Surveys for Enforcing Compliance with Provisions of TDS

The Income Tax Act contains provisions requiring persons responsible for making certain payments, to deduct income tax before the payment is made to the payee. This mode of collection of income tax is called Tax Deducted at Source (TDS). Tax is deducted at source from various types of payments like salary, interest, commission, rent, contract payments, winnings from lotteries, winnings from horse races, payments for acquisition of land, payments as fees for technical and professional services, etc. Employers have to deduct tax from salary payments to their employees. Banks, financial institutions and others, while making payment of interest to depositors or crediting interest in their accounts, have to deduct tax at source.

Tax is deducted by authorities awarding contracts while releasing payments to contractors. Similarly, tax is deducted at source from rent, commission payments, and various other payments enumerated in the Income Tax Act. The Income Tax Act also stipulates the monetary limits and rates at which tax is to be deducted. The persons responsible for deducting tax at source, have to deposit the tax deducted by them in the government account within the time limits laid down for this purpose.


Collection of tax by way of TDS is very important for the Income Tax Department as a significant part of the tax revenue is collected in this manner. However, persons authorities liable to deduct tax often default as either they are unaware of the provisions of the law in this regard or are simply reluctant to take on this onerous responsibility. The income tax authorities are fully aware of this reality and are taking steps to enforce compliance in this area. Training programs and workshops on TDS are being conducted to educate and train concerned officials from government departments, public sector undertakings and the private sector. Chambers of commerce and industry are also involved in this process.


The department is also conducting surveys to detect irregularities and for enforcing compliance. Entities surveyed in this case could be a business enterprise, a finance company, a real estate firm, an authority, a PSU, a bank or anyone else required to deduct tax at source. Payments made by the entity are examined in detail. The officials then verify whether TDS has been 1educted from the payments and whether it has been done at the correct rate. They also check if the TDS amount has been deposited in the government account within the stipulated time. Other relevant facts, i.e. whether TDS certificates have been issued and returns of TDS are being filed are also checked. Any defaults noticed during the survey are noted down so that further action by way of charging of interest or levy of penalty, if necessary, is taken. The whole emphasis is on ensuring that TDS provisions are properly understood and complied with by the deductors.


TDS surveys have been found to be very effective in detecting non-deduction or short deduction of tax at source, or in identifying cases where deduction was made but tax was not deposited with the government.


In the case of a leading manufacturer, the survey revealed that the company was getting certain components manufactured from some vendors. The payments made to the vendors were treated by the company as payment for purchases and, as such, no tax was being deducted from these payments. The information gathered during the survey showed that the company was providing specimens I designs and was also giving raw material to its vendors for the manufacture of the components. These parties were also debarred from selling products to other companies. All these facts clearly established that the work carried out by the vendors was in the nature of job contracts. The payments being made to the vendors were contract pay ments and tax was, therefore, required to be deducted from such payments. The company was found to be defaulting in this case.
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