TDS ----Problems & solutions

These days TDS has become a nightmare both for the assessee as well as the tax professional with notices being issued by the CPC (TDS) immediately on filing of the Quarterly TDS Statements.
This is an attempt to give a comprehensive list of problems and their solutions relating to short payment and short deduction defaults issued in the intimation U/s 200 A:
A) Short Deduction Defaults
Short Deduction defaults arise due to many reasons, some of which are as follows:
1. Due to PAN Errors:
One of the prime reasons for short deduction defaults is quoting the wrong PAN:
Quoting of the correct PAN is very essential in the TDS Return. Quoting the wrong PAN give rise to TDS demand of 20% less the amount of TDS already deducted. It also results in no TDS Credit being given to the deductee whose TDS has been deducted.
It also results in defaults in furnishing TDS Certificates as these days the TDS Certificates are being issued from the TRACES website, therefore if the PAN is incorrect, it results in more than one default on the part of the deductor and unnecessary trouble for the deductee who does not get the credit of his taxes paid.
Another problem with quoting of the wrong PAN is that CPC (TDS) while processing the correction statement does not correct the errors in PAN where the mistake in quoting of PAN is more than two alphabets and two numeric characters even in cases of genuine typographical errors. There are two courses of action for correcting the PAN Errors of more than 2 alphabets and 2 numeric characters:
To file the correction statement by making the entry with the wrong PAN at an amount equal to zero as the deductee entry cannot be deleted and then add a new deductee row for the amount paid and TDS deducted with the correct PAN.
To appeal against the intimation U/s 200 A with the CIT (TDS)
Requirements from the client:
Copy of PAN card of the deductee.
Deduct TDS@20% in absence of PAN of the deductee.
Points to remember:-
Correction statement for rectifying any error in the PAN can be done by utilising the online correction facility at www.tdscpc.gov.in , this correction facility can be used by entering the correct details of the profile of the deductor with the TRACES website.
Online Correction can be used with or without digital signature of the authorized person.
2. Due to wrong quotation of Lower Deduction Certificate U/s 197 of the Income Tax Act’1961:
Another reason for the short deduction default is wrong quotation of the particulars of the certificate of lower deduction of tax.
Following should be correctly quoted while filing the TDS Return.
Certificate Number
Period for which the certificate is valid
Amount upto which lower deduction is applicable
Rate specified in the certificate at which tax is to be deducted
Certificate Number: Certificate Number is a ten digit alpha numeric number mentioned alongside the TAN and the name of the deductee.
Please remember that the Reference No. mentioned at the top of the certificate is not the certificate number to be quoted while filing the TDS Return which is a common mistake done by the assessees while filing the returns.
Period: Every lower deduction certificate is valid for the specified period mentioned in the certificate. Care should be taken to deduct TDS at the lower rate only for the transactions entered between the period mentioned in the Certificate.
Transactions entered before and after the specified period have to suffer tax deduction at the normal rates as prescribed under the Act.
Amount: Every lower deduction certificate is valid for the amount mentioned in the certificate.
This means that when the total amount of the transactions exceed the limit specified in the certificate, tax at the normal rates as prescribed in the Act is to be dedctee on the amount exceeding the limit.
Rate: TDS should be deducted at the rate prescribed in the certificate.
3. Due to mistake in deduction of Tax at Source:
Sometimes the assessee due to ignorance or otherwise deducts TDS for such an amount which turns out to be lower than the rates prescribed in the Act.
Care should be taken while filing the return that on every payment the amount of tax deducted is not short of the amount which should have been deducted if tax were to be deducted at the prescribed.
If such a case is found then the balance tax should immediately be deposited vide a new challan.
4. Due to wrong quotation of 15G and 15H Certificates:
Many people don’t know that non deduction of tax due to receipt of Forms 15G and 15H are also to be reported in the TDS Return, this is especially relevant in the case of banks filing their tds returns.
Incorrect reporting of forms 15G/H particulars can result I short deduction defaults.
B) Short Payment Defaults
Short payment defaults arise due to the following reasons:
1. Due to Challan errors:
Short payment errors also arise due to wrong quoting of the particulars of the challan through which tax has been paid.
The necessary challan particulars to be correctly mentioned in the TDS Return are:
Challan Number
BSR Code of the bank in which tax is deposited.
Tender date of deposit of the challan
In addition to this, the details of the payment bank and the mode by which tax is paid are also to be mentioned in the return.
Let us look at these particulars one by one.
1)      Challan Number: The challan number is a five digit number which is provided in every challan by the receiving banker at the time of clearing the challan.
Whenever the challan number is not clear in the challan, the same should be reconfirmed from the bank.
The challan number can also be confirmed from the following the following link:
tin.tin.nsdl.com/oltas/index.html
After logging onto the following link there are two options:
Challan based view
TAN Based view
a)      In the Challan based view the particulars of each challan can be verified by entering the following details:
BSR Code
Challan tender date
Challan Serial Number i.e challan number
Challan Amount
Note that these can be checked only if you have a rough idea of the above particulars and same are to be confirmed.
b)      TAN Based view: In the TAN Based view the particulars of the challan for a particular period can be checked just by entering the TAN of the deductor and the period for which the challans are to be checked.
Note: The period to be entered here cannot exceed 24 months.
After you enter the desired period and the TAN, the list of all the challans paid during the selected time period will be visible. You will have to enter the amount of challan in order to match the particulars of the challan.
2)      Challan tender date: Challan tender date is the date in which the challan is   presented with the bank for payment. This date is entered in the stamp of the bank inscribed on the challan at the time of clearing. This can also be checked from the abovementioned link.
3)      BSR Code: BSR Code is a seven digit code for every branch of the bank i.e every branch has a separate BSR Code. You could check the BSR Code from the internet or by even calling the concerned branch of the bank.
4)      Challan amount: The Challan amount entered should be including interest and other amounts like penalty or fee u/s 234E paid in the challan and should not merely include the amount of tax paid.
Nowadays a challan file is downloaded at the time of generating the TDS Return. This file is an indicator of whether the particulars of the challan have been correctly entered in the Return.
In case of inaccurate particulars being entered in the return, it shows/generates a warning file that the ‘Challan details are not present in the challan file downloaded.’

