TDS Refunds - Detailed procedure for the deductor

Introduction to section 200A

The introduction of section 200A of the Income Tax Act, 1961 had brought a change in the process of TDS refund of excess TDS deducted. The Section 200A describes the processing of TDS return and also the process to refund the amount in case any amount paid by the deductor is in excess of the amount for which he is liable to deduct.

Circular

CBDT has issued the Circular No. 2/2011 dated 27-4-2011 in supersession of the older Circular No. 285. In this circular, it was clearly mentioned that the provision of section 200A will be applicable for issue of refund w.e.f. 1-4-2010 and older circular will be applicable to the claim of refunds for the period up to 31-3-2010. Further, it was also described that this circular will not be applicable to TDS on non-residents falling under sections 192, 194E and 195 which are covered by Circular No. 7/2007 dated 23.10.2007 issued by the Board.

The procedure of TDS refund can be described under the following three categories:

  • Payment made to non-residents falling u/s 192, 194E and 195
  • Tax deducted by the deductor for the period up to March 31, 2010
  • Tax deducted by the deductor for the period after March 31, 2010

TDS Refund on payment to non-residents falling u/s 192, 194E and 195

This includes circumstances were after depositing the TDS into government account by the deductor,

  1. the contract was canceled and no remittance is made to the non-resident;
  2. the remittance is duly made to the non-resident, but the contract is canceled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source;
  3. the contract is canceled after the partial execution and no remittance is made to the non-resident for the non-executed part;
  4. the contract is canceled after the partial execution and remittance related to non-executed part is made to the non-resident. In such cases, the remitted amount has been returned to the person responsible for deducting the tax at source. Also, no remittance is made but tax was deducted and deposited when the amount was credited to the account of the non-resident;
  5. There occurs exemption of the remitted amount from tax either by amendment in law or by notification under the provisions of Income-tax Act, 1961;
  6. An order is passed under section 154 or 248 or 264 of the Income-tax Act, 1961 reducing the tax deduction liability of a deductor under section 195;
  7. Deduction of tax occurs twice from the same income by mistake;
  8. There occurs payment of tax on account of grossing up which was not required under the provisions of the Income-tax Act, 1961;
  9. There occurs payment of tax at a higher rate under the domestic law while a lower rate is prescribed in the relevant double taxation avoidance treaty entered into by India.

In the type of cases referred to in point no.1, the non-resident not having received any payment would not apply for a refund. For cases covered by from point no.2 to 9  no claim may be made by the non-resident where he has no further dealings with the resident deductor of tax or the tax is to be borne by the resident deductor.

This resident deductor is, therefore, put to genuine hardship as he would not be able to recover the amount deducted and deposited as the tax.

TDS Refund can be issued in these cases under the following guidelines:

  1. This amount can be refunded, with prior approval of the Chief Commissioner of Income-tax or the Director General of Income-tax concerned, to the person who deducted it from the payment to the non-resident, under section 195.
  2. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident or if the income is accruing no tax is due or tax is due at a lesser rate. The amount paid into the Government account in such cases to that extent is no longer ‘tax’. In view of this, no interest under section 244A is admissible.
  3. A refund in terms of this circular should be granted only after obtaining an undertaking that no certificate under section 203 of the Income-tax Act has been issued to the non-resident.
  4. The limitation for making a claim of TDS refund under this circular shall be two years from the end of the financial year in which tax is deducted at source.
  5. It needs to be ensured by the Assessing Officer that they disallow corresponding transaction amount, if claimed, as an expense in the case of the person, being the deductor making the refund claim. Besides, in all cases, the Assessing Officer should also ensure that in the case of a deductor making the claim of refund, the corresponding disallowance of expense amount representing TDS refund is made.

TDS Refund on Tax deducted by the deductor for the period up to March 31, 2010

All the cases for the period up to March 31, 2010, except those which are related to non-resident will come under this clause. The excess payment to be refunded would be the difference between:

  • the actual payment made by the deductor to the credit of the Central Government; and
  • the tax deductible at source

TDS Refund can be issued in these cases under the following guidelines:

  1. In case of refund of the same financial year, the credit of the excess payment can be adjusted in the quarterly statement of TDS. The Adjustment will be done in the next quarter during the financial year. In the case where the detection of such excess amount is made beyond the financial year concerned, such claim can be made to the Assessing Officer (TDS) concerned. However, no claim of refund can be made after two years from the end of financial year in which tax was deductible at source.
  2. Prior administrative approval of the Additional Commissioner or the Commissioner (TDS) concerned has to be obtained. This shall depend upon the quantum of refund claimed in excess of Rupees One Lakh and Rupees Ten Lakh respectively.
  3. After meeting any existing tax liability of the deductor, the balance amount may be refunded to the deductor.

TDS Refund on Tax deducted by the deductor for the period after March 31, 2010

Section 200A is inserted by the Finance Act (No. 2), 2009, where it has specified the procedure to process the eTDS return filed by the Tax deductor. This procedure includes that:

  • The sums deductible as TDS should be computed after making the following adjustments, namely:
    1. any arithmetical error in the statement; or
    2. an incorrect claim, apparent from any information in the statement;
  • The interest calculation, if any, will be on the basis of the sums deductible as computed in the statement;

The refund will be provided to the deductor in cases where he has paid the amount more than the amount for which he is liable to pay after adjustment of interest on any outstanding u/s 200 and u/s 201 and any amount paid otherwise by way of tax and interest. However, no communication under this subsection will be sent after the expiry of one year from the end of the financial year in which the statement is filed.

Share On:

Leave a Reply