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Direct payment should avoid TDS

The reader has also pointed out the difficulties, where there is mismatch between the year of deduction and the year of tax liability for the payee. Even otherwise, the suggestion is that the taxpayer should be able to file Form 15G or 15H to avoid tax deduction at source for those persons, who pay advance tax or self-assessment tax directly.

It is only to ensure that persons, who receive such payments do not escape tax by not filing return or paying advance/ self-assessment tax, that the provision for tax deduction at source has become necessary. It is true that where tax is ultimately paid directly by the deductee, the deductor is spared liability vide Board Instruction No. 275/201/95-IT(B) dated January 29, 1997. This is now statutorily recognised under Explanation to Sec. 191. But it is not permissible for the deductor to avoid his statutory liability to deduct tax, because the deductee has undertaken to make good the tax by filing a declaration.

The declaration now in force in Form 15G and 15H provide for a declaration from the assessees as under:

“that the tax on my/ our estimated total income......... for the previous year ending on .... relevant to the assessment year ...... - ...... will be nil”.

Where there is tax liability on the estimated income, such a declaration will be false, leading to serious consequences for the person who gives such a self-declaration. Tax deduction at source is unavoidable and has come to stay. The only representation, that could be made, is to ensure that the rate fixed for TDS does not result in locking up taxpayers’ moneys pending refund. Refunds take their own time. Minimum exemption limit for deduction also needs review.

S. RAJARATNAM

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