A new form introduced by the Central Board for Direct Taxes (CBDT) to improve tax deductions at source (TDS) has allegedly made the process more cumbersome, and may even prompt the government to put the transition to the new regime in abeyance. The new form for tax deductors those responsible for deducting tax while making a payment came into force from April 1, 2009.

According to the new rules, deductors have to deposit the tax amount through online payment. The form prescribes tracking of every TDS transaction through a unique transaction number (UTN) that is to be provided at the time of e-payment of such tax. However, the government, a large deductor of tax itself, is not geared up for this change required by the tax body and cannot switch to e-payment mode completely, according to an official who didnt want to be named.

To switch to a complete e-payment mode, rules of central as well as state governments with regard to payments will have to be changed. At present, central and state government departments have a cheque or cash system of payment and changing these rules will be an uphill task for them. The tax departments own software may find it difficult to support the UTN, said the official.

The issue of notification of the new forms and problems related to its implementation had figured at a recent meeting of the CBDT.

While April 1 is a logical start date for any such change, considering that the notification was issued only in the last week of March, I doubt whether non-corporate assesses would have enough time to gear up to these new and enhanced requirements. The generation of UTN is a new and untested aspect and should have ideally been tried on the existing set of e-paying assesses before expanding the scope of e-payment, said Amitabh Singh, partner, Ernst & Young.

All tax deductors have to also validate PAN of deductees from the tax authorities at the time of e-payment of tax instead of the present system of validation at the time of filing of quarterly returns.

This means that when a company deducts tax from the salary payment to its employee every month and deposits its with the tax authorities, it will have to get employees respective PANs validated from the income tax department.

This would cause hardships to companies as they have to file quarterly returns with regard to TDS on salaries. At present there is no requirement PAN of validation at the time of payments. In fact, tax departments own system may find it difficult to handle the pressure placed by new requirements of the form.