New TDS Correction Rules: Limited Time for Amendments

TDS Correction

New TDS Correction Rules: Limited Time for Amendments

TDS Correction

The Finance Act (No. 2), 2024, has introduced a key revision that imposes a strict time limit on filing TDS correction statements. Previously, there was no deadline, allowing frequent and sometimes questionable modifications. This move aims to enhance compliance and reduce potential misuse of the system.

While deadlines existed for submitting TDS & TCS returns, correction statements had no such restriction, leading to recurring changes by deductors—whether voluntarily or due to inquiries. This caused complications for deductees, often resulting in discrepancies in their tax records. To rectify this, the Finance Act (No. 2), 2024, has amended Sections 200(3) and 206C(3B) of the Income-tax Act. The new rule mandates that correction statements must be submitted within six years from the financial year in which the original statement was filed.

Final Deadline: Submit Corrections by March 31, 2025!

For correction statements concerning Financial Years 2007-08 to 2018-19, the submission deadline is March 31, 2025. This ensures that all corrections are made within a reasonable period, preventing undue manipulation. However, while this amendment brings more structure, it does not entirely eliminate loopholes that certain deductors could still exploit.

TDS Correction

Existing System Flaws: A Persistent Issue

Certain deductors have historically taken advantage of the system using the following method:

  • The deductor submits the initial TDS return, and the deductee claims the corresponding TDS credit in their Income Tax Return (ITR).

  • The deductee receives a tax refund based on this credit.

  • The deductor then files a correction statement, reallocating the TDS credit to a different deductee.

Why This Matters

Once a tax refund is issued, there is no mechanism to verify whether the corresponding TDS credit remains in Form 26AS. If the deductor subsequently deletes or reallocates the TDS credit, the tax department lacks an automated alert system to notify the deductee. As a result, many deductees unknowingly become liable for additional taxes on amounts they thought were already settled. Since tax authorities do not perform automatic checks on such changes, these issues often emerge much later—leading to tax notices, interest charges, penalties, and unnecessary litigation.

A Smarter Approach: Locking TDS Credits

While the six-year limit is an improvement, a more secure solution would involve a TDS credit lock system integrated into the ITR filing process. Here’s how it could work:

  • When filing ITR, deductees should be required to confirm or reject TDS credits reflected in Form 26AS.

  • Once confirmed, the credit should be locked, preventing alterations by the deductor.

  • If corrections are necessary, they should only be permitted with deductee approval via an automated request linked to their PAN.

  • Manual intervention by tax officers should be eliminated to prevent unnecessary delays, excessive paperwork, and unofficial processing charges.

A similar correction system is already in place for Form 26QB and 26QC, where modifications related to PAN, transaction dates, and amounts require approval from the affected party. Implementing this system for TDS credits would significantly reduce opportunities for fraud and disputes.

Read More: Revised HSN Code Reporting Guidelines for GSTR-1

The introduction of a deadline for TDS correction statements is a welcome move toward better compliance and fraud prevention. However, a deductee-controlled TDS credit lock mechanism would further fortify the process, ensuring that once tax credits are claimed, they remain intact and undisputed. With these additional safeguards, the tax system could become more transparent, efficient, and fair for all taxpayers.

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        Review of TDS/TCS Amendments in Budget 2025

        Budget 2025

        Review of TDS/TCS Amendments in Budget 2025

        Budget 2025

        Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions are integral to the tax system, ensuring tax collection at the source of income. However, the complexity of multiple sections, varying threshold limits, and diverse tax rates often leads to compliance challenges for both deductors/collectors and deductees/collectees.