Another point to remember is that very often the TDS Return is to be filed or is filed on the day or a day after which the challan is deposited in the bank for clearing.
In this case since the challan is not cleared from the bank therefore it will not be present in the challan file downloaded at the time of generation which leads to a warning file as mentioned above.
In this case if there is still time left for the filing of the return, the concerned person should not file the return till the challan is cleared from the bank and is showing in the challan file downloaded. This is so because when we file the return, then the same is processed at CPC (TDS) and if at the time of processing the return the particulars of the challan are present in the challan file then CPC will raise demand for short payment of Tax which is actually not the case.
Point to remember:-
Correction statement for rectifying any error in the Challan can be done by utilising the online correction facility at www.tdscpc.gov.in , this correction facility can be used by entering the correct details of the profile of the deductor with the TRACES website.
Online Correction can be used with or without digital signature of the authorized person.
Sometimes, there is a case where the deductor mistakenly pays an amount in excess of the amount required to be paid as TDS and such amount is required to be set-off from the subsequent payments of tax.
In this case special care is to be taken while allocating the payments of TDS with the unconsumed amounts of the challan.
Other important points related to challans:
From the financial year 2013-14 onwards, the section code under which the challan is paid and that entered in the return does not matter. As long as the amount of tax is paid, wrong entry of the section code will not result in the short payment default.
The Financial year entered in the challan is also not relevant. There will not be any short payment default due to this.
Mistake in quoting the TAN of the deductor in the challan can only be rectified by the jurisdictional A.O of the assesse and cannot be rectified by the CPC (TDS).
Very soon the CPC TDS is going to bring a notification where it will be mandatory to close all the short payment defaults before the necessary consolidated file can be downloaded for revision of other defaults.
Following are key information to be noted in this regard:
CPC (TDS) mandates to close the above default by tagging unconsumed challans, if available in CPC (TDS) system, through online correction (without digital signature).
In case there is no available challan for consumption, the deductor is required to first deposit the due tax in the bank and then the same challan will be available for tagging in CPC (TDS) system after around 3-4 days of deposit.
CPC (TDS) mandates to close the above default by Matching or Payment of challans.
The user will not be able to download Conso file for the relevant TDS statement until the above default is closed.
The Online Correction facility of TRACES needs to be used for closure of the Short Payment default.

TDS / TCS Return Statements - FAQs.

Who is required to file e-TDS / e-TCS statement?

As per Income Tax Act, 1961, all corporate and government deductors / collectors are mandatorily required to file their TDS / TCS statements on electronic media (i.e. e-TDS / TCS statements). However, deductors / collectors other than corporate / government can file either in physical or in electronic form.
What are the due dates for filing of statement?


What will be the consequences if I do not file TDS / TCS statement within due date?
There will be a levy of Rs. 200.00 per day under section 234E of the IT Act, 1961 from the due date till the date when statement is filed.

Is there any penalty for non-filing of TDS / TCS statements?
Yes. If TDS / TCS statement is not filed for one year from the due date of filing, there would be a penalty of minimum Rs. 10,000.00 to Rs. 1,00,000.00 for not filing TDS / TCS statement under section 271H of the IT Act, 1961.

How can a Deductor / Collector check the status of TDS / TCS statement filed?
Status of TDS / TCS statements filed by a deductor can be checked by logging in to TRACES as deductor. This facility would be available only to a registered user of the portal.

