Refund of TDS & Interest on TDS refund to TDS Deductor

Section 200A describes the processing of TDS return and also the process to refund the amount in case any amount paid by the deductor is in excess of the amount for which he is liable to deduct.

Section 200A is inserted by the Finance Act (No. 2), 2009, where it has stipulated the procedure to process the e-tds return filed by the Tax deductor. This procedure includes that:

(i)  The sums deductible as TDS should be computed after making the following adjustments, namely:—

(a)     any arithmetical error in the statement; or

(b)     an incorrect claim, apparent from any information in the statement;

(ii) The interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;

It provides that the refund will be provided to the deductor in cases where he has paid the amount more than the amount for which he is liable to pay after adjustment of interest on any outstanding under section 200 and under section 201 and any amount paid otherwise by way of tax and interest. However, no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed

Prior to this, the procedure for regulating refund of amount paid by the deductor in excess of the TDS was governed by the Board Circular No. 285, dated 21.10.1980. After that CBDT has issued the Circular No. 2/2011 Dated 27.04.2011 in supersession of the Circular No. 285. The procedure of refund of TDS can be described under the following three categories:

(i)   TDS deducted to the deductor for the period upto 31.03.2010.

(ii)  TDS on payment to non-residents falling under section 192, 194E and 195

(iii) TDS deducted to the deductor for the period after 31.03.2010.

Refund of TDS deducted to the deductor for the period upto March 31, 2010

Circular issued by the Central Board of Direct Taxes (CBDT), Circular No. 2, dated 27.04.2011, outline the procedure for refund of excess payment of tax deducted at source (TDS) from payments to residents. This Circular is applicable for refunds pertaining to the period up to 31.03.2010. The procedure for refunds for the period from 01.04.2010 is governed by a specific provision in the Indian Tax Laws dealing with centralized processing of quarterly TDS statements. The refund for the period after 01.04.2010 will be granted based on data furnished in the statements, subject to rectification of apparent inconsistencies, without the requirement of a separate claim for refund.

CBDT Circular on Procedure for Refund of Excess TDS Deducted/ Paid [CBDT Circular No. 2/2011, dated : 27.04.2011]

The procedure for regulating refund of amount paid by the deductor in excess of the tax deducted at source (TDS) and/or deductible is governed by Board circular No. 285, dated 21.10.1980.

2. Subsequent to issue of circular No. 285, new sections have been inserted under Chapter XVII-B of the Income-tax Act, 1961. References have been received by the Board regarding inclusion of these sections also for the purpose of issue of refund of excess amount of the TDS deducted/deductible.

3. In consideration of the above and in supersession of the circular No. 285, dated 21.10.1980, the Board prescribes the following procedure for regulating refund of amount paid in excess of tax deducted and/or deductible in respect of TDS on residents covered under sections 192 to 194LA of the Income-tax Act, 1961. This circular will not be applicable to TDS on non-residents falling under sections 192, 194E and 195 which are covered by circular No. 7/2007 issued by the Board.

4. The excess payment to be refunded would be the difference between:

(i) the actual payment made by the deductor to the credit of the Central Government; and

(ii) the tax deductible at source.

4.1 In case such excess payment is discovered by the deductor during the financial year concerned, the present system permits credit of the excess payment in the quarterly statement of TDS of the next quarter during the financial year.

4.2 In case, the detection of such excess amount is made beyond the financial year concerned, such claim can be made to the Assessing Officer (TDS) concerned. However no claim of refund can be made after two years from the end of financial year in which tax was deductible at source.

5. However, to avoid double claim of TDS by the deductor as well as by the deductee, the following safeguards must be exercised by the Assessing Officer concerned:

5.1 The applicant deductor shall establish before the Assessing Officer that:

(i)     it is a case of genuine error and that the error had occurred inadvertently;

(ii)   that the TDS certificate for the refund amount requested has not been issued to the deductee(s); and

(iii) that the credit for the excess amount has not been claimed by the deductee(s) in the return of income or the deductee(s) undertakes not to claim such credit.