        The Union Budget 2025 has introduced significant amendments aimed at simplifying and rationalizing TDS/TCS provisions. These changes primarily focus on revising threshold limits and modifying tax rates to reduce compliance burdens and improve ease of doing business. Below are the key changes proposed:

        1. Revision of TDS Threshold Limits

        One of the major amendments includes increasing the threshold limits across various TDS provisions to alleviate the compliance burden and enhance liquidity for taxpayers. The revised section-wise threshold limits are as follows:

        Budget 2025
        SectionNature of IncomeExisting Threshold (Rs.)Proposed Threshold (Rs.)
        193Interest on securitiesNil10,000/-
        194AInterest other than securities50,000/- (Senior Citizens) 40,000/- (Others) 5,000/- (NBFC)1,00,000/- (Senior Citizens) 50,000/- (Others) 10,000/- (NBFC)
        194Dividend5,000/-10,000/-
        194KIncome from Mutual Funds5,000/-10,000/-
        194BWinnings from lottery, crossword puzzles10,000/- (Aggregated annually)10,000/- (Single transaction)
        194BBWinnings from horse races10,000/-10,000/-
        194DInsurance Commission15,000/-20,000/-
        194GCommission on lottery tickets15,000/-20,000/-
        194HCommission/Brokerage15,000/-20,000/-
        194IRent2,00,000/- (Annually)50,000/- (Monthly)
        194JProfessional/Technical Fees30,000/-50,000/-
        194LACompensation on land acquisition2,50,000/-5,00,000/-

        These revisions will take effect from April 1, 2025. While the threshold increases are not significantly high except for rent (Section 194I) and interest (Section 194A for senior citizens), they are still expected to ease compliance for taxpayers. The revision in Section 194I specifically benefits commercial property rentals, with exemptions for individuals and HUFs under a certain turnover threshold.

        2. Adjustment of TDS Rates

        The Budget also proposes rationalizing certain TDS rates to enhance taxpayer compliance and ease of business. Notably, the changes include:

        SectionNature of IncomeExisting TDS RateProposed TDS Rate
        194LBCIncome from securitization trusts (Resident Investors)25% (Individual & HUF) 30% (Others)10% for all cases

        This change will also take effect from April 1, 2025.

        3. Amendments to TCS Provisions

        a) Revisions in TCS on Forest Produce

        The Budget proposes a more precise definition of “forest produce” by aligning it with the Indian Forest Act, 1927, and State Acts. Additionally, changes in TCS rates include:

        SectionNature of IncomeExisting TCS RateProposed TCS Rate
        206C(1)Timber (Forest Lease)2.5%2%
        206C(1)Timber (Other than Forest Lease)2.5%2%
        206C(1)Other Forest Produce (Non-Tendu Leaves)2.5%2%

        b) Elimination of TCS on Certain Sales Transactions

        Currently, Section 206C(1H) mandates sellers to collect TCS while Section 194Q requires buyers to deduct TDS. To reduce compliance challenges, Section 206C(1H) will be omitted from April 1, 2025. This resolves the common issue where both the buyer and seller deduct TDS/TCS on the same transaction.

        4. Abolition of Higher TDS/TCS Rates for Non-Filers

        Sections 206AB (TDS) and 206CCA (TCS) require higher tax rates for non-filers of income tax returns. Since verifying a deductee’s or collectee’s compliance status is cumbersome for taxpayers, these sections will be omitted from April 1, 2025.

        5. Exemption from Prosecution for Delayed TCS Payments

        Section 276BB currently allows for prosecution in cases of delayed TCS payments. The amendment ensures no prosecution if TCS is deposited before the due date for filing the quarterly statement under Section 206C(3). This aligns TCS provisions with similar relaxations already available for TDS.

        6. Modification of TCS on Foreign Remittances Under LRS

        The Budget also revises TCS applicability on remittances under the RBI’s Liberalized Remittance Scheme (LRS):

        • Education Remittances:

          • No TCS if funded by an education loan (Earlier: 0.5% TCS above Rs. 7 lakh)

          • If not funded by an education loan, the threshold increases from Rs. 7 lakh to Rs. 10 lakh, with the 5% TCS rate remaining unchanged.

        • Medical Remittances:

          • The TCS threshold has been increased from Rs. 7 lakh to Rs. 10 lakh.

