TDS & allied matters. - Income Tax - 1856/1990

INSTRUCTION NO. 1856/1990 Dated: September 14, 1990 Reference is invited to Board's instruction/circulars letters mentioned below wherein the procedure and method for allotment of Tax-deduction Account number, issue of unified TDS certificate books, designation of income-tax authorities for TDS and other allied matters were specified: i. Circular No.497 (F.No.275/118/87-IT(B) dated 9.10.1987 regarding form of application for allotment of tax deduction account number. ii. Instruction No.1772 F.No.400/34/87-IT(B) dated 9.10.1987 regarding mode of allotment of tax deduction account number. iii. Instruction No.1797 F.No.275/103/88/IT(B) dated 19.9.1988 regarding implementation of a changes in administration of TDS. iv. Circular No.529 F.No.275/3/89/IT(B) dated 10.3.1989 regarding issue of unified form of tax-deduction certificate (Form No.16) v. Letter F.No.275/103/88-IT(B) dated 10.3.1989 containing guidelines regarding issue of TDS certificate books. vi. Letter F.No.275/17/89-IT(B) dated 7.3.1989 regarding designation of income-tax authorities for purposes of section 206 of the Income-tax Act. 2. Member (R A), Central Board of Direct Taxes also addressed a D.O. Letter No.273/17/89-IT(B) dated 29th September, 1989) to all the Chief Commissioners for giving due importance to the TDS work and for posting adequate number of officers and staff in the TDS circles. 3. In order to effectively monitor the work relating to deduction of tax at source, to introduce uniformity in the working of the new system and to ensure expeditious processing of the annual returns/monthly statements furnished by the tax deductors, it has further been decided by the Board to lay down the following detailed procedure: I. Functions of ITO(TDS): ITO(TDS) will carry out the functions as outlined in Annex-I. II. Maintenance of Registers: In order to ensure proper documentation in the office of ITO(TDS) and to facilitate the furnishing of various statements to the higher authorities it has been decided that the following registers will be maintained: a. Register for allotment of TAN to Tax-deductors for tax deducted at source. b.TDS Control Register No.1 (for offices of Government and local authorities). c. TDS Control Register No.2 (for tax deductors other than Government and local authorities. d. Demand and Collection Register (TDS). e. Daily Collection Register (TDS). f. Register of penalties u/s 271C, 272A and 272BB. g. Register of cases for prosecution proceedings u/s 276B. h. Alphabetical Register of Employees(ITNS-11B). i. Special Watch Register. The format and mode of maintenance of each of those registers is discussed hereunder: (a) Register for allotment of Tax deduction account number (TAN) A consolidated register for allotment of TAN shall be maintained by ITO(TDS), who has been assigned the work of allotment of TAN for all kinds of payments from which tax is deductible at source. The format of this Register is given in Annex-II. This register will help the ITO(TDS) to monitor allotment of TAN. Survey of persons responsible for tax deduction will be necessary to ascertain whether these persons are complying with the provisions relating to deduction of tax at source. This register will also help the Department to know whether such a person has applied for TAN or not. This Register will be a permanent record. (b) and (c) TDS Control Registers No.1 and No.2 and Alphabetical Register of Employers: The TDS Control Register No.1 will contain the relevant particulars of every office of Government or local authorities responsible for deducting tax at source on "Salaries" and other payments attracting tax deduction at source. This will be maintained alphabetically for three years in format given in annex-III. The TDS Control Register No.2 will, on the other hand, contain relevant particulars in respect of all the tax deductors other than offices of the Government and local authorities. This will also be kept alphabetically but a new Register will be started every year. The format of this register is given at Annex-IV. The sources for making entries in these registers may be the following: i. Entries brought forward from the preceding year or block of years, as the case may be . ii. Monthly certificate of deduction of tax at source (Form No.23) in case where the entry does not already exist. iii. counter-foil of challan of TDS or the entries in the Daily Collection Register (TDS) received from Computer Centres (Computer print out) in respect of cases where the entries do not already exist. iv. Blue Books of Company Circles/Central Circles /Special Ranges for entering the names of companies within the jurisdiction of ITO (TDS). v. Survey of persons responsible for deducting tax at source if a new case is found out. These registers will serve as control registers for the Income-tax officer (TDS). The annual returns received u/s 206 of the Income-tax Act read with Rule 37 of the Income-tax Rules will be entered in these registers with date of receipt. As soon as checking of a particular return is completed, and necessary action is taken, after entering the case in the D CR (TDS), date of checking the return will be indicated below the date of receipt in the relevant column. These registers will serve as a useful tool for monitoring the receipt of the annual returns and follow up action thereon. It is clarified that the existing alphabetical register of employers (ITNS-118) will continue to be maintained with the modifications that the source document for making entries in that register will be the monthly certificate of TDS required to be furnished by the employers in Form No.23. The format of this register is given at Annexe-V. The TDS Control Register No.2 also contains a column designed for entering the date of receipt of return in Form No.27B. This is an annual return furnished u/s 206B in respect of dividends paid or distributed during the financial year without deduction of tax. The contents of this return will help in verification of item No.5(i) of the annual return in Form No.26. (d) Demand and Collection Register (TDS) A separate Register for Demand and Collection of TDS has been prescribed which is given at Annexe-VI. In order to keep a record of monthly disposal made by ITO (TDS) it is necessary that number of returns/statements checked during