5.2 Prior administrative approval of the Additional Commissioner or the Commissioner (TDS) concerned shall be obtained, depending upon the quantum of refund claimed in excess of Rupees One Lakh and Rupees Ten Lakh respectively.

5.3 After meeting any existing tax liability of the deductor, the balance amount may be refunded to the deductor.

6. In view of provisions of section 200A of the Income-tax Act prescribing processing of statement of TDS and issue of refund with effect from 01.04.2010, this circular will be applicable for claim of refunds for the period upto 31.03.2010.

Procedure for refund of tax deducted at source under section 195 to the person deducting tax - Amendment to Circular No. 7/2007

Circular 2011 cites an additional circumstance where the deductor can make a claim for refund on taxes withheld. The additional circumstance covered is where the tax withheld is at a higher rate under a relevant Double Taxation Avoidance Agreement (DTAA) in contrast to a possibly lower rate under the Income Tax Act. Circular 2011 states that, since such a situation also results in an excess withholding of tax, putting the deductor in genuine hardship, the deductor can make a claim for the excess tax withheld deducted as per the procedure given in Circular No. 7/2007, dated 23.10.2007.

CBDT Circular No - 07/2011, Dated: 27.09.2011

Subject ; Amendment to Circular No.7/2007 regarding Procedure for refund of tax deducted at source under section 195 to the person deducting tax-reg.

1. Kindly refer to the above subject.

The Board had issued Circular No.7/2007 dated 23.10.2007 laying down the procedure for refund of tax deducted at source under section 195 of the Income Tax Act, 1961 to the person deducting tax at source from the payment to a non-resident.

2. Para 2 of the Circular lists the circumstances under which the provisions of the said circular shall apply this paragraph does not cover a situation where the tax is deducted at a rate prescribed in the relevant DTAA which is higher than the rate prescribed in the Income Tax Act, whichever is lower, there is a possibility that in such cases excess tax is deducted relying on the provisions of the relevant DTAA. Since in these cases as well the resident deductor is put to genuine hardship, the Board has decided that the provisions of Circular No.7/2007 dated 23.10.2007 shall also apply to those cases where deduction of tax at a higher rate under the relevant DTAA has been made while a lower rate is prescribed under the domestic law.

3. Circular No.7/2007 dated 23.10.2007 stands modified to this extent.

4. The contents may be brought to the notice of all officers in your region.

Refund of TDS deducted on payment to non-resident - No interest under section 244A is admissible on refunds

CBDT Circular No. 7/2007 Dated 23.10.2007 specifically mention that the amount paid into the Government account in such cases to that extent, is no longer ‘tax’. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this circular or on the refunds already granted in accordance with Circular No. 769 or Circular No. 790 dated 20.04.2000.

CBDT’s Circular No. 7/2007 Dated 23.10.2007

Subject : Procedure for refund of tax deducted at source under section 195 to the person deducting the tax – section 239 of the Income Tax 1961  

The Board had issued Circular No. 790 dated 20th April, 2000, laying down the procedure for refund of tax deducted under section 195, in certain situations to the person deducting the tax at source from the payment to the non-resident. Representations have been received in the Board from taxpayers requesting that the said Circular may be amended to take into account situations where genuine claim for refund arises to the person deducting the tax at source from payment to the non-resident and it does not fall in the purview of the said Circular.

2. The cases which are being referred to the Board mainly relate to circumstances where, after the deposit into Government account of the tax deducted at source under section 195,

(a)  the contract is cancelled and no remittance is made to the non-resident;

(b)  the remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount has been returned to the person responsible for deducting tax at source;

(c)  the contract is cancelled after partial execution and no remittance is made to the non-resident for the non-executed part;

(d)  the contract is cancelled after partial execution and remittance related to non-executed part is made to the non-resident. In such cases, the remitted amount has been returned to the person responsible for deducting the tax at source or no remittance is made but tax was deducted and deposited when the amount was credited to the account of the non-resident;

(e)  there occurs exemption of the remitted amount from tax either by amendment in law or by notification under the provisions of Income-tax Act, 1961;

(f)   an order is passed under section 154 or 248 or 264 of the Income-tax Act, 1961 reducing the tax deduction liability of a deductor under section 195;

(g)  there occurs deduction of tax twice from the same income by mistake;

(h)  there occurs payment of tax on account of grossing up which was not required under the provisions of the Income-tax Act, 1961;

(i)   there occurs payment of tax at a higher rate under the domestic law while a lower rate is prescribed in the relevant double taxation avoidance treaty entered into by India.

