How to deal with issues Related to TDS Default Notice
Quarterly TDS Returns are filed and the same is processed by the CPC E-TDS about the authentication of each and every contents mentioned in the TDS Return.
If any default is found in the TDS Return, then such defaults are put on the CPC E-TDS Website or TDS Default Notice is dispatch to the deductors to rectify the same.
In this article, we will examine the major reason for such defaults and how to resolve such issues.
What are the major reasons for TDS Defaults?
Major reason for E-TDS Defaults consists of “Defaults for Short Deduction of TDS” or “Defaults for Short Payment of TDS”.
1. Reason for Defaults for Short Deduction of TDS:- Short deduction of TDS arises due to below mentioned error happened at the time of TDS Return filing:
a) PAN Error:- This is one of the important reasons for short deduction defaults notice. One has to be very careful while quoting PAN in TDS Return otherwise it leads to demand of TDS at the rate of 20% by the TDS Department. Apart from this, deductee will not get any TDS Credit whose TDS deducted by the deductor. Deductor has to take care while quoting PAN in TDS Return.
b) Non / Wrong Quotation of Lower Deduction Certificate No. issues u/s 197 of Income Tax Act, 1956:- This is the another reason for short deduction defaults notice. In this case, deductor either quote the wrong Lower deduction certificate no. or forget to mention lower deduction certificate no.
Further Lower deduction certificates have limit for amount of transaction to be done for the period with particular deductee. If the transaction for the period between deductor & deductee exceeds total amount mentioned in the lower deduction certificate, then deductor has to made TDS at normal rate of TDS as applicable to the class of deductee. In most of the cases, Deductor does not have tracking system to have the control over the limit of amount mentioned in the Lower Deduction Certificate.
Following points should be correctly quoted or taken care in TDS Return:
- Lower Deduction Certificate No.
- Validity of Certificate
- Limit of Amount of Transaction
- Rate mentioned in the certificate
- Section mentioned in the certificate
c) Deduction of Tax at Source at wrong rate:- These kind of issues mostly arises u/s 194C as the TDS rate is 1% or 2% and that too for making mistake in identification of class of person between Proprietor and Partnership Firm. In case such confusion, one has to be very careful to check fourth alphabet of PAN. If it is “F”, the it is Partnership firm and TDS rate shall be 2%. These kind of issues lead to not only Short Deduction of TDS but also short payment of TDS.
2. Reason for Defaults for Short Payment of TDS:- Defaults for Short Payment of TDS arises due to below mentioned error happened at the time of TDS Return filing:
a) Challan Mismatch Errors:- Short Payment of TDS Defaults arise due to wrong particulars mentioned for paid challan which are used to make payment of TDS. A wrong particular of challan mentioned in the TDS Return is as good as non payment of TDS. Hence, one need to be very careful while quoting particulars of paid challans in TDS Return.
Now the question arises how to get the comprehensive details to know the errors for each component of Short Payment of TDS or Short Deduction of TDS and how to correct the error as the default notice consists only total amount to be paid on account of short payment or short deduction.
To get comprehensive details, one need to login at www.tdscpc.gov.in and make an application for “Justification Report”. It will be available for download after 8-10 hours of application. Justification Report shall give the details for each and every components of short payment or short deduction of TDS Deductee wise. After getting details, correction statement (i.e. E-TDS Revision) needs to be processed to rectify the error.
I have witnessed to the many cases of E-TDS Defaults. In one of the cases where TDS defaults were amounting to Rs. 80 Lakhs (approx). The main reason for such huge defaults were PAN Error, Non / wrong lower deduction certificate no., challan mismatch, short deduction of TDS etc. The same has been rectified by paying not more than Rs. 1,50,000/- which is the actual liability of TDS as the TDS is deducted at lower rate. Hence, we can say that 95% (approx) TDS demands can be sorted out without paying a single penny. The rest will be genuine TDS demand along with interest which was either due to short payment or short deduction of TDS.