • Available remedy : Make the amount Rs 0 in the deductee row and then enter a fresh row and re-enter Mr A’s details, now linking it to 194J challan (Challan No 2)
  40. 40. • Having rectified the deductee related mistake, the deductor tries to open the saved file in which he has worked • And what does he get? Step 3 - Revision of Return
  41. 41. Step 3 - Revision of Return • The consolidated file that is downloaded from TRACES needs to be “latest” • It is unclear how many days or months old file can / cannot be be used for filing • However if such a message pops up: - Download a fresh consolidated file - Re-do the changes made for revision
  42. 42. • Post requesting a new Consolidated File on TRACES and after redoing the changes, – Processing of the return is completed – The files are then sent to Tin Facilitation Center for filing – The files came back as the version of the RPU software has changed – for e.g. - it had changed from Version 3.7 to version 3.8 – The versions of RPU change very quickly. – Post the change, Tin Facilitation Centers will not accept a return processed in the old version • The consolidated file gets corrupted at times if the path of the file is changed – According to NSDL, this problem can be resolved by copying the folder instead of only the file Step 3 - Revision of Return
  43. 43. • After analyzing the default, if there is an apparent error in the same (some examples are given below): - Interest calculation - E-Cess in case of DTAA benefit and 206AA application - Effect of certificate u/s 197 not given - Any other apparent mistake • Then the only mechanism for filing an application u/s 154 of the Act is to write to the jurisdictional A.O. and no recourse is available online • Jurisdictional officers, at times, refuse to accept the rectification application on grounds that CPC has the jurisdiction and not them Step 4 : Rectification
  44. 44. NSDL AO CPC NSDL, CPC, AO - WHERE DO I GO?
  45. 45. • There are 3 authorities currently in the picture handling TDS related matters for the department : - Assessing Officer - TDS (who is different from the Income-tax officer) - CPC - TIN – NSDL • For most clarifications, rectifications and processing errors, practically, deductors have to run from one authority to another. Some common problems faced by deductors are : - Jurisdictional Officers refuse rectification applications on the ground that it should be filed with CPC - CPC blames delay in processing returns on NSDL - NSDL blames the delay on CPC - Rectification accepted by A.O is not communicated to CPC and reminder of the demand is received after some time – often with interest u/s 220(2) Conflicts
  46. 46. Consequences of TDS defaults Default/Failure Consequences Failure to apply for TAN Penalty of Rs. 10,000 Failure to deduct tax at source Tax + Interest @ 1% p.m. of tax deductible + Penalty equal to the amount of tax deductible Failure to deposit tax at source Tax + Interest @ 1.5% p.m. of tax + Imprisonment for 3 months – 7 years with fine Failure to furnish prescribed statements u/s 200(3) -Fees of Rs. 200/day during which the default continues subject to maximum of TDS amount -Penalty of Rs. 100/day during which the default continues subject to maximum of TDS amount -Penalty ranging between Rs. 10,000 – Rs. 100,000 Failure to issue TDS certificates Penalty of Rs. 100/day during which the default continues (subject to maximum of TDS amount) Failure to mention PAN of the deductee in the TDS statements and certificates Penalty of Rs. 10,000 (CIT vs. DHTC Logistics Ltd (Delhi HC)) Furnishing of incorrect information Penalty ranging between Rs. 10,000 – Rs. 100,000
  47. 47. Miscellaneous Issues • In case of change of registered office – new TAN to be applied for – What happens to tax already deducted using old TAN? – Can a new TAN be used mid way in a quarter? Any problems in doing so? – Ensure that old TAN is surrendered and AO is informed
  48. 48. TRACES – Some statistics
  49. 49. TRACES – Some facts
  50. 50. Conclusion • In a transitionary phase, chaos in bound to remain • However, gradually entire process is being shifted to CPC (TRACES) • The difficulties will hopefully mitigate Until then CAs will have to find a way out…….
  51. 51. Thank You! patelameet@hotmail.com

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