        Read More: Union Budget 2025: Key Tax, GST & MSME Updates Explained

        The Budget 2025 proposes significant amendments to TDS/TCS provisions, aiming to reduce complexities and compliance burdens. Notable changes include higher threshold limits, rationalized tax rates, and simplified procedures for deductors and collectors. Unlike previous years, where different provisions took effect on different dates, all these changes will uniformly come into force from April 1, 2025. However, with the proposed new Income Tax Bill on the horizon, it remains to be seen how these provisions will be integrated into the new tax framework.

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              New Form 12BAA Issued by CBDT to Report Non-Salary Taxes Paid by Employees

              New Form 12BAA Issued by CBDT to Report Non-Salary Taxes Paid by Employees

              The Union Budget 2024 brought a notable shift for salaried employees with the introduction of Form 12BAA, a new tax form issued by the Central Board of Direct Taxes (CBDT). Form 12BAA is designed to enable employees to report details of taxes paid on non-salary income directly to their employers. This initiative is intended to simplify tax calculations and optimize cash flow for salaried individuals by ensuring that all Tax Collected at Source (TCS) and Tax Deducted at Source (TDS) are accounted for accurately.

              What is Form 12BAA?

              Form 12BAA provides a structured way for employees to declare taxes paid on income sources outside of salary. Unlike previous forms, this new form specifically captures non-salary income details, allowing employees to offset TDS and TCS from other sources against TDS on their salary income.

              Non-salary income sources covered in this form include:

              • Earnings from fixed deposits
              • Commissions from insurance policies
              • Dividends from equity investments
              • TCS collected on large expenditures, such as car purchases or foreign currency transactions.

              By sharing this information with their employer, employees help ensure a more accurate TDS calculation on salary, potentially easing cash flow issues. This development is part of the government’s effort to streamline tax credit claims and minimize the need for refunds by enabling employers to consider all TDS and TCS payments when calculating tax on salary.

              How Does Form 12BAA Benefit Employees?

              Employers typically calculate TDS on salary based on employee-provided information regarding investments and deductible expenses. However, TDS and TCS from other income sources have not previously been factored into this calculation. With Form 12BAA, employees can now declare these other tax credits, which may reduce the total tax withheld from their salaries, resulting in improved cash flow and increased disposable income.

              Introduced on October 1, 2024, this new reporting form allows employees to report non-salary TDS or TCS to their employer. It’s worth noting, however, that while the form must be submitted to the employer, there is currently no specific method prescribed for how employees should communicate these details.

              Structure of Form 12BAA

              Form 12BAA requires employees to provide detailed information about TDS and TCS payments, including:

              • TDS Details:

                • Section under which tax was deducted
                • Name and address of the deductor
                • TAN of the deductor
                • Amount of tax deducted
                • Amount received or credited

              • TCS Details:

                • Section under which tax was collected
                • Name and address of the collector
                • TAN of the collector
                • Amount of tax collected

              This level of detail aims to ensure that employees can accurately reflect the TDS and TCS on non-salary income, which their employers can then incorporate when calculating salary-based TDS.

              Form 12BA vs. Form 12BAA: What’s the Difference?

              While Form 12BAA deals with non-salary income reporting, Form 12BA is the form used by employers to disclose perquisites and other benefits provided to employees earning above Rs 1,50,000 annually. These perquisites may include items like rent-free accommodation, contributions to superannuation funds, or travel expenses. Employees with a salary under Rs 1,50,000 need not worry about Form 12BA, as the details in ‘Part B’ of Form 16 cover the necessary information.

              Budget 2024: Enhancements in TCS and TDS Provisions

              During the 2024 Budget presentation, Finance Minister Nirmala Sitharaman highlighted the necessity of including TCS credits when calculating salary TDS. This amendment aims to reduce the compliance burden on employees by allowing a more comprehensive calculation of tax obligations, minimizing refund claims and easing the tax filing process.

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              Form 12BAA, combined with the updated provisions in Budget 2024, provides employees with an efficient way to disclose all TDS and TCS paid, improving their overall tax compliance experience and ensuring they receive the full benefits of their eligible tax credits.

              As we move forward, Form 12BAA will play a crucial role in simplifying tax deductions for employees, empowering them to optimize their finances with greater transparency and ease.

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