To, July 17, 2007 Mr. P. Chidambaram The Hon ble Finance Minister Government of India, North Block, Vijay Chowk, NEW DELHI

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1 To, July 17, 2007 Mr. P. Chidambaram The Hon ble Finance Minister Government of India, North Block, Vijay Chowk, NEW DELHI Re : Discrepancies in quarterly e-tds Statements multiple notices issued by NSDL to a large number of tax deductors The object of this note is to bring to your immediate attention the hardship and inconvenience caused to a very large number of tax deductors from NSDL pointing out alleged discrepancies in the quarterly e-tds statements filed for F.Y The facts relating to this are as under. (1) Recently, beginning in the last week of June, 2007, a very large number of tax deductors based in Mumbai as well as other parts of the country have received letters from the National Securities Depositories Ltd. (NSDL) with the subject as follows: Subject: Inconsistency in the quarterly e-tds/e-tcs statements(s) furnished under TAN for Financial Year (Quarter 1 to 3) 1

2 (2) It may be noted that such letters have been sent by NSDL to virtually every tax deductor who has deducted tax at source from payments other than salary. (3) NSDL appears to have tried to match the challan details in the quarterly statements submitted by the deductors with the corresponding details provided by various banks. This matching has been done with respect to the Challan Identification Number (CIN) which consists of BSR Code, Date of tendering of the challan and the challan serial number, TAN of deductor and the amount of TDS paid. (4) The inconsistencies are communicated to the deductor in the following format. Provisional Receipt No. (of the original statement) Q u a r t e r Form No. Total No. of Deductee records in the statement Count of Deductee PAN (structurally valid)not present in ITD Database Count of missing Deductee PAN (PANNOTAVBL, PANAPPLIED, PANINVALID) Total No. of Challans in the statement RESULT OF CHALLAN MATCHING Match failed Challan fully mached Amount does not match Different TAN in challan & statement Amount + TAN mismatch CIN in statement not found in bank data Q1 24Q Q2 24Q Q3 24Q Q1 26Q Q2 26Q Q3 26Q

3 (5) The experience of the diligent tax deductors who have since gone through the process of verification of their records after receipt of these notices has been: That, in a predominantly large number of cases, the alleged inconsistency, if any, was not attributable to any fault or negligence on the part of the tax deductor. That, in a large number of cases, the alleged inconsistencies have surfaced due to the inefficiencies in the working of banks (including, in some cases, the RBI) That, in a large number of cases, the banks have either not uploaded the information in time or have uploaded incorrect information (6) In order to reply to the abovementioned letters, each deductor was and is being driven to carry out the following steps: a) For Column Nos. 4 & 7: The deductor would first of all need to check the relevant quarterly statement to verify whether the information given by NSDL in its letter in Column Nos. 4 and 7 (i.e. the total number of deductions recorded in the statement and the total number of challans recorded in the e-tds statement) is matching with the information given in the said e-tds statement. b) For Column No. 5: Count of Deductee PAN (structurally valid) not present in ITD database For verifying this, the deductor has to visit the section Quarterly Statement Status in the website Here, he has to fill in the TAN and the Provisional Receipt Number. The table that gets generated by the system will give the column of invalid PAN against each challan. On clicking this, the deductor will get to know the PAN which is structurally valid but is not present in ITD database. The deductor has to then check his quarterly statement to check the name of the deductee against whom this PAN has been mentioned and cross verify with the said deductee as to why his PAN is shown as not being present in the ITD database. The deductor has to follow this process for each such missing PAN record. 3

4 c) For Column No. 6: Count of Missing PAN For verifying this, the deductor has to visit the section Quarterly Statement Status in the website Here, he has to fill in the TAN and the Provisional Receipt Number. The table that gets generated by the system will give the column of missing PAN against each challan. The deductor has to then check his quarterly statement to identify the deductee whose PAN is not submitted in the quarterly return. d) For Column Nos. 8 to 12: Result of Challan Matching : It gives break-up of total number of challans in the following format: Challans fully matched Amount does not match Different TAN in challans & statements Amount & TAN both mismatch CIN in statement not found in bank data. For verifying the inconsistency on account of CIN in statement not found in bank data, the deductor has to visit the section Challan Status Enquiry on the website Here, the deductor needs to input the challan amounts against each challan number mentioned there and click the button view details. For each challan it will show whether the amount is matched or not matched. The deductor has to make sure that the BSR code; Challan tender date, Challan Serial Number, Major Head Code (nature of deductee), Minor Head Code and nature of payment are correctly shown in the NSDL database. (7) Thus, in order to respond to the letters sent by NSDL, tax deductors have to undergo drudgery of a very long and time consuming procedure. Practically, the issues faced by most deductors who have received such letters from NSDL are as under: 4

5 a) It takes a very long time to get the information from the NSDL s website. For each challan, the time taken to access the information is about minutes. b) In most cases, wherever the NSDL letter states that there is a mismatch in the Challans numbers, it is noticed that the challan number as mentioned on the challan by the respective bank is different from the number as given by that bank to NSDL. This means that the bank is giving different information to the tax deductor and to NSDL. c) Another very common inconsistency found is regarding the status of the challan shown as Match Pending on This signifies that NSDL is yet to receive details about the corresponding challan from the bank. This being an internal matter between NSDL and the corresponding Bank, the deductor can do nothing in the matter. Yet, he has been asked to respond to this so called inconsistency. d) Similarly, in most cases, the NSDL letter points out that inconsistencies have been noticed in the following: Deductee PANs structurally not valid; Missing PANs CIN in statement not found in bank data. However, practically, in most of the cases, it has been noticed that either there are no inconsistencies at all or the same are less than the number of inconsistencies mentioned in the letter. There is no way that the inconsistencies mentioned in the letter can be viewed as in the case of structurally invalid PAN. It has also been observed that some of the challans are not at all shown on the website. In view of the above, it may be appreciated that there is something fundamentally wrong in the NSDL s system and in the manner in which banks are uploading the challan 5

6 information onto the system. As a result of this, a large number of tax deductors have been issued letters which point out inconsistencies which do not exist. Therefore, there is an urgent need to direct NSDL to stop issuing such letters and instead to ensure that all banks in the country upload the information correctly onto the system. It may be more practical to issue the letters regarding inconsistencies in the CIN information to the banks instead of to the tax deductors. The Government must recognise the fact that tax deductors are doing a great service to the nation by deducting tax at source and paying it to the Government. They are carrying out a social function on an honorary basis and instead of commending such services, they are being saddled with additional responsibility of responding to letters which point out non-existent inconsistencies. Thanking you. We remain, Yours truly Rajesh Kothari Pinakin Desai Rajesh S Shah President Chairman Co-chairman Taxation Committee 6