Reply to TDS Notices

Notice/ Intimations are often sent by the Income Tax Department under section 200A of the Income Tax Act in relation to Tax Deducted at Source (TDS). Some common reasons that lead to issue of Notices are: -

  1. Deduction of TDS at a lower rate
  2. Short-payment/ non-payment of interest
  3. Short-payment/ non-payment of penalty/ fee
  4. Incorrect challan details
  5. Non-deduction of TDS by property purchaser

TDS Demand Notices usually do not clearly state the reason for the demand. The justification report gives more insight about the default.

Processing of TDS Returns

Where a TDS Return or a correction statement has been filed by a deductor, such statement/ return is checked for the following: -

  1. Arithmetical errors
  2. Incorrect claim apparent from records
  3. Interest calculation
  4. Computation of late fees

After processing is done, an Intimation under section 200A is sent stating whether any amount is payable.

Order under section 201

Where an assessee fails to deduct TDS or after deduction fails to deposit TDS, then he shall be deemed as an assessee in default. Accordingly, penalty and interest under section 220 & 221 will be applicable on the assessee. In such a case, order under section 201 is issued to the assessee.

Exception to Assessee in default:

The deductor cannot be treated as assessee in default if deductor has failed to deduct TDS, but the deductee (resident or non-resident payee) has duly:

  1. Furnished his Return of Income under section 139
  2. Taken into account such sum for computing income in such return of income
  3. Paid the tax due on the income declared by him
  4. Furnished a Certificate to this effect from a chartered accountant
Time limit for passing Order:

The order under section 201(1) for interest or penalty shall be passed within the earlier of the following:

  1. 7 years from the end of the Financial Year in which payment is made or credit is given
  2. 2 years from the end of the financial year in which correction statement of TDS quarterly return is filed

However, there is no time limit for passing order under section 201 in the following cases: -

  1. The deductor has deducted but not deposited TDS
  2. The employer has failed to pay the tax wholly or partly on perquisites provided to employee
  3. The deductee is a non-resident.

Important points to remember

  • Filing of Rectification: Intimation under section 200A or Order under section 201 can be rectified under section 154 if there is any mistake apparent from record. Such rectification can be done within 4 years from the end of the year in which intimation or order is received.
  • Filing of Appeal: Intimation under section 200A and Order under section 201 are both appealable orders. If the deductor is aggrieved by the order/ intimation and rectification is not possible, he may file an appeal before the Commissioner of Income Tax (Appeals).
  • TDS on sale of property: A purchaser of immovable property is required to deduct TDS @ 1% from the consideration paid to the seller where the gross sale consideration is Rs. 50 lakhs or more. This is applicable for all assessees including individuals and HUFs. Often individuals forget to deduct tax and as a result receive notice from the Income Tax Department facing penalty and interest.

There is no specific way to avoid notices or intimations. However, one can always follow the basic rules to reduce the likelihood of getting notices from the Income Tax Department. These basic rules include: -

  1. Deduct TDS at appropriate rates and deposit the same in time
  2. Calculate interest/ penalty correctly, wherever applicable
  3. File Quarterly TDS returns appropriately within due date

Justification report contains the details of errors or defaults identified by the Income Tax Department while processing TDS return or correction statement. The deductor can access justification report from the TRACES portal. Justification report is available only when the TDS return is processed with default.

Interest/ penalty is levied when the deductor becomes an assessee in default due to non-deduction of TDS or non-payment of TDS after its deduction. If you agree that there is a genuine default on your part and you agree with the demand of interest/ penalty, you should pay the same immediately. If you do not agree with the demand, you may challenge the order in an appeal with the Commissioner of Income Tax (Appeals). If there is any mistake apparent from records in the order, you can file a rectification under section 154.

A rectification can be filed when there is a mistake apparent from records in the intimation under section 200A or order under section 201. The time limit for filing a rectification under section 154 is 4 years from the end of the financial year in which intimation/ order is received.

When the deductor does not agree with the intimation under section 200A or the order under section 201, and there is no mistake apparent from records, they should file an appeal to the CIT (Appeals) challenging the intimation/ order. An appeal is to be filed within 30 days from the date of service of intimation/ order.

If the intimation/ order is issued after the time limit prescribed in the Income Tax Act, it shall become time barred. A time barred intimation/ order is void. The time limits are as follows: -

  1. Intimation u/s 200A: 1 year from the end of the financial year in which TDS return or correction statement is filed.
  2. Order u/s 201: Later of (a) 7 years from the end of the Financial Year in which payment is made or credit is given or (b) 2 years from the end of the financial year in which correction statement of TDS quarterly return is filed.

An appeal should be filed with the CIT (Appeals) against such intimation. You should have a copy of the Certificate for lower deduction of tax as the same needs to be presented before the CIT (Appeals). If the Certificate is valid, then the CIT (Appeals) will quash the demand.

What’s Included

  • Consultation with our Tax experts
  • Analysis of TDS Notices
  • Downloading Justification Report
  • Preparation of Responses

Documents required

  • PAN and TAN of the deductor
  • Copy of Notice/ Intimation
  • Details of TDS Return filed (relating to the notice)
  • Details relating to facts of the case

Reply to TDS Notices


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