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CBDT Clarification on Short Deduction of TDS/TCS after increase in Surcharge by Finance (No. 2) Act, 2019

cbdt-clarification-on-short-deduction-of-tds-tcs-after-increase-in-surcharge-by-finance-no-2-act-2019

CBDT issues Circular No. 8/2020 dated 13th April 2020 clarifying the issue regarding short deduction of TDS/TCS due to the increase in rates of surcharge by Finance (No.2) Act, 2019. Deductor or Collector of tax not to be considered assessee in default under certain conditions for the FY 2019-20.

As we know, the full-fledged Union Budget of 2019 was presented on 5th July 2019 by the Finance Minister Smt. Nirmala Sitaraman.

The Finance (No. 2) Bill, 2019 was introduced on the same day which after the assent of the President became the Finance (No. 2) Act, 2019 on 1st August 2019. Finance (No. 2) Act, 2019 has amended many provisions of the Income Act, 1961 and also introduced certain new income tax provisions.

One of the major changes was increasing the surcharge on income-tax for the FY 2019-20 or AY 2020-21 which is reproduced below-

Increase in Surcharge rate: New surcharge rates for AY 2020-21 were introduced Finance (No. 2) Act, 2019 for Individuals, HUF, AOP, BoI, and Artificial Judicial Person (AJP) which are as follows-

For Income level
Surcharge
Remarks
Income up to Rs. 50 lakh
Nil
No change
Income above Rs. 50 Lakh but up to Rs. 1 crore
10%
No change
Income above Rs. 1 crore but up to Rs. Rs. 2 crore
15%
No change
Income above Rs. 2 crore but up to Rs. 5 crore
25%
New provision
Income above Rs. 5 crore
37%
New provision

Even though the Finance (No. 2) Act, 2019 was enacted on 1st August 2019 but the provisions were made applicable from 1st April 2019. It means though the new surcharge rates were introduced in the mid of the year, the same was applicable from the beginning of the financial year.

As a result, where taxes had been deducted based on the pre-increased surcharge, those deductors were treated as assessee in default due to short deduction of taxes by them despite that the deductor had deducted correctly based on the pre-amended rate of surcharge which was in force then.

In order to mitigate that hardships to the deductors, the CBDT has issued a Circular No. 8/2020 on 13.04.2020 to clarify that such deductors will not be treated as assessee in default under certain circumstances.

It must be noted that in the case of TDS, there was no requirement to add Surcharge and Health and Education Cess to the rates of TDS where the deducted is a resident. The rate of TDS was required to be enhanced with Surcharge and Cess only if the payee is a non-resident.

It must be remembered that the above-mentioned increased rate of surcharge was rolled back by the government in case of income is attributable to the transfer of shares and mutual fund units by The Taxation Laws (Amendment) Bill, 2019 and the maximum rate of surcharge on these incomes were capped at 15%.

Read about the Amended Surcharge as applicable from AY 2020-21.

The Circular states the following four conditions to be satisfied to get the immunity from being deemed to be an assessee in default-

(1) The transaction has been completed in all respect by the deductor and entire payment has been made to the deductee or payee on or before 5th July 2019 and there is no subsequent transaction between the deductor or collector and the deductee or payee in the financial year 2019-20 from which the shortfall of tax could have been deducted or collected by the deductor or collector, and

(2) The tax had been deducted or collected as per the prevailing rates i.e. there was no shortfall in deduction or collection of tax, and

(3) There was no delay in depositing the deducted or collected taxes beyond the due date, and

(4) The TDS/TCS statement had been furnished within the due date.

The Circular states that only if all the above four conditions are satisfied then only the deductor or collector cannot be deemed to be an assessee in default. In any of the condition is not met, then the benefit under this circular will not be available.

If the shortfall of tax is made up after 5th July 2019 in respect of concluded transactions before the said date, then no interest shall be leviable. Though the circular refers to the shortfall of tax whereas the clarification is issued for the shortfall of surcharge, it must be remembered that tax includes surcharge.

