1. Introduction As per Section 203 of the Income tax Act, 1961, every person deducting tax shall furnish to the payee a certificate of tax deducted at source with relevant particulars to enable the payee to claim credit of the amount of TDS. Accordingly, CBDT has issued circulars [i]on the issuance of certificate for Tax Deducted at Source in Form 16/16A as per IT Rules, 1962. In view of the circulars, it is now mandatory for all deductors to issue the TDS Certificates which are generated and downloaded from “TDS Reconciliation Analysis and Correction Enabling System” (TRACES).Accordingly, TDS Certificates downloaded and issued from the TRACES portal shall only be considered as valid. Consequently, certificates issued in any other form or manner will not comply with the requirements referred in the Income-tax Act, 1961 read with relevant Rules and Circulars issued in this behalf.
2. Significance of PAN It is to be noted, that TRACES is equipped to generate TDS certificates only in case of deductees/payees holding a PAN. In case of payees without PAN, a statement of TDS in Form 27Q shall be filed by the deductor stating “Pan Not Available”.
3. TDS Certificate in case of payments made to Non Residents without PAN
Of late, it is observed that the deductors are facing practical difficulties in issuing the TDS certificates to non residents without PAN. We can have a better insight in to the issue with a practical scenario:
For example: ABC Private Ltd makes payment to Mr.X, a non resident who does not hold a PAN. ABC Private Ltd files a statement in Form 27Q declaring the transaction. ABC Private Ltd to issue TDS Certificate to Mr.X in the prescribed form
However, in view of the circulars issued by the CBDT, practically it would be impossible to issue Form 16/16As as TRACES is not equipped to generate the TDS Certificates in case of deductees without PAN.
Mr.X, a non resident cannot be denied from the tax credit which was validly deducted and deposited to the Government by the deductor(ABC Private Limited). It is to be noted, that not granting the tax credit merely because of the fact that certificate could not be generated from the portal would be against the principles of natural justice.
Hence, in all such cases, the deductors are resorting to issuing manual TDS Certificates in Form 16A evidencing the taxes deducted at source. However, few of the non-residents have expressed their unwillingness to accept the manual TDS certificates as the tax authorities of their respective homeland recognizes only a government issued certificate as valid. Consequently, the deductees with no PAN are not able to claim credit for taxes, withheld in India.
To address the practical difficulties faced by the deductors and deductees, the income tax department has enabled generation of certificate called Transaction Based Report.
5. Transaction Based Report (TBR)
CPC (TDS) in co-ordination with the Income tax department has introduced a new feature on TRACES for generating Transaction Based Report (TBR) in respect of deductees reported in 27Q TDS Statements. The report provides with a summary of transactions in respect of non resident deductees who have not reported their PAN’s (i.e., PAN not available).
The deductors can issue the Transaction Based Report generated and downloaded from the TRACES portal with or without digital signature to the Non Resident Deductees.
The summary of transactions in the TAR includes following key information, besides others: · Nature of remittance · Amount credited/paid · Country of remittance · Amount of taxes deducted · Reason for higher Rate of deduction of Tax (PAN Not available)
It may be noted that the report is available only from the Financial year 2013-14.
In view of the above provisions and in respect of the payments made to Non residents who do not hold a PAN, the deductor can issue the TRACES generated TBR as a proof of deduction of taxes in India to the Non residents. It shall be noted that:
TBR is a certificate stating deduction and deposit of taxes to the credit of Central Government. TBR is a proof of deduction of taxes in India which facilitates the non-resident to claim credit of taxes in his home country (Also refer, DTAA)TBR shall not automatically entitle the deductee to claim the credit of TDS in India. In order to claim the credit in India, the deductee shall obtain a PAN and file his return of income in India. PAN shall be reported to the deductor, upon which the deductor shall issue a certificate under section 203 of the Act.
[i] Circulars bearing numbers 04/2013 dated 17.04.2013, 01/2012 dated 09.04.2012 and 03/2011 dated 13.05.2011
Disclaimer The article is meant for general understanding purposes only. Views expressed by the author in this article are personal. Readers are advised to consult experts on specific issues. Last updated on April 10, 2015.