What are the different statuses available on TRACES regarding TDS / TCS statement?
Following processing status shall be displayed for regular statement:

• Pending for Processing
• Processed for Form 26AS
• Processed without Defaults
• Processed with Defaults

Following processing status shall be displayed for correction statement:

• Pending for Processing
• Processed for Form 26AS
• Processed without Defaults
• Processed with Defaults
• Rejected

What are the common reasons for rejection of correction statement by TDS-CPC?

Following are the common reasons for rejecting a correction statement:

• TAN is not valid as per data at TDS CPC
• Statement corresponding to regular token number / previous token number field, as given in correction return, does not exist
• Previous token number does not correspond to the last accepted correction statement at TDS CPC
• Correction is filed for a regular return which is in cancelled state
• In a correction statement, below are the verification keys which should match with the corresponding fields of regular statement :

RRR assessment year
Return Financial Year
Periodicity
Previous Token number
Last TAN of Deductor
Receipt number of Original / Regular Return
Form number

• Sum given in 27A form should match with the sum of deducted amount of deductee records given in the correction statement

What are the reasons to reject the correction in deductee records by TDS-CPC?
Rejection reasons pertaining to deductee details are as follows:

• In a correction statement that updates / deletes deductee rows, verification keys from deductee data that should match with corresponding fields in regular / previous return are – Last PAN, Last total amount deducted at source, Last total amount deposited
• Updation / deletion on deductee record is submitted in a correction statement but this deductee record does not exist in previous/ regular return
• Valid PAN to invalid PAN update is not allowed for a deductee row
• Deductee detail record number should be unique in case of addition of deductees
• If value of Reason for non-deduction / lower deduction / higher deduction / threshold field as per regular or last correction statement is ‘C’ , then update can be performed only on ‘PAN’, ‘Amount of Payment’ and ‘Date of Payment’
• Deletion of deductee record having value C in Reason for non-deduction / lower deduction/ higher deduction / threshold field, is not allowed
• Valid PAN to another valid PAN update can be done only once for a given deductee row

What are the reasons to reject the correction in salary detail records by TDS-CPC?

Rejection reasons pertaining to salary details are as follows:

• In case of salary detail PAN update or delete of salary detail record, last total gross income should match with corresponding value in regular / previous statement
• Salary detail record on which correction is filed does not exist in the regular / previous return
• In case of addition of salary detail record, the record number should be unique and in sequence with the existing records in regular / previous return

Source: TRACES

How to close Short Payment Defaults-- CPC(TDS)

CPC (TDS) -Advisory for closure of Short Payment Defaults using Online Correction facility before allowing Conso Files
As you may be aware that at the time of filing TDS statements, it is mandatory to quote the challan particulars through which TDS payments have been made. The TDS forms prescribe quoting of such challans and the underlying deductee transactions corresponding to such challans.
However, it is observed that:
At times, data entry mistakes are committed, while reporting tax payments in the respective TDS statements.
Though CPC (TDS) makes best efforts to match such challans, however, they may remain unmatched leading to “Short Payment” demand.
The above results into issuance of notices by the field officers.
To make the resolution process non-intrusive, CPC (TDS) proposes a new change while submitting request for download of the Consolidated (Conso) file for a particular quarter. If there is a “Short Payment defaults” on account of unmatched challans for the relevant quarter, the deductor would be provided with online view of all available unconsumed challans, which can be tagged with deductees, to close the above default.

Following are key information to be noted in this regard:
CPC(TDS) mandates to close the above default by tagging unconsumed challans, if available in CPC(TDS) system, through online correction (without digital signature).
In case there is no available challan for consumption, the deductor is required to first deposit the due tax in the bank and then the same challan will be available for tagging in CPC(TDS) system after around 3-4 days of deposit.
The Online Correction facility of TRACES needs to be used for closure of the Short Payment default.
The user will not be able to download Conso file for the relevant TDS statement on closure of the above default.
Once the challan is suitably tagged, CPC(TDS) shall suo moto reprocess the cases thereby reducing the Short Payment default by equivalent amount.
What Actions to be taken:
During submission of request for Conso File, a message will be displayed, if there are Short Payment defaults in the TDS statement and instructions will be provided to submit Online Correction.
Details of defaults will be provided during Online Correction process.
In case of insufficient challans, please use Challan ITNS 281 to pay the demand or use any other Challan, which has adequate balance available.
Submit an Online Correction using the functionality on TRACES to tag the challans with deductee rows. Login to TRACES and navigate to “Defaults” tab to locate “Request for Correction” from the drop-down list.
Online Challan Corrections:
A list of all Matched and Unmatched challans can be viewed by clicking the appropriate tab.
Unmatched challans can be corrected and tagged to Deductee rows in the statement.
The corrections in TDS statements can be raised even without Digital Signature.
Correct KYC information needs to be submitted for the purpose of validation.
All previous corrections pertaining to the statement should have been processed and the processing status can be verified from the Dashboard.

