India: TDS Certificate Update

TRACES is a web-based application launched by India's Income Tax Department to provide an interface to all stakeholders associated with tax deducted at source (TDS) administration. It enables viewing of challan status, downloading of Conso File, Justification Report and Form 16 / 16A as well as viewing of annual tax credit statements (Form 26AS). Prior to the launch of the TRACES website, these services were managed by another agency called NSDL. Any data / services required in relation to the TDS returns must now be downloaded from the TRACES website and registration is required.

Who Uses TRACES?

For Deductors

The Income Tax Act, 1961 contains the provisions for Tax Deduction at Source. A Deductor is a person responsible for tax deduction at source on specified types of payments made by it. The tax so deducted has to be deposited in the government account. Deductor also has to report the tax deducted in a statement within the prescribed time.

It is mandatory to file an electronic TDS statement for the following categories of Deductors:

• Offices of the Government
• Companies
• Persons required to get their accounts audited u/s 44AB of the Income Tax Act, 1961
• Deductors reporting more than 20 deductee records for any quarter in the financial year

TRACES enables deductors / collectors to view status of challans and TDS-TCS credit for a PAN. They can also download Conso File, Form 16 / 16A and Justification Report after logging in to their account on TRACES.

For Taxpayers

For Taxpayers, TRACES enables a PAN holder (more on PAN below) to register and view tax credit (Form 26AS) online.

Details in Form 26AS

• Details of tax deducted on behalf of the tax payer by deductors
• Details of tax collected on behalf of the tax payer by collectors
• Advance tax / self-assessment tax / regular assessment tax etc. deposited by the tax payers (PAN holders)
• Refund received during the financial year
• Details of transactions in Mutual Fund, Shares and Bonds, etc. (as reported by AIR filer)

Registration with TRACES

Registration is required for access to the TRACES website, as the NSDL website no longer provides the information relating to TDS returns.

Registration with TRACES is essential for the following purposes:

• Generating the TDS certificates to be issued to the vendors for whom the company has deducted TDS. The TDS certificates are required to be issued on a quarterly basis, within 15 days from the due date of filing the TDS return.
• Any modification in TDS returns can be made by filing revised TDS returns. The input data for filing revised TDS returns is compulsorily required to be obtained from TRACES.
• The Tax Authorities send intimations regarding processing of TDS returns filed on a quarterly basis. Often, certain tax demands are raised in these intimations. The details / break-up of the tax demands raised will be available on TRACES.

Delay in issuing TDS certificates attracts a penalty of Rs. 100 per day of default, restricted to the amount of TDS deducted.

TRACES Role in Communicating with the Tax Authorities

Once the registration is done with TRACES, the Tax Authorities will send all correspondence / notices / letters relating to TDS returns to the e-mail ID provided to TRACES or place it in the registered electronic account of the company. The notices sent through electronic mode or placing of a notice on the registered electronic account will be considered as valid service of notice. Hence, the email ID provided to TRACES as well as the electronic account would require regular monitoring to ensure that all such correspondence is tracked and timely response is filed to the Revenue Authorities. If the registered electronic account is not monitored, it is likely that a notice placed on the electronic account will not come to the company’s attention and a timely reply may not be filed against the same.

Downloading of TDS Certificates from TRACES was made mandatory by CBDT circulars 04/2013 dated 17.04.2013, CBDT Circular No. 03/2011 dated 13-5-2011 and CBDT Circular No. 01/2012 dated 9-4-2012 on the Issuance of certificate for Tax Deducted at Source in Form 16/16A as per IT Rules 1962. Only TDS Certificates downloaded from TRACES are valid.

Under the provisions of section 203 of the Income Tax Act, 1961 read with rule 31A, a Certificate of tax deducted at source is to be furnished within fifteen (15) days from the due date for furnishing the statement of tax deducted at source. Failure to comply with the provisions of the Act will attract penalty under the provisions of section 272A of the Act, a sum of one hundred rupees for every day during which the failure continues.

About PAN

A Permanent Account Number, or PAN, is used by Indian residents on all communications with the tax authorities, including tax returns and other submissions. It is unrelated to the capacity to earn revenue in India, but it is not possible to file a tax return or open a bank account without a PAN, making it indispensable for both Indian entities and foreign entities doing business with them.

Physically, PAN is a ten-digit alphanumeric number, issued by the Income Tax Department in the form of a laminated card. PAN enables the department to link all transactions of the PAN holder with the department. These transactions include tax payments, TDS/TCS credits, returns of income/wealth/gift, specified transactions, correspondence, and so on. PAN therefore acts as an identifier for the holder with the tax department.

Use

Transactions between two parties in India require a PAN to be provided so that the correct Tax Deducted at Source (TDS) can be withheld, remitted to the authorities and allocated to the taxpayers’ accounts.

While a non-resident is not required to apply for a PAN, it may be subject to higher withholding tax rates if they do not have a PAN.

• Interest paid to non-residents is subject to a withholding tax of 20% plus a surcharge and cess unless otherwise provided for under a tax treaty. For interest paid to a foreigner on "infrastructure debt," the rate is 5%. If the foreign recipient of the interest does not have a PAN, then the higher of 20% or the applicable rate must be withheld. Royalties are treated similarly.
• Royalties paid to non-residents are subject to a withholding tax of 10% plus a surcharge and cess unless otherwise provided for under a tax treaty. If the foreign recipient of the royalties does not have a PAN, then the higher of 20% or the applicable rate must be withheld.
• Technical service fees paid to non-residents are subject to a withholding tax of 10% plus a surcharge and cess unless otherwise provided for under a tax treaty. If the foreign recipient of the fees does not have a PAN, then the higher of 20% or the applicable rate must be withheld.

PAN must be quoted by every payer and payee in all correspondence, bill, voucher or other transaction, all tax returns, and on "challans" (a receipt for payment or delivery). In an effort to track transactions in certain goods and thereby curb the use of “black money” in India, the government recently expanded the mandatory use to currency, bullion and gold purchases, as well as to certain other financial transactions above a quoted threshold.

Since July 1, 2011, a PAN has been required in all documents pertaining to the following:

Payment of life insurance premiums of Rs.50,000 or more in a year to an insurer

Payments over Rs.5,00,000 to a dealer in bullion or jewelry,

Application to any banking company or to any other company or institution for issue of debit card ,

Cash payments for travel to foreign countries, or the purchase of foreign currency for amounts > Rs.25,000

Since April 2010, every non-resident that receives income from India has also been required to obtain a PAN from the Indian Income Tax Authorities and to provide it to the Indian payor. (In the absence of this tax identification number, the payor is required to withhold taxes at a minimum rate of 20% or the higher applicable rate.)