Income Tax demand notice, even if no tax is due!

But this is possible in the present tax monitoring system through Form 26 AS.

1. With the simplification of tax return forms and doing away with the system of attaching TDS/TCS and other certificates with the I.T returns, one would have thought that getting I.T refund, or for that matter getting the I.T return properly assessed , has become much easy and simple. However, this is not so. The onus of establishing that the TDS/TCS and self assessed tax have safely reached the Govt. kitty, is now on the tax payer.

2. The I.T dept. says in a communication “As a taxpayer one of the main concerns when you file your income tax return is whether tax credits claimed by you (TDS, Advance Tax etc) are available in the Income Tax Department (ITD) database. ITD appreciates this concern and has enabled an online facility to help you verify your tax credits which are already accounted in ITD database. This online view of Form 26AS giving details of your tax credit will help you to follow-up with your bank or deductor in case any credit is missing.
Please note that if the tax credit is not reflected in the statement, you may not be given credit of tax at the time of processing your Income Tax Return.”

3. What is Form 26 AS?

The I.T department clarifies this as under
“Form 26AS is a consolidated tax statement issued under Rule 31 AB of Income Tax Rules to PAN holders. This statement, with respect to a financial year, will include details of:
a) tax deducted at source (TDS);
b) tax collected at source (TCS); and
c) advance tax/self assessment tax/regular assessment tax etc., deposited in the bank by the taxpayers (PAN holders). )
d).Details of refund paid during the A.Y.”

As and when TDS/TCS statements furnished by the deductors are uploaded to TIN central system, challan information from the statements and the challan information from bank uploads are matched and Form 26AS is updated. This is a daily activity.
As per the Income Tax Act, the deductors/collectors are required to file their TDS/TCS statements every quarter. This means that within about 15 days of the deductors filing quarterly e-TDS/TCS statement, the TDS/TCS entries will be posted in the tax statement which is available in the TIN website.”

(The factual position, as observed from some cases is that the tax deducted by the Deductor Banks and remitted in March 2010 were not posted in form 26AS even by the end of July!)

All matters relating to Form 26As are well explained in TIN-NSDL web site.

4. Online Registration for viewing 26AS

As far as individuals having PANs the TDS, TCS and advance/self assessment tax paid in any year, from 2005-06, can be viewed from NSDL's Tax Information Network (TIN) at where these information are available in Form 26AS . To access this form one has to register with NSDL, either directly or thro' TIN facilitation centres across the country who charge a nominal fee as service charge. The login id and password are generated by these service providers from NSDL

Registration is a one time activity wherein, a PAN holder has to fill in & submit a Registration form online through this website. The detailed procedure can be seen from from NSDL’s website.
So if you have paid advance tax/self assessed tax/TDS and are looking for Tax refund, verify in the first instance, that there is no mis –match between the tax figures in your return and in Form 26 AS.
Even if you don’t have any refund claim better verify these details from Form 26 AS, as in the event of any mismatch between these figures given in your return and those available in form 26AS,it is quite likely that you will get a tax demand notice.

5. What is mismatch?

As and when TDS/TCS statements furnished by the deductors are uploaded to TIN central system. Challan information from the statements and the challan information from bank uploads are matched and Form 26AS is updated. Any difference between these statements/data is treated as Mismatch. The types of mis matches and the reasons thereof are explained in NSDL website

6. Form 26AS and the Tax payer

With the simplification of the I.T returns and doing away with attachments like form 16A etc., it was expected that the tax refund will be an easy job.

The CBDT had earlier proposed introduction of unique transaction number (UTN) for filing income-tax returns from A.Y 2009-10 The UTN was proposed to facilitate the verification of pre-paid taxes such as TDS with the data available in the NSDL system. The verification is important as no document is required to be filed with the return of income.
However, the implementation of this scheme has been deferred and this is perhaps the reason why Form 26 AS is relied heavily for accuracy of Tax information.
The Annual Tax Statement Form26AS has been designed as a comprehensive database tool covering all the tax payments of any tax payer and in an ideal situation should satisfy all the need s of the tax payers, the deductors and the income tax department.
However, this is not the case, as explained below:

a) The onus of ensuring that all entries are correct and updated and that there is no mismatch, lies with the tax payer and he has to run from pillar to post for correcting all the mistakes made by the deductors and banks.

b) The TDS certificates issued by the deductors are no more treated as authentic and final documents of tax deduction, as only the figures in Form 26AS will be relied upon.
c) In spite of the claim of the I.T dept. that within about 15 days of the deductors filing quarterly e-TDS/TCS statement, the TDS/TCS entries will be posted in the tax statement available in the TIN website, this does not happen. I.T Dept. themselves admit that shortage of manpower, connectivity problem with NSDL servers etc., which delay this process
( The Hindu, Kerala edition dt3.7.2010.)

d) The number of refund cases are on the increase due to mismatch in the statements and challans .In Chennai alone there are over 2200 cases of refund pending upto the assessment year 2008-09, as per I.T Departmant (source-The Hindu dt 01.07.10).T.

As per new provision of tax deduction at source (TDS) under the Income Tax Act 1961 effective from April 1, 2010, TDS at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available. This has put the senior citizens in a difficult position . Even if they agree to pay taxes at higher rates (without PAN) they will have no access to verify form 26AS unless they have PAN cards.

7.What are the remedies available to the Taxpayers?

To expect the taxpayer to go to every deductor for correcting his mistakes, is just not reasonable .This goes against the declared policy of simplification and efficient administration.

Some tax payers and some deductors even suggest that they may use form 15G/15H as the case may be for not agreeing to TDS and then pay the tax as advance tax/ self assessed tax directly. This course is not open to any honest tax payer as he has to solemnly declare that the tax on estimated total income for the year will be ‘nil’

The certificate in Form 15G reads as under:
“6. Before signing the verification, the declarant should satisfy himself that the information furnished in the declaration is true, correct and complete in all respects. Any person making a false statement in the declaration shall be liable to prosecution under section 277 of the Income-tax Act, 1961"

8. Some of the measures which the tax payers can take are :

Ensure that the BSR code, challan no. PAN no.,A.Y. etc., are correctly mentioned in the challans and I.T returns.
Reduce the number of deductors who will deduct TDS, so that it is easier to monitor and follow up, in case of mis-match.
Pay all the advance tax/ self assessed instalments from the same branch of the Bank which is nearest to you to have a better follow up if required,
Start monitoring your Form 26AS periodically, so that mis matches are rectified
If the interest income is not substantial try to split the deposits so that all the individual deposits fall under the category of no-TDS. You can pay the tax as advance/self assessed tax

9. On the part of CBDT, they should streamline the system to overcome taxpayers’ problems and to avoid harassment to the tax payers. The onus of correct and prompt posting of tax deduction details to NSDL should rest with the deductors and should not be passed on to the Tax payers. Where complete information as per 26AS are available, these cases should be processed expeditiously by the Department. They should also review Form 15G/H and permit the Tax payers to pay the taxes directly instead of through deductors, as TDS.