Extension of Due date for e-furnishing of tax audit report under Section 44AB for AY 2014-15 to 30-11-2014

Central Board of Direct Taxes (CBDT) extended the due date for obtaining and furnishing of the report of audit under section 44AB of the Act for Assessment Year 2014-15 in case of assessees who are not required to furnish report under section 92E of the Act from 30th day of September, 2014 to 30th November, 2014 vide F.No.133/24/2014-TP dated 20/08/2014. (Order Under Section 119 of the Income-tax Act, 1961)

Further, CBDT had also affirmed our representation regarding the tax audit reports filed prior to 25th July, 2014, which we had mailed on 12.08.2014 and further clarified that the tax audit report under section 44AB of the Act filed during the period from 1st April, 2014 to 24th July, 2014 in the pre-revised Forms shall be treated as valid tax audit report furnished under section 44AB of the Act.

Govt against high taxation; both pro-business, pro-poor: Jaitley

Union finance minister Arun Jaitley on Saturday said the Narendra Modi government does not
believe in a high taxation regime but is being pro-business and pro-poor at the same time.Addressing a BJP function here, Jaitley said there is nothing wrong in being "pro-business" as the country wants investments for better economic growth which in turn will lead to job creationand higher revenue for the government.
"Unless government gets revenue, it cannot build infrastructure and service the welfare schemes for the poor. By being pro-business and pro-poor, I am not contradicting but both have to exist at the same time," Jaitley said.
On retrospective taxation which the past government had brought in thus spooking investors,Jaitley said the imposition of the retrospective tax created a negative sentiment about the country.
"If your taxation policy is so fragile then there is no authenticity to your economic and tax policies. The UPA government had pushed the country to this situation," he said, adding that the present dispensation is not a "high taxation government".
Jaitley blamed the high inflation for the low savings rate."Last year, during the UPA regime, the savings rate declined to 30 per cent from 33 per cent.There is a need to incentivise savings which get converted into higher investments," he said without offering specifics.
Welcoming the Prime Minster's announcement yesterday to replace the Planning Commission
with a new institution, Jaitley said, "We do not need a command structure where thing would be
decided by the government sitting in New Delhi. Every state should have the right to decide on
how it can take benefit from the country's resources."

(Times of India)

COMPANY LAW SETTLEMENT SCHEME 2014

CPC (TDS) – Short Payment Default correction must to download Consolidated Files

CPC (TDS) mandates closure of Short Payment Defaults using Online Correction facility before allowing Conso Files
The Centralized Processing Cell (TDS), in its endeavour to enforce TDS Compliance, is shortly mandating closure of “Short Payment defaults” in the quarterly TDS statements due to Unmatched Challans, before the Conso files can be downloaded from TRACES for the relevant statements. Following are key information to be noted in this regard:

→ CPC(TDS) mandates to close the above default by tagging unconsumed challans, if available in CPC(TDS) system, through online correction (without digital signature).
→ In case there is no available challan for consumption, the deductor is required to first deposit the due tax in the bank and then the same challan will be available for tagging in CPC(TDS) system after around 3-4 days of deposit.
→ CPC(TDS) mandates to close the above default by Matching or Payment of challans.
→ The user will not be able to download Conso file for the relevant TDS statement until the above default is closed.
→ The Online Correction facility of TRACES needs to be used for closure of the Short Payment default.
→ User will subsequently be able to download the Conso file for relevant period only after the default is closed.

Why the Short Payment needs to be paid:
CPC (TDS) intends to enforce compliance towards payment of taxes to the Government.
In accordance with provisions of section 201(1) of the Act, where any person, including the principal officer of a company, who is required to deduct any sum in accordance with the provisions of the Act; does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall be deemed to be an assessee in default in respect of such tax.
As per the provisions of section 220 of the Act,
Any amount, specified as payable in a notice of demand shall be paid within thirty days of the service of the notice.
If the amount specified in any notice of demand is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid.
If any person fails to deduct or pay the whole or any part of the tax, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay under Section 271C of the Act.
Failure to pay tax to the credit of Central Government is punishable with fine as per the provisions of section 276B/ 276BB.
Section 278A of the Act prescribes for punishment for second and subsequent offences, if any person has been convicted of an offence under section 276B.

