• Notification Date: 27-12-2023
• Notification No: N/A

Income Tax Dept to scrutinize TDS Return Mismatches

The Income Tax Department is meticulously examining discrepancies in Tax Deducted at Source (TDS) by companies and corresponding declarations by employees in annual income tax returns.  

This involves a line-by-line reconciliation of categories such as house rent allowance, medical insurance, expenses on home loans, and tax-saving investments under Section 80C. Any disparity between computations by employers and claims by employees could attract the attention of tax authorities.  

In early December, companies in major cities, including Mumbai and Delhi, received notices under Section 133C, introduced in 2014-15. This section empowers authorities to request information for verification. Companies must either ‘confirm the information’ or ‘provide a correction statement,’ as disclosed by informed sources. The department aims to identify cases where tax discrepancies occurred due to companies deducting insufficient TDS or employees making undisclosed investment declarations, not initially reported but later included in the final Income Tax Returns (ITRs). Section 133C, sparingly used in the past, is now actively applied, enabling detailed line-wise verification. The department leverages technology to scrutinize reporting by both deductors in their TDS returns and taxpayers in their ITRs.  

The recent notices include an annexure listing employees, emphasizing the employer’s responsibility to accurately compute TDS and report it quarterly. However, historically, companies have not closely validated employee declarations. Some employees may fail to submit required documents on time, and service providers, often software companies handling payroll outsourcing, may not conduct sufficient validation. Interestingly, if employees submit fraudulent claims and companies endorse them, such discrepancies may not immediately appear in the tax office system. However, any disparities between the two sets of information would be promptly identified. In cases picked up by the tax office, a comprehensive review of all employee records is likely to follow.