Issues on filing of e tds returns and statements

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

• 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

• 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

Introduction

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

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

http://www.tds-cpc.gov.in/



Payment Issues

• 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

• 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

• 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

• Under which code should the fee be paid?

Payment Issues – Fees u/s 234E

• 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

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.

PA(i)N Issues

PAN Valid or Invalid...!!!

• 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

Online PAN Verification on TRACES

Online PAN Verification on TRACES

Online PAN Verification on NSDL (paid facility)

Issues while processing and filing

• 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



• 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.


• 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)

• 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

• 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

Phew..!! Return filed

TDS DEFAULTS

• 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

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

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

• 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

• 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

• The option of lower deduction certificate (‘A’) not recognised in the Justification Report


In such cases, what should the deductor do? • File a rectification with AO? • File a rectification with Traces? • File an appeal?

• 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



• 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)

• 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?


• 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

• 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


• 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 Return

• Remedy 1 cannot be applied as per Govt utility

• Remedy 2 cannot be applied


• 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)

• Having rectified the deductee related mistake, the deductor tries to open the saved file in which he has worked

• And what does he get?



• 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

• 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


• 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

NSDL

AO

CPC

NSDL, CPC, AO - WHERE DO I GO?

• 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

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

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

TRACES – Some statistics

TRACES – Some facts

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…….

Thank You!

[email protected]

Economy & Finance

Issues on filing of e tds returns and statements