05-May-2020 Short Deduction of TDS,TCS due to increase rate of Surcharge by Finance No.2 Act 2019

Short Deduction of TDS / TCS due to increase rate of Surcharge by Finance (No.2) Act 2019

Circular No. 8/2020 dated 13th April 2020 

https://www.incometaxindia.gov.in/communications/circular/circular_8_2020.pdf 

In the First Budget of Modi 2.0, The Finance bill was tabled in Lok Sabha on 5th July 2019 which was passed by both houses of Parliament and become Finance (No.2) Act 2019. While announcing the Budget FM, on the one hand,  thanked the taxpayer for playing major role in nation building by paying their taxes, on the other hand, imposed increased surcharge on individual  having taxable income from  Rs. 2 Crore to Rs. 5 crore and  Rs. 5 crore and above  so that effective tax rates for these two categories will increase by around 3 % and 7 % respectively.

Now, let us understand how this 3% and 7% came from. The Surcharge rate before and after this amendment as follows;

Let’s look at the effective increase in tax rate:

As you notice above, in case of income slab between Rs. 2 Crore - Rs. 5 Crore and Rs. 5 Crore and above is getting net increase in effective tax of 3% & 7% respectively.

Though this pronouncement was made at the time of presenting budget on 5th July 2019, it was effective from 1st April 2019. This was not in consonance with dictum that a taxpayer should know the tax he would be required to pay at the time of earning the income. Also, every person was required to compute his tax liability (i.e. Advance Tax) after taking into consideration the enhance rate of surcharge. Further TDS/ TCS under various provisions of Income Tax Act is required to be deducted / collected after considering the enhanced rate of surcharged.

Since the transaction was completed before rates of enhanced surcharge were announced. In case of short deduction / collection / payment of TDS / TCS / Taxes, assessee is considered to be assessee in default under the income tax act and interest is charged for such defaults. At the time of prosing the said change, Q1 of FY 2019-20 was already over and even the date of payment of 1st installment of Advance tax (i.e. 15th June 2019) had already passed. Several representations were made to Central Government wherein deductor / collector were held to be assessee in default for short deduction of TDS / TCS in case where final transaction was done before laying of Finance (No.2) Act, 2019 in the parliament, i.e. 5th July 2019.

On noticing the said difficulty. CBDT tried to give relief to these types of assesses through this circular.

A person responsible for deduction / collection of tax under any provision of income tax act will not be considered as assessee in default in respect of transactions where;

a)      Such transaction has been completed and entire payment has been made to the deductee/payee on or before 5th July 2019 and there is no subsequent transaction between deductor / collector and the deductee / payee in the financial year 2019-20 from which shortfall of tax could have been deducted / collected by the deductor / collector;

b)      TDS has been deducted or TCS has been collected by such deductor / collector on such sum as per the rates in force as per the provisions prior to the amendment;

c)      Such tax deducted or collected has been deposited in the account of Central Government by the deductor / collector on or before the due date of depositing the same;

d)      TDS / TCS statement has been furnished by such person on before due date of filing of the said statement.

In case conditions mentioned above from (a) to (d) are not met, benefit of this circular would not be available to taxpayer. Also, if the deductor / collector has deducted / collected shortfall of tax after 5th July 2019 from the transaction(s) made subsequently after the said date, interest if any, for delay in deduction / collection of such tax would not be levied.

Hence, one must check and verify their details about TDS / TCS deducted / collected and comply with the provisions in order to avoid the label of “assessee in default”.

Please feel free to write to us on ravi@apmh.in / info@apmh.in for any further queries on the above blog.