TDS hardship eased but at cost of higher interest rate

By TIOL News Service

NEW DELHI, FEB 26, 2010: THE Tax Deduction At Source (TDS) now constitutes almost 40% of total revenue collections from Income Tax. One of the reasons for the spurt in the collections is the legislative amendment brought about in 2004 whereby the provision of disallowance of the claim of expenditure from which tax has not been deducted and which was hitherto applicable only to non-residents was extended to domestic taxpayers as well. Computerization has also played its part. While implementing the provision, however, certain glitches were noticed and amendments have been brought so that genuine cases of hardship are taken care of. In cases where tax is deducted in the last month and tax deducted is deposited beyond the due date but before the due date of filing the return, no disallowance is made.

There may be cases where the Department takes action against the deductor and the assessee makes the payment consequent to such action by the Department. However, the deduction having been made beyond the previous year and beyond the due date, would be permanently lost. This could result in unnecessary hardship. It is now provided that even in cases where tax has been deducted in a subsequent year or having been deducted in the previous year is paid subsequently, the deduction will be allowed in the year of payment.

However, in order to discourage delayed payment of TDS, it has been simultaneously provided that the interest would be charged at one and one-half percent from the date of deduction to the date of payment in addition to interest at one percent from the date on which tax was deductible to the date on which tax has been deducted.