Recently, the Central Board of Direct Taxes amended the rule for grant of Tax Deducted at Source (TDS) to a person in whose hands the income is assessable when paid to another person. Until now, the credit of TDS was given to the deductee, based on the deductor’s TDS-related information. And, the information in the returns filed with respect to TDS credit. The amendment has been applicable from November 1.
If tax is deducted at source on all or a part of the income assessable in the hands of the non-deductee, the credit of the TDS (complete or partial, as the case may be) shall be given only to him/her. However, the deductee (in whose name the tax is deducted) needs to file a declaration with the deductor (employer), which is filed in case the tax liability is nil. This is filed before the deductor furnishes the TDS information. And, the deductor is supposed to report the source in the name of the non-deductee and issue a pertinent certificate.
APPLICABILITY: Tax experts say a taxpayer till now got the credit even when (s)he is dead. Now on, the legal heir of a deceased will be granted the TDS, says Sharad Shah, partner, tax advisory services, Haribhakti & Co. "As the legal heir, he/she is entitled to the grant of TDS when the person in whose hand the income was assessable has passed away. There was clarity required on such cases," he adds.
Explains Amitabh Singh, tax partner at Ernst & Young: If one is putting money in the name of a minor, the TDS deducted used to be credited in the minor's name. "But, this amendment will allow the person (guardian or parent) who is putting the money in the minor's name or in whose hand the income is assessable, to get the TDS credit in place of the minor."
Alike case was if the asset of a Hindu Undivided Family (HUF) was held in the name of an adult member, but the income is assessable in the hands of the HUF. Similarly, there was no rule on the method of grant of credit in case of corporate reorganisations (amalgamation, demerger), where the income of one company will be assessable in the hands of the other. Also, in cases where the asset was held by trustees of a trust but income was assessable in the hands of the beneficiary of such trusts, tax experts.
EXCEPTIONS: Till now, the credit was to a non-deductee only under specific circumstances. Like clubbing of incomes, incomes from association of persons or trusts assessable in the hands of the member or trustees or joint ownership of assets. Here too, the deductee was suppose to file a declaration for nil tax liability.
DECLARATION FOR NIL TAX: Currently, the rule which provides for the form, manner and periodicity (quarterly) for deductors to provide withholding tax statements does not specify the need to furnish information pertaining to cases where tax is not deducted based on the declarations. Henceforth, the rule will provide that the deductor furnishes particulars of the amount paid or credited on which tax was not deducted due to the nil tax liability declaration.
