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Third party administrators under watch for TDS default
February, 05th 2009

Third Party Administrators(TPA) have come under the Income-Tax departments scanner for not deducting tax at source (TDS) on the
payments they make to hospitals. TPAs act as middlemen between employers, insurance companies and hospitals. They process insurance claims and carry out all other administrative work for them.

With the overall tax collections growing at a slower pace of 13.21% as against the required rate of 20% to achieve the budget target, the Income-Tax department has now turned its focus on TDS compliance. The department is carrying out extensive surveys on TPAs and hospitals after they were found defaulting on tax payments.

While in some cases TDS was not being cut altogether, in some cases it was found to have been deducted at a lower rate, an official from the tax department explained. TPAs make payments to hospitals for treatment of subscribers of medical insurance providers in cashless system. These payments to doctors and hospitals are covered under Section 194J of I-T Act. TDS rate applicable under this section is 10%.

In come cases, hospitals were found to be camouflaging salary payments to doctors as payments for professional services which attracts a lower TDS rate of 10%. In the case of salaries, the deduction is made at the rate of 20%. The official said the departments emphasis on TDS has already begun to show results and the collections could go up further with focused surveys on select sectors.

The governments TDS collections for corporate taxes grew 41.1% to Rs 50,252 crore in April-January 2008-09 as against Rs 35,615 crore in the same period last year. For personal income tax, TDS collections jumped 20.6% to Rs 54,099 crore in the period under review as against Rs 44,870 crore last year.

Compared to TDS collections, corporate tax collections grew at 17.32% to Rs 157,039 crore in April-January 2008-09 from Rs 1,33,851 crore in the same period last year. Personal income tax, including fringe benefit tax, securities transaction tax and banking cash transaction tax, grew at 6.71% to Rs 90,010 crore in the period under review as against Rs 84,349 crore in previous fiscal.

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