UNION BUDGET 2006-07 TDS AND TCS
PROPOSED AMENDMENTS PERTAINING TO TDS & TCS
The existing provisions
Under the provisions of section 201(1A) if the person responsible for deduction of tax at source does not do so, or after deducting fails to pay the tax to the government, he is liable to pay simple interest @ of 12% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Similarly section 206 C (7) provides that if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one percent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid.
THE AMENDMENT
Clause 42 seeks to insert in sub section (1A) after the words” such tax is actually paid”, occurring at the end, the words, brackets and figures “ and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section(3) of section 200”, with effect from 1st June, 2006. Similarly clause 47 seeks to amend sub section 7 of section 206C as under:-
After the words “ tax was actually paid:, occurring at the end, the words, brackets and figure and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) shall be inserted with effect from the 1st day of June, 2006.
INTERPRETATION
The proposed amendments mandate payment of interest on delayed payment on self assessment basis. It shall be obligatory on the part of the person deducting or collecting taxes to pay interest on default amount before furnishing the quarterly statement for each quarter in accordance with the provisions of section 200(3) and section 206C (7).
For the word “ seller” the words “ person responsible for collecting tax” is proposed to be substituted with effect from 1st April, 2007 in section 206C.
ANNUAL TDS AND TCS RETURNS NOT TO BE FURNISHED
Section 206 provides that every person responsible for deducting tax at source shall within the prescribed time after the end of each financial year prepared and delivered to the prescribed Income Tax Authority, such returns as may be prescribed. Section 206C contains a similar provision in respect of tax collected at source.
It is proposed in the Finance Bill to do away the requirement of furnishing the annual returns of TDS and TCS in respect of tax deducted or collected on or after 1st April,2005. Consequential amendment has been proposed in the penal provision of section 272A. failure to furnish the annual return for tax collection or deduction before 1st April, 2005 shall continue to attract penalty U/s 272A.
With the amendments proposed in section 139A, 272A, 206, 206C & 203A, it is proposed to fully replace the existing system of filing of annual return by the system of furnishing of quarterly returns. It is proposed by way of an amendment to section 272A that the penalty leviable for failure to deliver the statements shall not exceed the amount of tax collectible or deductible as the case may be.
Under the existing provisions contained in the said section under the existing provisions contained in the said section, failure to furnish a return in due time under section 206 or section 206C renders the person, who fails to furnish the return, liable for penalty of a sum of one hundred rupees for every day during which the failure continues.
This amendment will take effect retrospectively from 1st April 2006 and will accordingly apply in relation to the assessment year 2006-07 and subsequent years.
It is proposed to insert a new sub section (6A) so as to deem any person responsible for collecting tax in accordance with the provisions of the said section as assessee in default if such person does not collect the whole or any part of the tax or fails to pay such tax after having collected the tax.
It is further proposed to provide that no penalty shall be charged U/s 221 from such person unless the Assessing Officers is satisfied that the person has without good and sufficient reasons failed to collect or pay the tax.
QUOTING OF PAN AND TAN ON QUARTERLY STATEMENTS TO BE MANDATORY
The existing section 139A (5B) provides that where any tax has been deducted, every person deducting the tax shall quote the PAN of the person to whom the amount has been paid in annual return of TDS furnished U/s 206. Sub section 5D provides for a similar quoting of PAN of every buyer in respect of tax collected U/s 206C, in the annual return of TCS. With the proposed doing away of the annual returns of TDS and TCS, clause 32 of the Finance Bill 2006 proposes to amend the said sub sections 5B & 5D to provide for compulsory quoting of PAN and TAN in all quarterly statements prepared and delivered in accordance with the provisions of section 200(3) or the provisions of section 206C(3).
While the amendments relating to dispensing with the annual returns of TDS and TCS are proposed to be effected from 1st April, 2006, the amendments in sections 139A & 272A shall be effected from 1st June, 2006.
DEMAT TDS & TCS DEFERRED
The existing provisions
Section 203 provides for issue of certificate by the deductor to the person in respect of whose income such payment of tax has been made, specifying the amount so paid the rate at which the tax has paid and such other particulars as may be prescribed. Sub section 3 provides that where tax has been deducted on or after 1st April, 2006, there shall be no requirement to furnish such certificate. This provision intended to create a paperless regime by dematerialising the TDS & TCS certificate. These provisions were to come in-force with effect from 1st April, 2005 but Finance Act 2005 deferred the enforcement by one year and provisions were to come in force in respect of TDS and TCS collected or paid on or after 1st April, 2006.