What Actions to be taken:
· During submission of request for Conso File, a message will be displayed, if there are Short Payment defaults in the TDS statement and instructions will be provided to submit Online Correction.
· Details of defaults will be provided during Online Correction process.
· In case of insufficient challans, please use Challan ITNS 281 to pay the demand or use any other Challan, which has adequate balance available.
· Submit an Online Correction using the functionality on TRACES to tag the challans with deductee rows. Login to TRACES and navigate to “Defaults” tab to locate “Request for Correction” from the drop-down list.
· Online Challan Corrections:
A list of all Matched and Unmatched challans can be viewed by clicking the appropriate tab.
Unmatched challans can be corrected and tagged to Deductee rows in the statement.
The corrections in TDS statements can be raised even without Digital Signature.
Correct KYC information needs to be submitted for the purpose of validation.
All previous corrections pertaining to the statement should have been processed and the processing status can be verified from the Dashboard.

TDS

These days TDS has become a nightmare both for the assessee as well as the tax professional with notices being issued by the CPC (TDS) immediately on filing of the Quarterly TDS Statements.

Section 201 of the Income Tax Act’1961 states as follows:
Consequences of failure to deduct or pay.
1. [(1) Where any person, including the principal officer of a company,—
(a)   who is required to deduct any sum in accordance with the provisions of this Act; or
(b)   referred to in sub-section (1A) of section 192, being an employer,
does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax:
provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident—
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,
and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed (Inserted VIDE Finance Act’2012)
Vide Notification No. 37/2012 [f.no. 142/18/2012-so(tpl)] dated 12-9-2012, the CBDT has inserted Rule 31ACB and Form No. 26A to prescribe the format in which the CA’s certificate should be obtained by the payee.
Provided further that no penalty shall be charged under section 221 from such person, unless the Assessing Officer is satisfied that such person, without good and sufficient reasons, has failed to deduct and pay such tax.]
[(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at [one per cent for every month or part of a month] on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid [and such interest shall be paid before furnishing [the statement] in accordance with the provisions of sub-section (3) of section 200.
(2) Where the tax has not been paid as aforesaid after it is deducted,[the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A)] shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1).
(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given”.(Inserted by Finance Act, 2014 w.e.f 01.10.2014)
(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3)”
Here there are two or three points worth noting which have been amended recently and are of much importance:
The first line says ‘Any person who is required to deduct any sum in accordance with the provisions of the Act.’
Here any sum also includes amount paid by way of salary by the employer to the employee on which TDS was required to be deducted.
Here there was a mismatch in the Act, wherein the Employer could be deemed to be an assessee in default for Non deduction or Non-payment of Tax at Source on Salary paid to Employee but his expenditure on salary debited in the P&L A/c would not be disallowed as Section 40a (ia) did not include payments by way of Salary.
This has now been amended by the Finance Act’2014 wherein similar wording has been used wherein any sum on which tax is deductible at source has been added.
It means that w.e.f AY 15-16, An assessee will not only be deemed as an ‘Assessee in default’ for failure to Deduct Tax At Source on payment of Salary to Employees but also 30% of his expenditure on Salary will be also be disallowed.
2)      The first proviso inserted by Finance Act’2012 is of much importance as it states that:
A person cannot be treated as an assessee in default for failure to deduct tax at source, if the person to whom he has made the payment has:
1) Furnished the return of income
2) Taken the amount paid by such person in his return of income.
3) Paid tax on such amount.
4) A certificate in this regard is furnished by a Chartered Accountant.
Note:
1)      The certificate from the accountant is with regard to the examination of the books of account of the payee by the Chartered Accountant.
2)      Form No. 26A has to be furnished by the payer and the certificate by the accountant is also to be taken the payer.
3)      Certificate by the Chartered Accountant is an annexure to Form 26A.
4)      This clause is only relevant to Non-deduction or short deduction of Tax and not relevant to cases of Non-payment or part payment of Tax once deducted.
3)      Another interesting amendment is the amendment to Sub Section (3), wherein the time limit for deeming a person as an ‘Assessee in Default’ has been increased to Seven Years from the end of the Financial Year in which the payment is made or credit is given to the payee.
This time Limit has been synchronised with the time limits prescribed Under Section 148 wherein cases of the Last 6 years from the end of the Assessment Year could be opened.
This could give rise to the Following situation:
Suppose the assessment of an assessee is made U/s 148, wherein the A.O finds some payments on which TDS has not been deducted for the Financial Year 2008-09.
In such a case the A.O can not only disallow the expenditure on which TDS has not been deducted but also deem the assessee as an ‘Assessee in Default’ U/s 201 of the Act and charge interest and penalty on him for TDS default.
1)      Another Observation which in my opinion is worth a look is the date from which the time limit for deeming a person as Assessee in Default is increased.
This amendment is made effective from 1st October, 2014.
This could give rise to the following situation:
Suppose the A.O finds that the assessee has not deducted Tax at Source worth Rs. 1 lac for the Financial Year 2009-10 on September’2014.
Now as per the existing law he could not issue an order deeming the person as an assessee in default for FY 2009-10 if such person has furnished Quarterly TDS statement in FY 2009-10 or FY 2010-11(for the last Qtr of FY 2009-10) after 31.3.2014.
Now since the amendment is with respect to a procedural aspect of the Law. in my opinion the assessing officer Could wait for 01st October ‘2014 and then issue notice for FY 2009-10 from 01.10.2014 whereas he could not do so till 30th September,2014.

