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Reply to TDS Notices

Notice/ Intimations are often sent by the Income Tax Department under section 200A of the Income Tax Act in relation to Tax Deducted at Source (TDS). Some common reasons that lead to issue of Notices are: –

1. Deduction of TDS at a lower rate
2. Short-payment/ non-payment of interest
3. Short-payment/ non-payment of penalty/ fee
4. Incorrect challan details
5. Non-deduction of TDS by property purchaser

TDS Demand Notices usually do not clearly state the reason for the demand. The justification report gives more insight about the default.

Processing of TDS Returns

Where a TDS Return or a correction statement has been filed by a deductor, such statement/ return is checked for the following: –

1. Arithmetical errors
2. Incorrect claim apparent from records
3. Interest calculation
4. Computation of late fees

After processing is done, an Intimation under section 200A is sent stating whether any amount is payable.

Order under section 201

Where an assessee fails to deduct TDS or after deduction fails to deposit TDS, then he shall be deemed as an assessee in default. Accordingly, penalty and interest under section 220 & 221 will be applicable on the assessee. In such a case, order under section 201 is issued to the assessee.

EXCEPTION TO ASSESSEE IN DEFAULT:

The deductor cannot be treated as assessee in default if deductor has failed to deduct TDS, but the deductee (resident or non-resident payee) has duly:

1. Furnished his Return of Income under section 139
2. Taken into account such sum for computing income in such return of income
3. Paid the tax due on the income declared by him
4. Furnished a Certificate to this effect from a chartered accountant

TIME LIMIT FOR PASSING ORDER:

The order under section 201(1) for interest or penalty shall be passed within the earlier of the following:

1. 7 years from the end of the Financial Year in which payment is made or credit is given
2. 2 years from the end of the financial year in which correction statement of TDS quarterly return is filed

However, there is no time limit for passing order under section 201 in the following cases: –

1. The deductor has deducted but not deposited TDS
2. The employer has failed to pay the tax wholly or partly on perquisites provided to employee
3. The deductee is a non-resident.

Important points to remember

• Filing of Rectification: Intimation under section 200A or Order under section 201 can be rectified under section 154 if there is any mistake apparent from record. Such rectification can be done within 4 years from the end of the year in which intimation or order is received.
• Filing of Appeal: Intimation under section 200A and Order under section 201 are both appealable orders. If the deductor is aggrieved by the order/ intimation and rectification is not possible, he may file an appeal before the Commissioner of Income Tax (Appeals).
• TDS on sale of property: A purchaser of immovable property is required to deduct TDS @ 1% from the consideration paid to the seller where the gross sale consideration is Rs. 50 lakhs or more. This is applicable for all assessees including individuals and HUFs. Often individuals forget to deduct tax and as a result receive notice from the Income Tax Department facing penalty and interest.