How often have you had the frustrating experience of receiving a tax demand on account of the fact that credit has not been given for the entire amount of tax deducted at source (TDS) from your income? Earlier, this was not so much of a problem as you had to file physical certificates of TDS from your income and credit was given on the basis of such certificates. However, with the computerization of the tax information network (TIN), credit for TDS is given on the basis of information filed with the TIN in the form of quarterly statements by tax deductors.
The computerized TIN system aggregates the details of TDS by the permanent account numbers (PANs) of the persons to whom the payments are being made and accordingly all deductions made from your income by all deductors is supposed to be aggregated against your PAN. In theory, this is an excellent system, but in practice you often find that various TDS made from your income are not reflected against your PAN (you can check your form 26AS—a statement of tax deductions and tax payments—online by registering at www.incometaxindiaefiling.gov.in). What are the reasons for this?
Very often, the bank or the other person deducting tax at source from your income either does not mention your PAN in the quarterly statement of tax deduction that it files, or makes an error in entering your PAN. In such a situation, the only remedy that you have is to approach the deductor, point out that the tax deducted at source by him is not reflected against your PAN and request him to file a revised statement after correcting your PAN. Again, this is a Herculean task in most cases, particularly if you are dealing with a large bank, which has thousands of customers. More often than not, the bank or another deductor merely gives you an assurance that it will do so, but does not bother to make the necessary corrections. Unfortunately, you have no power to ensure that the deductor rectifies its mistake and accordingly you then have to request your income-tax officer to carry out the rectification on the basis of the tax deduction certificate given by the tax deductor.
The problem was more acute in cases where the investment was made in one name, but the whole income was taxable in the hands of another person. For instance, income of minor children is clubbed with the income of the parent, income of a trust may be taxable in the hands of the beneficiary, income received in the name of a partner may be taxed as the income of the partnership firm and so on. The problem was also acute where the entire income was received by one person, but only a part of the income was taxable as his income, the remaining being taxable in the hands of others. For instance, where a property which is jointly owned is let out, the rent may be received by only the first holder for convenience, but would be taxable as income of the joint owners in the proportion of their respective holding of the property. In all these cases, the PAN number of the person to whom payments were being made would have been mentioned in the tax deduction certificate, and would be reflected in their form 26AS alone. The person who was ultimately taxable in respect of such income was not getting credit for the TDS, while the person in whose name the TDS certificate was issued would get credit only for the proportionate TDS in relation to the income offered for tax by him.
The way out
Fortunately, the rules (rule 37BA) have been amended to provide that in all such cases, the person who will be receiving the income should file a declaration with the payer of the income, stating that such income is taxable as the income of the specified persons who are supposed to be taxed on such income. There is no specific form prescribed for such declaration. Though the rule does not require it, the PAN and address of such other persons should be given with their respective shares of income. The payer of the income is then required to give details of such other persons in his TDS quarterly return, and such TDS will then be reflected in their respective form 26AS.
If you have fixed deposits of your minor children with a bank, interest on which is subject to TDS, and the children’s income is to be clubbed with your income, you should ensure that you file such a declaration with the bank at the beginning of the year, giving your name and PAN, and stating that the children’s income will be taxable in your hands. The bank will have to take cognizance of this declaration and show that tax has been deducted from your income. You should, therefore, be able to claim credit for such TDS on your children’s investments.
While this change in the TDS rules is welcome, there are still various other problems in the process of granting credit for TDS on the basis of the online information contained in the TIN, which the government needs to take care of. After all, the deductors are human beings, and to err is human. Mistakes do happen on the part of deductors and there needs to be a process whereby a deductee is not penalized by non-grant of TDS credit for no fault of his.
Gautam Nayak is a chartered accountant.
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