2.1 In the cases mentioned above, income does not either accrue to the non-resident or it accrues but the excess amount in respect of which refund is claimed, is borne by the deductor. The amount deducted as tax under section 195 and paid to the credit of the Government therefore belongs to the deductor. At present, a refund is given only on a claim being made by the non-resident with whom the transaction was intended or in terms of Circular No. 790 dated 20th April, 2000.

3. In the type of cases referred to in sub-paragraph (a) of paragraph 2, the non-resident not having received any payment would not apply for a refund. For cases covered by sub-paragraph (b) to (i) of paragraph 2, no claim may be made by the non-resident where he has no further dealings with the resident deductor of tax or the tax is to be borne by the resident deductor. This resident deductor is therefore put to genuine hardship as he would not be able to recover the amount deducted and deposited as tax.

4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract or where income has accrued but no tax is due on that income or tax is due at a lesser rate, the amount deposited to the credit of Government to that extent under section 195, cannot be said to be “tax”.

4.1 It has been decided that, this amount can be refunded, with prior approval of the Chief Commissioner of Income-tax or the Director General of Income-tax concerned, to the person who deducted it from the payment to the non-resident, under section 195.

5. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident or if the income is accruing no tax is due or tax is due at a lesser rate. The amount paid into the Government account in such cases to that extent, is no longer “tax”. In view of this, no interest under section 244A is admissible on refunds to be granted in accordance with this circular or on the refunds already granted in accordance with Circular No. 769 or Circular No. 790.

6. In case of refund being made to the person who made the payment under section 195, the Assessing Officer may, after giving intimation to the deductor, adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law. The balance amount, if any, should be refunded to the person who made such payment under section 195. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer or the Assessing Officer in favour of the “Income-tax Department” and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the major head “020-Corporation Tax” or the major head “021-Taxes on incomes other than Corporation tax” depending upon whether the payment was originally credited to the major head “020 - Corporation tax” or to the major head “021-Taxes on Income other than Corporation tax”.

7. A refund in terms of this circular should be granted only after obtaining an undertaking that no certificate under section 203 of the Income-tax Act has been issued to the non-resident. In cases where such a certificate has been issued, the person making the refund claim under this circular should either obtain it or should indemnify the Income-tax Department from any possible loss on account of any separate claim of refund for the same amount by the non-resident. A refund in terms of this circular should be granted only if the deductee has not filed return of income and the time for filing of return of income has expired.

8. The refund as per this circular is, inter alia, permitted in respect of transactions with non-residents, which have either not materialized or have been cancelled subsequently. It, therefore, needs to be ensured by the Assessing Officer that they disallow corresponding transaction amount, if claimed, as an expense in the case of the person, being the deductor making refund claim. Besides, in all cases, the Assessing Officer should also ensure that in the case of a deductor making the claim of refund, the corresponding disallowance of expense amount representing TDS refunded is made.

9. The limitation for making a claim of refund under this circular shall be two years from the end of the financial year in which tax is deducted at source. However, all cases for claim of refund under items (c) to (i) of paragraph 2 which were pending before the issue of this circular and where the claim for refund was made after the issuance of Circular No. 790 may also be considered.

10. It has been represented to the CBDT that in Circular No. 769 dated 6th August, 1998, there was no time limit for making a claim for refund. A time limit of two years, for making a refund claim, was stipulated vide Circular No. 790 dated 20th April, 2000. Some cases covered by Circular No. 769, which were also covered by Circular No. 790, now listed in item (a) and (b) of paragraph 2 of this Circular, and filed before the issue of Circular No. 790, became time-barred because of the specification of time limit in Circular No. 790. It is hereby clarified that such cases may also be considered for refund.