Service tax Implications on Land Development Agreement

What is a Land Development Agreement

Land Development Agreement also known as Joint Development Agreement is one of the arrangements commonly resorted to by the builders/developers nowadays to develop and sell properties. There are two parties to this agreement, a Land owner and a Builder. It is sometimes also a tripartite agreement between the land owner, builder/developer and a contractor. We are discussing the first category of arrangement in this article. In this arrangement the land owner agrees to transfer the land rights to the developer to build/develop and sell flats/ property. In consideration to the said sale of land rights the land owner agrees to a sum in cash and some flats in the developed property. One of the major advantages of this kind of arrangement is that it does not involve excessive investments from both the parties and is as such a win-win situation for both the developer and the land owner.

Issue involved
Important issues in dealing with this kind of arrangement is (i) whether the sale of land and consideration received thereon is liable to service tax, (ii) whether the consideration received by the land owner in terms of flats is liable to service tax, (iii) if the answer to (ii) is yes then at what value will the service tax be leviable, (iv) who is liable to pay the service tax, is it the builder or the land owner (v) when is the service tax payable, is it at the time of entering into the agreement or at the time of possession of the flats.
Circular in respect of real estate is Circular 151/ 2/2012-ST issued on 10th February 2012 which provided clarifications with respect to the various business model adopted by the construction industry and the treatment of service tax thereon. Negative list regime the Para 6.2.1 of Education Guide – taxation of services issued by the CBEC .

Clarification provides that the sale of land by the land owner to the builder/developer is exempt from service tax as it is a sale of immovable property which is out of the scope of service tax net. Hence answer to query (i) is a vehement NO.
Moving on the answer (ii), it is yes, which is what is warranting the need of writing this article. Construction services provided by the builder/developer is taxable in case any part of the payment /development rights of the land was received by the builder/developer before the issuance of completion certificate and the service tax would be required to be paid by the builder /developers even for the flats given to the land owner.

Coming to the valuation of the flats given to the land owner. Value of the taxable service in such as case would be determined in terms of section 67(1)(iii) read with Rule 3(a) of the Service Tax (Determination of Value) Rules 2006. Accordingly value of these flats would be equal to the value of similar flats charged by the builder/developer from other buyers to whom he is selling flats. In case the price of flat undergoes a change over the period of sale then the value of similar flat as sold nearer to the date on which the land is made available for construction should be used for arriving at the value for the purpose of tax. Service tax is liable to be paid by the builder/developer on the ‘construction service’ involved in the flats to be given to the land owner, at the time when the possession of the flats are transferred to the land owner by entering into a conveyance deed or similar instrument(like allotment letter).
For the sake of convenience and better understanding I would like to explain the above in the form of an example. Mr. A (Builder/Developer) enters into an agreement Mr. B (Land Owner) to build a residential complex in his land. Mr. A agrees to construct 40 flats and 10 villas in the said land. The agreement states that the land development rights are sold to Mr. A in lieu of consideration in cash of Rs. 40 Lakhs (to be paid as per agreed terms of payment), 4 (3BHK) flats and a Villa. The agreement was entered into on the 10th July 2013. Mr. A starts the construction and sells his first flat (2BHK) for Rs. 4000 Rs. Per square feet on 10th September 2013 sells a 3BHK flat at Rs. 4200 on 7th November 2013. He sells his first villa on 5th January 2014 for Rs. 1.5 Crores. The construction is completed on 1st August 2015. Possession of flats are transferred to the land owner on 1st January 2015 and of the Villa on 15th July 2015. Now the valuation would be For Flats – 4*2000*4200=Rs. 3.2 Crores(Value to be taken of similar flat) and for the Villa would be Rs. 1.5 Crores. The service tax would be paid by the builder on separate date for flats and Villa as the possession was transferred on 2 separate dates.
On some of the instances the land owner may also decide to sell the flats given to him by the builder/developer in lieu of the land development rights transferred. In such cases also the service tax will be required to be paid by the transferee if any consideration is received by him from any person before the receipt of completion certificate.

TROUBLE SHOOTING GUIDE FOR PROBLEMS IN ACCESSING www.incometaxindiaefiling.gov.in

TROUBLE SHOOTING GUIDE

Depreciation under Companies Act, 2013

Useful Life:
Unlike the Companies Act, 1956, Useful life of the asset on the basis of Shift has been prescribed in place of rates of depreciation in the part C Schedule II of the companies Act 2013 as a base for computing depreciation.

