Cracking the whip: TDS defaults by state PSUs, banks come under I-T lens

Topics TDS | TDS on payments | TDS default

The total TDS collection in FY21 stood at Rs 3.50 trillion (excluding TDS related to international transactions)
The Centre has asked the tax department to plug revenue leakage resulting from large-scale defaults in payment of TDS (tax deduction at source), particularly by state government entities and banks. To ensure compliance, it has directed the authorities to take strict action like conducting survey operations.

The move comes in light of a significant rise in defaults by banks in deduction of TDS on interest to state government PSUs, corporations, autonomous bodies, and development authorities.

In a recent directive, the tax authorities were asked to collect information from state governments about the plan outlay of all major contracts and sub-contracts in the various departments, and they have been instructed to monitor payment of TDS. Besides, they have been asked to undertake survey operations where necessary.

These measures have also been incorporated by the I-T department’s policymaking body in its recently issued Central Action Plan for FY22, a blueprint for the department’s actions in the year.

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“It is settled law that state government undertakings are separate legal entities and are, therefore, liable to income tax. It has been observed that the banks have been defaulters in non-deduction of TDS on interest to these state-run authorities. This area needs sensitisation and education of deductors. Banks and PSUs are the key areas of focus during the current financial year,” according to the action plan.

The I-T department is learnt to have already prepared a three-pronged strategy to crack down on TDS defaulters. They will be sent at least 20 e-enquiries and subsequent notices, and survey operations will be conducted based on the prevailing Covid-19 situation in the city.

“Considering the huge amount of revenue stalled in these government departments, such measures would result in over 500 TDS surveys across the country,” a senior official said.

  • Monitoring of monthly TDS remittances from govt depts
  • Tax dept to collect information of major contracts of state governments
  • Banks, PSUs have been defaulters in non-deduction of TDS on interest to state PSUs 
  • At least 20 e-enquires to be issued to verify the defaults 
  • To check frequent corrections in TDS payments in deductors’ name
  • To examine the stark contrast in TDS payment of deductors of similar business
The total TDS collection in FY21 stood at Rs 3.50 trillion (excluding TDS related to international transactions). In the June quarter of the current fiscal, TDS collection was Rs 60,591 crore from corporates and Rs 95,644 crore from individuals.

The action plan details certain key parameters based on which surveys would be launched against defaulters. These include stark contrast in TDS payment trend compared with other deductors in similar business; negative growth in TDS payments as against healthy growth in advance tax payments.

“To ensure correct and prompt reporting and collection of TDS by state governments, the range heads should closely interact with the State Accountant General and treasuries, and provide necessary guidance to minimise errors and delays. Two meetings with State AG should be organised during the year,” the action plan highlights.

Even professional fees paid by banks or by the customers for loans and credit ratings, valuation of stocks, properties and other assets also need to be verified. “Collection of tax at source is an area to augment considerable revenue as more areas have been included under this provision,” it said.

This apart, large-scale non-compliance of TDS provisions by local bodies (especially panchayats) has been also noticed in some regions. A similar modus operandi would ensure compliance by these local bodies and could be helpful in boosting revenue, the department’s action plan notes.

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