Several large Indian corporations, including leading players in e-commerce, banking, insurance, IT services, and healthcare, have approached the Central Board of Direct Taxes (CBDT) seeking relief from the cap on the revision of Tax Deducted at Source (TDS) returns, sources have told CNBC-TV18.
In a policy change introduced in the Union Budget of July 2024, the government had limited the correction of TDS returns to only allowing the window for the past six financial years, which is giving these industries fresh hardships while dealing with vendors. Prior to this amendment, businesses were permitted to revise returns without any time constraint, and this new restriction has now become a significant hurdle for large companies managing extensive vendor networks and payments.
According to industry sources, several businesses are grappling with legacy TDS mismatches that have recently come to light, as tax authorities are now approaching vendors to highlight these discrepancies, prompting the vendors to, in turn, reach out to the large businesses.
“These mismatches are preventing vendors and contractors from claiming credit for the 10% TDS deducted at the time of payment, as the tax deducted is not reflected correctly in the income tax records due to incorrect returns by the deductors or these businesses,” sources said.
Sources further explained, “As a result, vendors are being flagged by the tax department for alleged under-reporting of income, leading to tax demands and scrutiny. Many of these vendors have begun approaching the deductor companies to either revise the filings or compensate for the uncredited TDS through direct payments, which they would have claimed while filing their returns as this 10% TDS would have come back to them as a refund, which is actually part of the payment for the services they have given to these large companies.” Thus, vendors are stuck with tax demands, unpaid dues which was deducted as TDS and several taxman queries which they are now flagging back to these large companies.
“These are genuine errors that have come up during reconciliation exercises,” said a senior executive of the finance department at a major IT services firm, who is flooded with such queries from vendors and vendor claims, on the condition of anonymity. “We want to correct them, but the six-year cap is preventing any rectification, leaving our vendors vulnerable to tax notices,” said a tax head of an e-commerce giant who did not wish to be named.
In many cases, the businesses argue, the vendor never actually received the payment, or the transaction was reported inaccurately, in many cases the invoice from the past is reflecting in TDS against a separate vendor leading to a mismatch for both the vendors—the one who had actually rendered that service and the one against whom it has mistakenly got credited to.
“Thus, the inability to correct past records is not only affecting vendor compliance but also straining long-standing commercial relationships,” said a tax consultant dealing with many such cases.
Industry bodies, too, are now pushing the CBDT to consider a relief window or bring back the old system of allowing correction of TDS returns beyond the six-year limit, particularly in cases where vendors and such large companies/businesses have genuine and legitimate hardships.
Tax experts say this is a growing compliance challenge for large enterprises. “The intention behind capping the revision window was to streamline tax administration, but it has led to a major issue of mismatch, unnecessary tax notices,” said a senior tax consultant. “But where genuine errors are leading to punitive consequences for small vendors, there should be scope for remedial action.”
Sources say that the CBDT is yet to officially respond to these requests, but sources suggest that the matter is under consideration.
“There are a lot of large tax deductors who have requests from their vendors, especially service providers, for corrections to be undertaken for the TDS records. The service providers have tax liabilities if the right TDS amounts and receipts are not reflected in their statements. The Government could consider relaxing the time limit in certain specified genuine cases, to ensure the amount to be credited to the account of the deductee and the corresponding TDS credit is accurately reflecting in the Form 26AS of the deductees and thereby ensuring correct claim of the TDS credit by the deductee,” an tax expert said.
Source from: https://www.cnbctv18.com/economy/industry-seeks-relief-from-cbdt-over-tds-return-revision-19595721.htm