Now the Question arises, what’s the meaning of Shift?
The Term Shift has not been specified in the Companies Act, 1956 or Companies Act, 2013, So it should be understood in Common Commercial Parlance. As Per Factories Act, 1948, the term shift means:
“Where Work of the same kind is carried out by two or more sets of workers, working during different periods of the day, each of such set is called group or relay and each of such period is called a shift”
The basic meaning of extra shift is employment of a different set of worker for a period additional to normal working hours. The extra hour worked by the same set of workers is termed as overtime and not referred to as a shift, why because worker is same and he is continuing his work. However, Manifestation of extra shift can also be the situation where a significant number of extra hour are worked beyond the normal working hour in a day say four or more above a shift of eight hour.

Calculation of Shift has to be with reference to a working day and not with reference to the entire year.
How to calculate Extra Shift Depreciation?
The Calculation of the extra depreciation for double shift working and for triple shift working should be made separately in the proportion which the number of days for which the concern worked double shift or triple shift as the case may be, bears to the normal number of working days during the year.
In the case of Seasonal Factory or concern, the number of days on which the factory or concern actually worked during the year or 180days, whichever is greater.
In any other cases the number of days on which the factory or concern actually worked during the year or 240days, whichever is greater.
Extra Depreciation for double shift working should be the difference between the depreciation for double shift working and the depreciation for single shift working, adjusted in proportion which the number of days for which the concern worked double shift bears to the normal working days during the year. The extra shift depreciation so calculated has to be added to the depreciation for single shift working to arrive at the total depreciation for double shift working.

Formula for arriving the depreciation
Depreciation for Single Shift working + (Depreciation for Double/triple Shift working- Depreciation For single Shift Working)x(Number of days worked double or triple shift/normal working days during the year)

Component Accounting:
The Companies Act, 2013 has introduced the concept of Component accounting which was not the case of Companies Act 1956. To understand Component Accounting, we can take guidance from IND AS-16 which Provides as under:

Each Part of an item of an asset with a cost significant in relation to the total cost of the item shall be depreciated separately.
Where cost of the part of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part should be determined separately.

For Example:
X Ltd Purchased a Ship of Rs.30 Crore which Comprises Engine of Rs. 27Crore and Structure and others for Rs.3Crore.The residual value and useful life would be Rs. 7crore and Rs. 1crore respectively. The Useful Life of an asset is 30years.
Ship Allocated Cost (Rs.) Residual Value Useful Life
Engine 27 Crore 7 Crore 10 Year
Others 3 Crore 1 Crore 20 Year


As per Companies Act 1956
Annual Depreciation of the Ship=(22Crore/30)= 0.73Crore

As per Companies Act 2013
Ship Depreciable Amount (Rs.) Useful Life Depreciation
Engine 27 Crore – 7 Crore= 20 Crore 10 year 2 Crore
Others 3 Crore- 1 Crore=2 Crore 20 Years 10 Lakh
Total 2.10 Crore


When at the end of respective useful lives of the component, the components will be replaced, the replacement cost should be capitalized and the existing carrying value, if any, should be decapitalised.
Thus, although the overall amount that will be charged to the statement of profit and loss will be same during the entire life of the ship, the annual charge to the statement of profit and loss will differ significantly.

Impact of Component Accounting on replacement of Component
Let us explain this with an example:
A Company has recently acquired a new factory for a cost of Rs.23Lakh with a residual value of Rs.3 Lakh. This factory has a flat roof, which need to be replacing every ten year at a cost of Rs.5 Lakh. The useful life of new factory would be 20 year.

Now Think, if we applies Companies Act 1956, the new factory will be considered as an one asset and depreciate the whole factory over its useful life of 20 year, charging Rs. 1 Lakh Per Annum

The Cost and accumulated depreciation of the old roof will be Rs.5 Lakh and Rs.2.5 Lakh respectively. There will be a loss of Rs.2.5 Lakh which is to be recognized in the Income Statement.
However if we applies Companies Act 2013, The Factory roof will be treated it as a separate asset and the factory would be treated as another asset.

Now How Depreciation would be calculated?
Now you have to derecognize the cost of roof, so that it could be treated as an another asset i.e. Rs.23 Lakh (original value of an asset)-Rs.5Lakh (replacement cost of factory roof)= Rs.18 Lakh – Rs.3 Lakh(Residual Value)=Rs.15Lakh, The depreciation would be Rs.15 Lakh/20=Rs.75,000 Per annum. Plus depreciation of Factory roof is Rs.5Lkh/10= Rs.50000/- Per Annum. Hence total Depreciation Would be 1.25lakh Per annum.

