Clarification on short deduction of TDS due to increase in surcharge by Finance (No. 2) Act, 2019

written by Income tax Expert | April 17, 2020

Recently CBDT vide circular 8/2020 had issued a clarification saying that an assessee won’t be considered as assessee in default u/s 201 if the default/ difference is due to increase in surcharge which came into effect after Finance Bill, 2019. Let’s First look at the circular:

The Finance (No.2) Bill, 20 19 was tabled in Lok Sabha on 5th July, 2019 which was passed by both the houses of Parliament and became Finance (No.2) Act, 2019 (the Act) which received assent of the President on 1st August, 2019.

Before the introduction of this Finance bill there were only 2 surcharge rates: 10%, if income was between 50 lakh to 1 crore and 15% if income was above 1 crore.

After the above Finance Bill the rates of surcharge was distributed into many parts:

  • 10% if income more than 50 lakh but less than 1 crore.
  • 15% if income more than 1 crore but less than 2 crore.
  • 25% if income more than 2 crore but less than 5 crore.
  • 37% if income more than 5 crore.

Thus, many people who had deducted TDS for first quarter or on any other transaction before 5th July based on old surcharge rates under various sections i.e. TDS on salary, TDS on payment to non resident, started receiving notice from department as assessee in default for deducting lower TDS u/s 201.

In this regard many representation were received by CBDT as the new rates were announced on 5th July and transactions done before that cannot be covered under new rates. In this regard CBDT has issued the following clarification wherein if below conditions are fulfilled assessee will not be considered as assessee in default:

1. 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 the deductor/ collector and the deductee/ payee in the financial year 2019-20 from which the shortfall of tax could have been deducted/collected by the deductor/collector.

2. 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 enactment of the Act.

3. 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.

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

However, if the person fails to fulfill “any” of the conditions as laid down above, such a person will, with respect to short deduction/ collection, not be eligible for benefit provided under this circular.

Further, if the deductor/ collector has deducted/ collected shortfall of tax after 5th of July, 2019 from the transaction(s) made subsequently after the said date, interest, if any, for delay in deduction/collection of such tax shall not be levied.

The above relaxation does not absolve the deductee/ payee to pay proper tax including enhanced surcharge by advance tax or self-assessment tax and file return of income after paying such tax.

Our observation:

Therefore if one has filed the TDS statement for the first quarter in due time or if not filed has adjusted the difference in future transaction then such assessee won’t be considered as assessee in default and won’t be liable to pay interest u/s 201.

To read the circular CLICK HERE.

 

This article is just for information purpose it is always advisable to hire a professional for practical execution. If you need assistance you can ask a question to our expert and get the answer within an hour or post a comment about your views on the post and also subscribe to our newsletter for latest weekly updates.