As a consequence of this amendment sub-section (3) was inserted in section 199 to provide that where any deduction is made in accordance with the foregoing provisions of this chapter on or after the 1st day of April, 2006 and paid to the central Government, the amount of tax deducted and specified in the statement referred to in section 203AA shall be treated as tax paid on behalf of the persons referred to in sub-section(1) or, as the case may be, sub-section (2) and credit shall be given to him for the amount so deducted in the assessment made under this Act for the assessment year for which such income is assessable without the production of certificate.
Consequently section 139(9) was amended to provide that the return of income shall not be deemed to be defective if it was not accompanied by proof of tax deducted.
THE AMENDMENT
It is proposed to defer the commencement of dematerialisation provisions by two years and make such provisions applicable for tax deducted or paid U/s 203(3) or collected U/s 206C on or after 1st April, 2008. Clause 41, 43, 45 & 47 have proposed amendment in sections 199(3), 203(3), 203AA & 206C respectively, and clause 31 proposes an amendment to section 139, to give effect to this deferment.
FAILURE TO PUSH THE TECHNOLOGY THROUGH
The provisions of dematerialisation were introduced with great enthusiasm in 2005. The avowed objective of such amendment was to make the life of the taxpayer easy by introducing certificates in DEMAT format, so that the credit for taxes could be given not on the basis of documentary evidence procured by the assessee with great difficulty, but on the basis of an electronic entry in the data base which could be easily verified and cross checked by the click of a button. The On Line Tax Accounting system (OLTAS) was supposed to handle this mundane task with the help of PAN and TAN. However, it seems the Department has not been able to overcome the love for paper work, and is not yet able to create a reliable and robust data base which would obviate the need of documentary compliance.
The shift to dematerialized system shall not be possible unless a system to verify the data including PAN and TAN is in place. The financial Minister confesses that in many places quoting of falls TAN or PAN have resulted in getting the taxes deducted or collected or paid getting credited to the suspense account. Unless all transactions are matched in the OLTAS, and complete information is populated in the deductees’ or collectees’ accounts dematerialisation shall remain a far cry.
The existing provisions
Under the provisions of section 201(1A) if the person responsible for deduction of tax at source does not do so, or after deducting fails to pay the tax to the government, he is liable to pay simple interest @ of 12% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Similarly section 206 C (7) provides that if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of one percent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid.
THE AMENDMENT
Clause 42 seeks to insert in sub section (1A) after the words” such tax is actually paid”, occurring at the end, the words, brackets and figures “ and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section(3) of section 200”, with effect from 1st June, 2006. Similarly clause 47 seeks to amend sub section 7 of section 206C as under:-
After the words “ tax was actually paid:, occurring at the end, the words, brackets and figure and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3) shall be inserted with effect from the 1st day of June, 2006.
INTERPRETATION
The proposed amendments mandate payment of interest on delayed payment on self assessment basis. It shall be obligatory on the part of the person deducting or collecting taxes to pay interest on default amount before furnishing the quarterly statement for each quarter in accordance with the provisions of section 200(3) and section 206C (7).
For the word “ seller” the words “ person responsible for collecting tax” is proposed to be substituted with effect from 1st April, 2007 in section 206C.
ANNUAL TDS AND TCS RETURNS NOT TO BE FURNISHED
Section 206 provides that every person responsible for deducting tax at source shall within the prescribed time after the end of each financial year prepared and delivered to the prescribed Income Tax Authority, such returns as may be prescribed. Section 206C contains a similar provision in respect of tax collected at source.
It is proposed in the Finance Bill to do away the requirement of furnishing the annual returns of TDS and TCS in respect of tax deducted or collected on or after 1st April,2005. Consequential amendment has been proposed in the penal provision of section 272A. failure to furnish the annual return for tax collection or deduction before 1st April, 2005 shall continue to attract penalty U/s 272A.
With the amendments proposed in section 139A, 272A, 206, 206C & 203A, it is proposed to fully replace the existing system of filing of annual return by the system of furnishing of quarterly returns. It is proposed by way of an amendment to section 272A that the penalty leviable for failure to deliver the statements shall not exceed the amount of tax collectible or deductible as the case may be.
