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Individuals get relief from income tax demand for short deduction of TDS due to inoperative PAN of deductee The Central Board of Direct Taxes (CBDT) has given a relief to those taxpayers who have received tax demand notices because they had deducted less TDS from taxpayers whose PAN had become inoperative. Several deductors and collectors of TDS, TCS respectively, had received income tax demand notices asking them to deposit the short deduction in TDS/TCS. The deductors/collectors had deducted TDS/TCS at the normal rate instead of the higher penal rate of TDS/TCS applicable to deductees/collectees whose PAN had become inoperative due to non-linkage with Aadhaar. It has been reported by ET Wealth online earlier that some TDS deductors had received income tax notice due to the above issue. As per the report, the short deduction of TDS had happened as the deductor was not aware that the deductee's PAN had become inoperative and that, therefore, a higher penal TDS rate was applicable. The CBDT circular dated April 23, 2024 states: With a view to redressing the grievances faced by such deductors/collectors, the Board, in partial modification and in continuation of the circular no 3 of 2023, hereby specifies that for the transactions entered into up to 31.03.2024 and in cases where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024, there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC, as the case maybe, and the deduction/collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act, shall be applicable, . This means that the rule requiring deduction/collection of TDS/TCS at a higher rate would not apply but the rule requiring deduction/collection at normal rate-as in normal cases where PAN is operative-will be applicable. "In such cases as mentioned in the circular dated April 23, 2024, there will be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC at double the rate because of PAN being inoperative due to non linkage of PAN with Aadhaar and hence such deductors will not be required to pay the difference," says CA Bimal Jain, founder, A2Z Taxcorp LLP. Those deductors/collectors of TDS/TCS will get relief where these conditions are met: Transactions (which are subject to TDS or TCS) were entered into up to March 31, 2024, and The deductee s/collectee's PAN should become operative (as a result of linkage with Aadhaar) on or before May 31, 2024. It is specified that if both the conditions as mentioned above are satisfied then only there would be no liability on the TDS deductor or TCS collector. However it needs to be seen what would happen in those cases where the individual has already paid the penal interest due to short deduction of TDS/TCS. Most likely the penal interest already paid would not be refunded back, says Mihir Tanna, associate director-direct tax, S.K Patodia LLP, a CA firm. Tanna explains with an example: an individual bought a property on February 15, 2024 from a seller who had an in-operative PAN. Without knowing this fact he deducted 1% on this date however failed to file TDS return or deposit the TDS. So after this new circular dated April 23, 2024, it means that if this individual filed TDS return and deposits TDS for this transaction which was entered into February 15, 2024 then he would not get a tax demand notice for not deducting TDS at higher rate, but would rather get get penalised for failing to file TDS return and interest under section 201 for late deposit of TDS. The provision is only for deduction upto 31 March 2024 in cases where PAN was inoperative, also a revise TDS return can be filed once the PAN becomes operative," says chartered accountant Chirag Chauhan, a practicing CA from Mumbai. Why did CBDT give relief to taxpayers for short deduction of TDS/TCS? As per the circular by CBDT, several grievances have been received from the taxpayers that they have received income tax notices for short-deduction/collection of TDS/TCS while carrying out the transactions where the PANs of the deductees/collectees were inoperative. In such cases, as the deduction/collection has not been made at a higher rate, demands have been raised by the Department against the deductors/collectors while processing TDS/TCS statements under section 200A or under section 206C. www.economicstimes.com dt. 25.04.2024

Individuals get relief from income tax demand for short deduction of TDS due to inoperative PAN of deductee

The Central Board of Direct Taxes (CBDT) has given a relief to those taxpayers who have received tax demand notices because they had deducted less TDS from taxpayers whose PAN had become inoperative. Several deductors and collectors of TDS, TCS respectively, had received income tax demand notices asking them to deposit the short deduction in TDS/TCS. The deductors/collectors had deducted TDS/TCS at the normal rate instead of the higher penal rate of TDS/TCS applicable to deductees/collectees whose PAN had become inoperative due to non-linkage with Aadhaar.

It has been reported by ET Wealth online earlier that some TDS deductors had received income tax notice due to the above issue. As per the report, the short deduction of TDS had happened as the deductor was not aware that the deductee's PAN had become inoperative and that, therefore, a higher penal TDS rate was applicable.

The CBDT circular dated April 23, 2024 states: With a view to redressing the grievances faced by such deductors/collectors, the Board, in partial modification and in continuation of the circular no 3 of 2023, hereby specifies that for the transactions entered into up to 31.03.2024 and in cases where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024, there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC, as the case maybe, and the deduction/collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act, shall be applicable, .

This means that the rule requiring deduction/collection of TDS/TCS at a higher rate would not apply but the rule requiring deduction/collection at normal rate-as in normal cases where PAN is operative-will be applicable.

"In such cases as mentioned in the circular dated April 23, 2024, there will be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC at double the rate because of PAN being inoperative due to non linkage of PAN with Aadhaar and hence such deductors will not be required to pay the difference," says CA Bimal Jain, founder, A2Z Taxcorp LLP.

Those deductors/collectors of TDS/TCS will get relief where these conditions are met:

Transactions (which are subject to TDS or TCS) were entered into up to March 31, 2024, and
The deductee s/collectee's PAN should become operative (as a result of linkage with Aadhaar) on or before May 31, 2024.

It is specified that if both the conditions as mentioned above are satisfied then only there would be no liability on the TDS deductor or TCS collector. However it needs to be seen what would happen in those cases where the individual has already paid the penal interest due to short deduction of TDS/TCS. Most likely the penal interest already paid would not be refunded back, says Mihir Tanna, associate director-direct tax, S.K Patodia LLP, a CA firm.

Tanna explains with an example: an individual bought a property on February 15, 2024 from a seller who had an in-operative PAN. Without knowing this fact he deducted 1% on this date however failed to file TDS return or deposit the TDS. So after this new circular dated April 23, 2024, it means that if this individual filed TDS return and deposits TDS for this transaction which was entered into February 15, 2024 then he would not get a tax demand notice for not deducting TDS at higher rate, but would rather get get penalised for failing to file TDS return and interest under section 201 for late deposit of TDS.

The provision is only for deduction upto 31 March 2024 in cases where PAN was inoperative, also a revise TDS return can be filed once the PAN becomes operative," says chartered accountant Chirag Chauhan, a practicing CA from Mumbai.

Why did CBDT give relief to taxpayers for short deduction of TDS/TCS?

As per the circular by CBDT, several grievances have been received from the taxpayers that they have received income tax notices for short-deduction/collection of TDS/TCS while carrying out the transactions where the PANs of the deductees/collectees were inoperative. In such cases, as the deduction/collection has not been made at a higher rate, demands have been raised by the Department against the deductors/collectors while processing TDS/TCS statements under section 200A or under section 206C.

www.economicstimes.com dt. 25.04.2024