The circular makes it clear that even if the deductor could not deduct TDS at a higher rate of surcharge, the deductee must offer the income and compute the surcharge at the amended higher rate.




Read the full text of the Circular No. 8/2020 dated 13th April 2020 clarifying the issue regarding short deduction of TDS/TCS due to the increase in rates of surcharge by Finance (No.2) Act, 2019.



Circular No. 8/2020

F. No. 370133/5/2020-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(TPL Division)
*****


Room No.  147B-II, North Block, New Delhi
Dated  13th April, 2020

Subject: Clarification regarding short deduction of TDS/TCS due to increase in rates of surcharge by Finance (No.2) Act, 2019-reg.

The Finance (No.2) Bill,20 19 was tabled in Lok Sabha on 5th July, 2019 which was passed by both the houses of Parliament and became Finance (No.2) Act, 2019 (the Act) which received assent of the President on 1st August, 2019. The Act provided  for increase in the rate of surcharge as under:


S.
No.
Income slab
Surcharge before the Act
Enhanced surcharge as provided by the Act
1
Less than 50 lakh rupees
Nil
Nil
2
50 lakh rupees but less than 1 crore rupees
10%
10%
3
1 crore rupees but  less than 2 crore rupees
15%
15%
4
2 crore rupees but less than 5 crore rupees
15%
25%
5
5 crore rupees and above
15%
37%

2. The enhanced rates of surcharge were applicable from the 1st day of April , 2019 for previous year 2019-20 relevant to assessment year 2020-21. Thus. every person as referred to above was required to compute his tax liability after taking into account the enhanced rates of surcharge. Further, TDS/TCS under various provisions of the Income-tax Act is required to be deducted/collected after taking into account the enhanced rate of surcharge.

3. Several cases have come to the notice of the Central Government wherein deductors/collectors were held to be an assessee in default for short deduction of TDS/short collection of TCS in cases where final transaction was done before laying of the Finance (No.2) Bill, 2019 in the Parliament, i.e. 5th July, 2019. Since the transaction was completed before the rates of enhanced surcharge were announced and the concerned deductee/payee is required to furnish their Income-tax return for the relevant assessment year, it has been requested that in such cases, deductor or collector should not be held to be an assessee in default under section 201 of the Income-tax Act.

4. The above issue has been examined by the Board and in this regard, it is clarified a person responsible for deduction/collection of tax under any provision of the Income-tax Act will not be considered to be an assessee in default in respect of transactions where:-


(a) Such transaction has been completed and entire payment has been made to the deductee/payee on or before 5th July, 2019 and there is no subsequent transaction between the deductor/collector and the deductee/payee in the financial year 2019-20 from which the shortfall of tax could have been deducted/collected by the deductor/collector;

(b) TDS has been deducted or TCS has been collected by such deductor/collector on such sum as per the rates in force as per the provisions prior to the enactment of the Act;

(c) such tax deducted or collected has been deposited in the account of Central Government by the deductor/collector on or before the due date of depositing the same;

(d) TDS/TCS statement has been furnished by such person on before the due date of filing of the said statement.

5. However, if the person fails to fulfill any of the conditions as laid down above, such a person will, with respect to short deduction/collection, not be eligible for benefit provided under this circular.

6. Further, if the deductor/collector has deducted/collected shortfall of tax after 5th of July, 2019 from the transaction(s) made subsequently after the said date, interest, if any, for delay in deduction/collection of such tax shall not be levied.

7. The above relaxation does not absolve the deductee/payee to pay proper tax including enhanced surcharge by advance tax or self-assessment tax and file return of income after paying such tax.

8. This issues with the approval of Finance Minister.


(Ankit Jain)
Dy. Commissioner of Income-tax (OSD)
TPL Division


Download Copy of Circular No. 8/2020 dated 13.04.2020 in pdf format.

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