Under the existing provisions contained in the said section under the existing provisions contained in the said section, failure to furnish a return in due time under section 206 or section 206C renders the person, who fails to furnish the return, liable for penalty of a sum of one hundred rupees for every day during which the failure continues.
This amendment will take effect retrospectively from 1st April 2006 and will accordingly apply in relation to the assessment year 2006-07 and subsequent years.
It is proposed to insert a new sub section (6A) so as to deem any person responsible for collecting tax in accordance with the provisions of the said section as assessee in default if such person does not collect the whole or any part of the tax or fails to pay such tax after having collected the tax.
It is further proposed to provide that no penalty shall be charged U/s 221 from such person unless the Assessing Officers is satisfied that the person has without good and sufficient reasons failed to collect or pay the tax.
QUOTING OF PAN AND TAN ON QUARTERLY STATEMENTS TO BE MANDATORY
The existing section 139A (5B) provides that where any tax has been deducted, every person deducting the tax shall quote the PAN of the person to whom the amount has been paid in annual return of TDS furnished U/s 206. Sub section 5D provides for a similar quoting of PAN of every buyer in respect of tax collected U/s 206C, in the annual return of TCS. With the proposed doing away of the annual returns of TDS and TCS, clause 32 of the Finance Bill 2006 proposes to amend the said sub sections 5B & 5D to provide for compulsory quoting of PAN and TAN in all quarterly statements prepared and delivered in accordance with the provisions of section 200(3) or the provisions of section 206C(3).
While the amendments relating to dispensing with the annual returns of TDS and TCS are proposed to be effected from 1st April, 2006, the amendments in sections 139A & 272A shall be effected from 1st June, 2006.
DEMAT TDS & TCS DEFERRED
The existing provisions
Section 203 provides for issue of certificate by the deductor to the person in respect of whose income such payment of tax has been made, specifying the amount so paid the rate at which the tax has paid and such other particulars as may be prescribed. Sub section 3 provides that where tax has been deducted on or after 1st April, 2006, there shall be no requirement to furnish such certificate. This provision intended to create a paperless regime by dematerialising the TDS & TCS certificate. These provisions were to come in-force with effect from 1st April, 2005 but Finance Act 2005 deferred the enforcement by one year and provisions were to come in force in respect of TDS and TCS collected or paid on or after 1st April, 2006.
As a consequence of this amendment sub-section (3) was inserted in section 199 to provide that where any deduction is made in accordance with the foregoing provisions of this chapter on or after the 1st day of April, 2006 and paid to the central Government, the amount of tax deducted and specified in the statement referred to in section 203AA shall be treated as tax paid on behalf of the persons referred to in sub-section(1) or, as the case may be, sub-section (2) and credit shall be given to him for the amount so deducted in the assessment made under this Act for the assessment year for which such income is assessable without the production of certificate.
Consequently section 139(9) was amended to provide that the return of income shall not be deemed to be defective if it was not accompanied by proof of tax deducted.
THE AMENDMENT
It is proposed to defer the commencement of dematerialisation provisions by two years and make such provisions applicable for tax deducted or paid U/s 203(3) or collected U/s 206C on or after 1st April, 2008. Clause 41, 43, 45 & 47 have proposed amendment in sections 199(3), 203(3), 203AA & 206C respectively, and clause 31 proposes an amendment to section 139, to give effect to this deferment.
FAILURE TO PUSH THE TECHNOLOGY THROUGH
The provisions of dematerialisation were introduced with great enthusiasm in 2005. The avowed objective of such amendment was to make the life of the taxpayer easy by introducing certificates in DEMAT format, so that the credit for taxes could be given not on the basis of documentary evidence procured by the assessee with great difficulty, but on the basis of an electronic entry in the data base which could be easily verified and cross checked by the click of a button. The On Line Tax Accounting system (OLTAS) was supposed to handle this mundane task with the help of PAN and TAN. However, it seems the Department has not been able to overcome the love for paper work, and is not yet able to create a reliable and robust data base which would obviate the need of documentary compliance.
The shift to dematerialized system shall not be possible unless a system to verify the data including PAN and TAN is in place. The financial Minister confesses that in many places quoting of falls TAN or PAN have resulted in getting the taxes deducted or collected or paid getting credited to the suspense account. Unless all transactions are matched in the OLTAS, and complete information is populated in the deductees’ or collectees’ accounts dematerialisation shall remain a far cry.
posted by Dr. Tejinder Singh Rawal at 11:44 pm
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