When Tds Has To Be Refunded

TDS makes it possible to have a regular flow of tax revenues, check evasion and widen the network for collection, says T N Pandey

Tax deduction at source (TDS) is an indirect method of tax collection. TDS makes it possible to have a regular flow of tax revenues, check evasion and widen the network for collection.

Sections 192 to 196D of the Income Tax Act, 1961, deal with different situations where tax is to be deducted at source. Section 195 relates to TDS from non-residents and applies in cases of payments to non-residents and foreign companies.

The Act provides that if no tax is found due from the person from whose payment tax is deducted at source, the refund can be claimed by the deductee --- not the deductor by filing a return.

 

However, situations arise when after deduction of tax in cases of non-residents and remittance of the amounts or even before remittance, after the tax has been deducted and paid the contract with the non-resident is cancelled. In such situations, though payments are refunded by non-residents, TDS paid remains with the government.

This position arises even in cases where TDS is deducted on accrual basis, but the contract gets cancelled and thus money paid as TDS gets blocked up.

To provide relief in such cases, the CBDT issued a circular permitting refund in cases where contracts get cancelled or the tax deducted at source is found to be in excess of tax deductible for