It is one thing to do away with the need to attach TDS certificates with the returns filed but quite another to abolish the very requirement of furnishing TDS certificates to the recipients of income.
Annexure-free returns this year has been welcomed by all the taxpayers, especially the ones with humungous number of TDS certificates.
Fastening each such certificates after meticulously accumulating and preserving them through the year indeed added to the tedium of dealing with the tax administration. It is good that the department has dispensed with this requirement for the assessm ent year 2007-2008, testifying to its confidence in the networking of its computer systems across the country.
The deductor of tax in any case files a return of the deductions he has made giving, among other things, the name and address of the recipient of the income or payment. All that the assessing officer (AO) of a particular taxpayer has to do in case of doubt is to look for the information available within with a click of the mouse for corroboration.
So far so good. But the law changes from next year starting from April 1, 2008, the deductors of TDS are not required to give TDS certificates to the recipients of income or payment in respect of which tax has been deducted.
A source of inconvenience
It is one thing to abolish the requirement to attach TDS certificates with the returns filed by the taxpayers but quite another to abolish the very requirement of furnishing TDS certificates to the recipients of income because it can cause considerable inconvenience to them.
Let us take the case of a salaried person not well-versed in the nuances of tax computations and not inclined to keep a meticulous record of his salary, distinguishing between exempt allowances and taxable allowances, etc. For him, the year-end TDS certificate is godsend manna. He simply relies upon the certificate to file his return. At any rate, shouldnt a deductor be obliged as hitherto to give something in evidence of the fact that he has deducted?
Lack of TDS certificates would also considerably inconvenience the commercial world.
Hitherto, the TDS certificates have been found useful in cross-verifying with the accounting records whether the entire TDS amount has been accounted for correctly and accurately.
Besides, how would a taxpayer furnish the details of the tax deducted in his tax return unless he is given a certificate by the deductor?
The bottom-line could be untold inconvenience and confusion. The returns may give a figure not borne out by any document in evidence. If the return gives a reference to such document, the AO can access it easily.
There is no way the taxpayer can be summoned to give the details of TDS should the IT system go haywire for some reason in the tax administration. TDS certificates in the possession of the taxpayer would have been an ideal foil and backup.
Even the tax administration would be positively handicapped. It would have been perfectly all right had only the need to attach the TDS certificates with the returns been dispensed with. Abolishing the certificates themselves is throwing the baby with the bath water.
The department would be in a blind alley when a return gives a figure of, say, Rs 5.01 lakh as tax having been deducted at source without giving the details of the deductors tax deduction account number.
Maybe the IT system designed for the department is so advanced that complete details of tax deducted at source by all the payers of income numbering hundreds or even thousands would flash on the AOs screen the moment he feeds in the assessees permanent account number!
Parliament would therefore do well to relieve the taxpayers of the burden and tedium of attaching TDS certificates all right without relieving the deductors of tax from the duty of furnishing such certificates to the recipients of income. This would be in all-round interest.
It should use the opportunity to correct two glaringly significant omissions. As it is, the Explanation to Section 139 says a return will not be considered defective if TDS certificate is not filed due to the fact that the deductor has not furnished the same to the assessee but he produces the same within two years from the end of the assessment year to the assessing officer.
Parliament has been remiss in not suitably amending Section 139 simultaneously with the amendment to Section 203 dispensing with the need to issue TDS certificates. How can TDS certificate be attached or produced when the same is not required to be issued in the first place?
Parliament has been remiss in not making consequential amendments. If the suggestion given in this article to continue with issuance of TDS certificate is accepted, then Section 139 should be amended to say that the return sans Tax Deduction Number (TDN) of the deductor would not be treated as defective if the assessee gets the TDS certificate and submits the TDN within two years from the end of the assessment year.
Similarly, consequential amendment has not been made to Section 155(14) which says that when the assessee furnishes TDS certificate within two years from the end of the relevant assessment year, the assessing officer (AO) would pass a rectification order by reopening the assessment. Where is the scope for submitting the certificate when its issuance is sought to be dispensed with?
As said earlier, the assessee should be called upon only to furnish the TDN and other details necessary to identify the deductor. The draftsman should have thought through the entire issue and made all consequential amendments when he amended Section 203.
Even now it is not too late because the proposed amendment to Section 203 comes into force only for payments made on or after April 1, 2008, that are subject to TDS.
S. Murlidharan (The author is a Delhi-based chartered accountant.)