the month should be entered in this register. The number of entries in which short deduction/payment or no deduction is discovered and amount involved should also be entered in the relevant columns provided in this register. Where there is late payment of tax deducted at source, interest charged u/s 201(1A) will be entered in the relevant column. Columns have also been provided for indicating the penalties, if any, levied, date of service of notice of demand, collection of the demand raised, date on which paid, etc. After the close of the financial year the unpaid demand will be carried forward to the arrear portion of the new D CR (TDS) in the same format. The current demand will, of course, be entered in a separate section of this register. The cases where, after due checking, no demand is created should be entered in a separate portion of D CR (TDS) for a particular financial year. (e) Daily Collection Register (TDS) (ITNS 120B) All the challans relating to deduction of tax at source will be got entered in this Register by ITL(TDS) with cross reference of serial No.in D CR(TDS). The new format of this Register is given at Annexe-VII which replaces the existing Daily Collection Register for TDS. This Register combines deduction of tax at source from all types of payments by companies and non-companies. The collections should, however, be entered in the relevant columns provided for each types of payments separately. Collections relating to penalty and interest should be entered in Columns specifically prescribed for this purpose. (f) Register of penalties This register is common for keeping record of penalties initiated and levied u/s 271C, 272A and 272BB of the Income-tax Act (Annexe-VIII). As time limit for passing a penalty order has been laid down in the Act, the maintenance of this register assumes great importance. By referring to the columns "date of service of show cause notice" and "Limitation Date "the ITO(TDS) can keep a constant watch so that the penalties do not get barred by limitation. The register should be divided into different parts so that separate record of penalties under each section is kept. (g) Register of cases in which prosecution proceedings are initiated This register will be maintained to keep a record of cases in which prosecution proceedings u/s 276B for defaults relating to TDS are initiated. The cases in which proposals for initiation of prosecution are approved should only be entered in this Register and progress of cases should be watched from this register. The proforma of this Register is given at Annexe-IX. (h) Special Watch Register (Register of Statements in Forms 21 and 22). Under rule 32 of the Income-tax Rules, an employer, other than the Government, is required to send to the ITO(TDS) a statement in Form No.21 in respect of salaries paid in the case of employees leaving service. Further, under rule 33 of trustees of an approved superannuation Fund are required to furnish a return in Form No.22 when they pay any contributions, made by an employer, to an employee during his life time. These statements/Returns should be checked on priority basis (not later than a week from their receipt) so that suitable action for short deduction/payment or no deduction is taken urgently. A separate register known as "Special Watch Register" (Register for statements in Forms No.21 and 22 may be maintained, the format of which is given at Annexe-X. III. Maintenance of Records A separate Tax Deduction File should be maintained for cases of tax deduction at source in respect of each source of payment, where short deduction/short payment or late payment has been found or where the case has been considered fit for initiation of prosecution proceedings. Accordingly, statement/return received from the tax deductor, demand notices/intimation letters/papers regarding penalty/interest, counterfoils of challans etc., shall be kept in this folder. Other returns alongwith counterfoils of challans, TDS certificate, etc., where no short-coming has been noticed and no action is called for, may be kept separately in bundles, alphabetically arranged in order to ensure easy retrieval, whenever required. After a period of five years these returns may be weeded out. IV. Reconciliation of Tax deducted at Source Under Rule 32(1) (b) every employer is required to send to the ITO (TDS) a monthly certificate of deduction of tax at source from "salaries' in Form No.23. The amount of tax deducted at source shown in this certificate should be reconciled every month with the departmental copy or challan of the payment to the Government Account, and, corrective measures should be taken if any discrepancy is found. When the annual statement in Form No.24 is received from the employer, the total amount of tax deducted at source during the year should tally with the reconciled amount of challans and monthly certificate. In case any discrepancy is discovered, suitable action should be taken in accordance with law. The fact of reconciliation should be recorded in the remarks column of ITNS-118. V. Verification of TDS certificates with the returns received by ITO (TDS) A small percentage of TDS certificates in Form No.16 presented to the concerned Assessing Officer with the returns of income shall be verified by the Assessing Officer with reference to the records of concerned ITO(TDS) before giving credit for such TDS. Such a verification can be easily done because the ITO (TDS) would have already received a copy of the TDS certificate directly from the tax deductor alongwith the relevant annual return. The particulars of the certificate shall also be checked with entries in the relevant return received by the ITO (TDS). Such a verification should be done by the Assessing Officer on a sample basis soon after receipt of returns of income by him so as to avoid any delay in the processing of returns of income vide section 143(1)(a) and issue of refunds, if any. The ITO(TDS) should cooperate with the Assessing Officer in the matter of such a verification, whenever required. The percentage of certificate to be subjected to cross verification has been left to the discretion of the respective Chief Commissioners, vide Board's Instruction No.1797 dated 19.9.1988. 4. These instructions may be brought to the notice of all the officers working in your Region. 5. Hindi version will follow.