11. This Circular is issued in supersession of the Circular No.790/2000 dated 20th April, 2000.

12. The contents of this Circular may be brought to the notice of all officers in your region.

CBDT Circular : No. 790, dated 20.04.2000.

Subject : Procedure for refund of tax deducted at source under section 195 to the person deducting the tax

1. The Board has issued Circular No. 769, dated 06.08.1998, laying down procedure for refund of tax deducted under section 195, in certain situations to the person deducting the tax at source from the payment to the non-resident. After reconsideration, Circular No. 769 is revoked with immediate effect and refund to the person deducting tax at source under section 195 shall be allowed in accordance with the provisions of this Circular.

2. The Board had received representations for approving grant of refund to the persons deducting tax at source under section 195 of the Income-tax Act, 1961. The cases referred to the Board mainly related to circumstances whereafter the deposit into Gov­ernment account of tax deducted at source under section 195,—

    (a)   the contract is cancelled and no remittance is made to the non-resident;

   (b)  the remittance is duly made to the non-resident, but the contract is cancelled. In such cases, the remitted amount may have been returned to the person responsible for deducting tax at source.

In the cases mentioned above, income does not accrue to the non-resident. The amount deducted as tax under section 195 and paid to credit of Government, therefore, belongs to the deductor. At present, a refund is given only, on a claim being made by the non-resident with whom the transaction was intended.

3. In the type of cases referred to in sub-paragraph (a) of paragraph 2, the non-resident not having received any payment would not apply for a refund. For cases covered by sub-paragraph (b) of paragraph 2, no claim may be made by the non-resident where he has no further dealings with the resident deductor of tax. This resident deduc­tor is, therefore, put to genuine hardship as he would not be able to recover the amount deducted and deposited as tax.

4. The matter has been considered by the Board. In the type of cases referred to above, where no income has accrued to the non-resident due to cancellation of contract, the amount deposited to the credit of Government under section 195 cannot be said to be ‘tax’. It has been decided that this amount can be refunded, with prior approval of Chief Commissioner concerned to the person who deducted it from the payment to the non-resident under section 195.

5. The refund being made to the person who made the payment under section 195, the Assessing Officer may after giving intimation to the deductor, adjust it against any existing tax liability of the deductor under the Income-tax Act, 1961, Wealth-tax Act, 1957 or any other direct tax law. The balance amount, if any, should be refunded to the person who made such payment under section 195. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer or the Assessing Officer in favour of the “Income-tax Department” and sent to the bank along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the sub-head “Other refunds” below the minor head “Income-tax on Companies” - major head “020 - Corporation Tax”or below the minor head “Income-tax other than Union Emoluments” major head “021 - Taxes on Incomes other than Corporation Tax” depending upon whether the payment was originally credited to the major head “020 - Corporation Tax” or to the major head “021 - Taxes on Income other than Corporation Tax”. Since the adjustment/refund of the amount paid would arise in relation to the deduction of tax at source, the recording of the particulars of adjustment/refund, should be done in the quarterly statement of TDS/annual return under the signature of the Income-tax Officer or the Assessing Officer at the end of the statement, i.e. below the signature of the person furnishing the statement.

6. Refund to the person making payment under section 195 is being allowed as income does not accrue to the non-resident. The amount paid into the Government account in such cases, is no longer ‘tax’. In view of this, no interest under section 244A is admis­sible on refunds to be granted in accordance with this Circular or on the refunds already granted in accordance with Circular No. 769.

7.  A refund in terms of this Circular should be granted only after obtaining an undertaking that no certificate under section 203 of the Income-tax Act has been issued to the non-resident. In cases where such a certificate has been issued, the person making the refund claim under this Circular should either obtain it or should indemnify the Income-tax Department from any possible loss on account of any separate claim of refund for the same amount by the non-resident.

