Refund of TDS done u/s 195
Whether Refund of TDS done u/s 195 is possible is the question often ask by the taxpayers.
Yes, it is possible. There are 11 different ways to claim refund under different situations. Now, let us know the procedure to claim refund of TDS done u/s 195?
What is section 195:
The provision u/s 195 of the Income Tax Act casts responsibility on payer to deduct the tax at source or withhold the tax on any sum paid to a non-resident. This section identifies the tax rates and deductions on business transaction with a Non-Resident from a day-to-day basis.
Government of India has sign Double Taxation Avoidance Agreement with more than 79 countries and in many cases separate (lower) rate of taxation has been mutually agree upon. In such case, deduction of tax under section 195 is require to be on DTA rates. The courts have also held that DTAA supersede Income Tax Act.
In many situations, resident deductor after deducting tax realizes that it was not required to be done or was done at a higher rate. Need of refund arises in such cases.
CBDT has issued circulars stating the situation under which a deductor can claim the refund of TDS done under section 195 of the Income Tax Act. There is one additional situation which is not list in CBDT circular but Income Tax Act itself provides a way to get the refund of tax deduct u/s 195 of the Income Tax Act.
Eleven circumstances where one can claim refund of TDS deducted u/s 195 are as under:
|Sl No||Situation||Claim is support by|
|1||The contract is cancelled and no remittance is made to the Non-Resident;||CBDT Circular 7/2007 Dt 23-10-2007|
|2||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||CBDT Circular 7/2007 Dt 23-10-2007|
|3||The contract is cancelled after partial execution and no remittance is made to the Non-Resident for the non-executed part||CBDT Circular 7/2007 Dt 23-10-2007|
|4||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;||CBDT Circular 7/2007 Dt 23-10-2007|
|5||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||CBDT Circular 7/2007 Dt 23-10-2007|
|6||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||CBDT Circular 7/2007 Dt 23-10-2007|
|7||There occurs deduction of tax twice from the same income by mistake||CBDT Circular 7/2007 Dt 23-10-2007|
|8||There occurs payment of tax on account of grossing up which was not required under the provisions of the Income-tax Act, 1961||CBDT Circular 7/2007 Dt 23-10-2007|
|9||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.||CBDT Circular 7/2007 Dt 23-10-2007|
|10||There occurs payment of tax at a higher rate under the DTAA while a lower rate is prescribed in the relevant provision under Income Tax Act.||CBDT Circular 7/2011 Dt 27-09-2011|
|11||Tax was not deductible but tax is deduct u/s 195 to abide by the law||Section 248 of the Income Tax Act|
What Section 248 says?
Section 248 is an appeal provision under Income tax Act for deduct who feels that although TDS is u/s 195, it is not deductible. This is also when taxpayer’s application under section 195(2) for the nil deduction is reject by the ITO(TDS) .The provision reads as under:
- Where under an agreement or other arrangement, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having pay such tax to the credit of the central government, claims that no tax was require to be deduct on such income, he may appeal to the commissioner (appeals) for a declaration that no tax was deductible on such income.
As stated in the provision, the CIT (A) if agrees to the contention of the deductor, will issue a declaration that no tax was deductible.
Section 249(2) of the Income Tax Act provides time limit for filing an appeal u/s 248 as under:
The appeal shall be present within thirty days of the date of payment of the tax
Additional Conditions for Claim of TDS Refunds
- For claim in situation mention in situations in 1 to 10 above, there is a time limit of two years from the end of the financial year in which tax is deduct at source as per CBDT circular.
- For claim in situations mentioned in 11 above, section 248 provides 30 days from the date of deposit.
- There is no specific form for claim of refund in case of Claim 1 to 10. However, under section 248, which is an appeal procedure for which appeal in Form 35 is to be file.
- In case of claim in 1 to 10 above, A.O may ask for an undertaking that no certificate under section 203 of the Income-tax Act has been issue to the Non-Resident. In cases where such a certificate has been issue, 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.
Approving Authorities for Grant of Refund of TDS u/s 195:
For claim of refund in circumstances given in 1 to 10 (above table). The final approval of Chief Commissioner or Director General of Income Tax is require. So, although one can apply before A.O for refund. Final approval is to be give by the concern CCIT or DGIT.
Refund of TDS.
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