Volume 2, Issue 5


28th March, 2009


Tax Alert
New Rule for Granting of Credit for TDS

Tax Deducted at Source (TDS) is easily one of the biggest source of revenue from the Government’s point of view. It is also easily one of the biggest nightmares for tax payers and tax deductors.

Section 199 of the Income‐tax Act (the Act) lays down the provisions for giving credit for TDS. Last year, vide the Finance Act, 2008 the section was amended to provide that the Govt. could make such rules as it thought fit to ensure that credit in respect of TDS was properly granted. In pursuance of that power, recently, the Central Board of Direct Taxes has issued a Notification No. 28/2009 dated 16th March, 2009 wherein two new Rules – Rule 37BA and Rule 37I have been notified. Rule 37BA deals with granting of credit for TDS and Rule 37I deals with granting of credit for Tax Collected at Source (TCS). In this Alert, we have dealt with the new Rule 37BA relating to TDS.

Effective Date:
Both the Rules are effective from A.Y. 2009‐10 i.e. the current financial year which will end on 31st March, 2009.

Rule 37BA:
This new Rule lays down the manner in which credit would be given for TDS. The said provisions are captured in the below table:

Situation Credit to be given to whom?
Normal Case Person to whom payment has been made or credit has been given on the basis of information relating to TDS furnished by the deductor to the income‐tax authority or to the person authorised by such authority
If the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee:
1. In case of clubbing of income of deductee with that of another person under the provisions of section 60, section 61, section 64, section 93 or section 94 To that other person
2. Where the income of a deductee being an association of persons (AOP) or a trust is assessable in the hands of members of the a association of persons, or in the hands of trustees To such member of the AOP or the Trustees as the case may be
3. The income from an asset held in the name of a deductee, being a partner of a firm or a karta of a Hindu undivided family To the partnership firm or Hindu undivided family, as the case may be
4. Where the income from a property, deposit, security, unit or share held in the name of a deductee is owned jointly by the deductee and other persons In such a case, the income is assessable in their hands in the same proportion as their ownership of the asset and therefore the credit for TDS would also be given in the same ratio to each co‐owner

What is required to be done to claim credit?

The deductee has to file a declaration with the deductor and the  deductor will  have to  report

the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub‐rule (1).

The above referred declaration filed by the deductee would have to contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.

Also, the deductor would have to issue the TDS certificate in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub‐rule (1) and should keep the declaration in his safe custody.

Other important points

Credit for TDS paid to the Central Government shall be given for the assessment year for which such income is assessable. Where TDS has been deducted and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.

Credit for TDS shall be granted on the basis of –

  1. The information relating to deduction of tax furnished by the deductor to the income‐tax authority or the person authorized by such authority: and
  2. The information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the Central Board of Direct Taxes from time to time.

Summary

The issue of granting credit for TDS has always been a complex and problematic one. Now, with clear guidelines being given, one hopes that credit for TDS would be easily obtained. The new Rules would be particularly useful in those cases where there is more than 1 owner of the asset which yields the income. In such cases, the granting of credit for TDS amongst the various owners will become simpler now.