The carrying amount of the old roof in year 10 will be Nil under the second approach. The cost and accumulated depreciation of Rs. 5lakh are written off, with no profit or loss on disposal arising.
The Second approach more accurately reflects the consumption of economic benefits of the factory with an even charge to the income statement over the 20years of the useful economic life of the factory.

Residual Value:
If residual value is considered as an insignificant, it is normally regarded as NIL. On the Contrary, if the residual value is likely to be significant, it is estimated at the time of acquisition/installation, or at the time of subsequent revaluation of an asset. One of the basis for determining the residual value would be realizable value of similar assets which have reached to end of their useful lives and have operated under conditions similar to those in which the asset will be used.

Ordinarily, the residual value of an asset is often insignificant, but it should generally be not more than 5% of the original cost of the asset.
Can it be possible to take different residual value and useful life as prescribed in companies act 2013
Basis Regulated Entities Such class of Companies



As may be prescribed and Whose financial statements comply with the accounting standards For other companies For The useful life or residual value of any specific asset, as notified for accounting purposes by a regulatory authority constituted under an act of parliament or by central government should be applied in calculating depreciation irrespective of the requirements of the schedule. Useful life or residual value shall not be different asindicated in Part-C of schedule-II of Companies Act, 2013, otherwise disclose the justification for the same Useful life shall not be longer and residual value shall not be higher than the prescribed in Part-C of schedule-II of Companies Act, 2013,
Explanation Mandatory Management can take differ useful life or residual value, the only thing is that give justification for the same. Management can take only shorter useful life and lower residual value.


Transitional Provisions
From the date schedule-II comes into effect, the carrying amount of the asset as on that date:
Shall be depreciated over the remaining useful life of the asset as per schedule-II
After retaining the residual value, shall be recognized in the opening balance of retained earning where the remaining useful life of an asset is Nil.

For Example
A Company acquired a building at accost of Rs. 10 Crore. The Company was depreciating the building according to schedule XIV SLM rate i.e. 1.63%. Now In August 2013 Schedule-II was introduced via the companies Act 2013 in which the useful life specified is 30 year.

If the building is acquired on 01/04/2000
Depreciation charges till FY 2012-13, depreciation on SLM Basis for 13 year
Rs 10Crore X1.63%X13 Year=Rs.21190000/-
Carrying Value=10 crore-2.11 Crore=7.88Crore approx.
Now the carrying value as on 01 April 2013 will be depreciated over the remaining useful life of the asset as per schedule II of the companies Act 2013. The remaining useful life is 17 year (30-13)
So annual depreciation to be charged to the profit and loss account from FY 2013-14 would be Rs7.88 crore/17= Rs.46.35 Lakh approx.

If the building is acquired on 01/04/1980
The useful life of an asset as per new schedule has already expired if the building was acquired on 01 April 1980. In such case, the carrying value as on 01 April 2013 would be recognized in the opening balance of retained earnings.
Depreciation charged till FY 2012-13, depreciation on SLM basis for 33 year
Rs 10CroreX1.63%X33 Year=5.37Crore

Carrying Value as on 01 April 2013 was Rs 10 Crore-Rs 5.37Crore= Rs.4.62 Crore Would be recognized in the opening balance of retained earnings. Suppose there is an residual value of Rs. 10lkh, then only 4.52 crore will be adjusted through retained earnings and Rs. 10 Lakh will remain in the carrying amount of the asset.

Difficult to recover 97 Percent of Rs 4.82 lakh cr tax arrears: CBDT

In a startling revelation, the CBDT has reported that 97% of Income Tax demand arrears, quantified over Rs 4.66 lakh crore, is "difficult" to be recovered. The total arrears amount to be recovered, stuck because of a variety of reasons like litigation, companies in liquidation, sick companies and untraceable taxpayers, is Rs 4.82 lakh crore. Alarmed by the "precarious" situation, the apex body of the I-T department has initiated a slew of measures to collect these taxes including attachment of bank accounts of defaulters and arrest of 'wilful' evaders under tax laws. "Attention is drawn to the precarious situation arising out of comparison of total arrear demand outstanding and demand difficult to recover. The total arrear demand outstanding as on April 2012 was Rs 4,82,027 crore while the demand difficult to recover as percentoral action plan for March 2013 is Rs 4,66,854 crore (97%). The situation is alarming and leaves only 3 % of the demand in the recoverable arena. "Even more alarming is the situation that less than 5 %, Rs 2,39,95 crore, of the total arrear demand outstanding (Rs 4.82 crore) could be collected during the 2012-13 fiscal," the Central Board of Direct Taxes (CBDT) said in a recent communication to its top officers. "The situation is surely not pleasant but the board and the I-T department are geared to pursue these cases vigorously. The Parliamentary Standing Committee on Finance have time and again urged the Finance Ministry to minimise this revenue loss sector and steps are being taken. The results will soon show," a senior official who did not want to be named said. (Business Standard)