8. The refund as per this Circular is permitted  only in respect of transactions with non-residents, which have either not mate­rialised or have been cancelled subsequently. It, therefore, needs to be ensured by the Assessing Officer that they disallow corresponding transaction amount, if claimed as an expense in the case of person making refund claim.

9. It is hereby clarified that refund shall not be issued to the deductor of tax in the cases referred to in clause (i)(c) of paragraph 1 of Circular 769, dated 06.08.1998.

10. The limitation for making a claim of refund under this Circu­lar shall be two years from the end of the financial year in which tax is deducted at source.

CBDT Circular Regarding payment of Interest on Refund under section 244A of Excess TDS Deposited under section 195

The CBDT has issued Circular No. 11/2016 dated 26.04.2016 stating that in accordance with the judgement of the Supreme Court in Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 : 43 taxmann.com 240 (SC), it is settled that if resident deductor is entitled for the refund of tax deposited under Section 195 of the Act, then it has to be refunded with interest under section 244A of the Act, from the date of payment of such tax. The CBDT has directed that no appeals may henceforth be filed on this ground by the officers of the department and appeals already filed on this issue may not be pressed

CBDT  Circular No. 11/2016, dated 26.04.2016

Subject:- Payment of interest on refund under section 244A of excess TDS deposited under section 195 of the Income tax Act, 1961- regarding.

The procedure for refund of tax deducted at source under section 195 of the Income tax Act, 1961, to the person deducting the tax is delineated in CBDT Circular No. 7/2007 dated 23.10.2007. Circular No. 7/2007 states that no interest under section 244A of the Act, is admissible on refunds to be granted in accordance with the circular or on the refunds already granted in accordance with Circular No. 769 or Circular 790 dated 20.4.2000.

2. The issue of eligibility for interest on refund of excess TDS to a tax deductor has been a subject matter of controversy and litigation. The Hon’ble Supreme Court of India in the case of Tata Chemical Limited’ Civil Appeal No. 6301 of 2011 vide order dated 26.02.2014, held that, “Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory provision for payment of interest on the refund of excess amount/ tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good , just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest.”

3. In view of the above judgment of the Apex Court it is settled that if resident deductor is entitled for the refund of tax deposited under Section 195 of the Act, then it has to be refunded with interest under section 244A of the Act, from the date of payment of such tax.

4. Accordingly, it is advised that no appeals may henceforth be filed on this ground by the officers of the department and appeals already filed on this issue may not be pressed

5. This may be brought to the notice of all concerned.

Deductor would be entitled to interest under section 244A on the amount refunded by the Department

Interest on refund is compensation for unauthorized retention of money by the Department. When the collection is illegal & amount is refunded, it should carry interest in the matter of course. There is no reason to deny payment of interest to the deductor who had deducted tax at source and deposited the same with the Treasury. The Department is directed to pay interest as prescribed under section 244-A at the earliest (Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 : 43 taxmann.com 240 (SC) followed) – [Universal Cables Ltd v. CIT (2020) 113 taxmann.com 353 (SC)]

Deductor entitled to interest under section 244A on refund of excess TDS from date of payment

The assessee made an application under section 195(2) for permission to remit technical service charges and reimbursement of expenses to a foreign company without deduction of tax at source. The Assessing Officer passed an order directing the assessee to deduct TDS at the rate of 20% before making remittance. The assessee effected the deduction and filed an appeal before the CIT(A) in which it claimed that the said remittance was not subject to TDS. The CIT(A) upheld the claim with regard to the reimbursement of expenses with the result that the TDS thereon was refunded to the assessee. However, the Assessing Officer declined to grant interest under section 244A on the said interest by relying on Circular Nos 769 dated 06.08.1998 and 790 dated 20.04.2000 issued by the CBDT. The CIT(A) upheld the Assessing Officer’s stand though the Tribunal and High Court upheld the assessee’s stand. On appeal by the department to the Supreme Court HELD dismissing the appeal. The Supreme Court, held as follows: "Refund due and payable to the assessee is debtowed and payable by the Revenue. The government, there being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest." - – [Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 : 43 taxmann.com 240 (SC)