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Introduction
In situations where an assessee fails to deduct or short-deduct TDS, they may be labeled as “Assessee in Default” under section 201(1) of the Income Tax Act, 1961. This designation comes with consequences such as interest payments, prosecution, penalties, and disallowance of expenditures.
Legal Provisions
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Section 201(1): Failure to deduct or pay TDS leads to being deemed an “Assessee in Default.”
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Proviso to section 201(1) with Rule 31ACB: Relief for resident payees meeting certain criteria, including PAN validation and tax payment.
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Section 40(a)(ia): Pertains to the disallowance of expenditure due to non-deduction or non-payment of TDS.
Benefits
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Avoiding “Assessee in Default” Label: Adherence to the provisions of Form 26A prevents the assessee from being labeled as “Assessee in Default.”
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Expenditure Disallowance Relief: The assessee is allowed to claim the disallowed expenditure under section 40(a)(ia) in the year when Form 26A is filed.
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Protection from Penalty and Prosecution: Reasonable cause may protect the assessee from penalties and prosecution.
Procedure
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TRACES Portal: Deductors can submit a request for Form 26A on the TRACES portal, providing transaction details through a .nzip file.
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E-Portal of Deductor: After generating the .nzip file, upload it to TRACES with the DSC of the authorized signatory. The status of Form 26A will be submitted after filing.
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E-Portal of Chartered Accountant: The CA certifies Annexure A of Form 26A, providing details of the payee’s filed return of income.
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Verification: Traces may require verification through Form 26A to the relevant Assessing Officer (A.O.), where the A.O. may declare the deductor as “Assessee not in default” after due verification.
Conclusion
Form 26A provides a pathway to rectify TDS defaults, granting relief from being deemed an “Assessee in Default.” By following the prescribed procedure and fulfilling requirements, taxpayers can avoid penalties, prosecution, and disallowed expenditures.
Your detailed explanation should be helpful for individuals and entities navigating the complexities of TDS compliance. It’s always advisable to stay updated with any changes in regulations or forms beyond my last knowledge update in January 2022.
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