TDS Return Default for Foreign Party Without PAN – Need Guidance

[Ramanathan Seshan]

Dear Experts,

We have a case involving a foreign vendor who does not have a PAN. While filing the quarterly TDS return (Form 27Q) using the NSDL FVU utility, we encountered an error that prevented the generation of the FVU file—even though we provided the vendor’s email ID, Tax Identification Number (TIN), contact number, and address.

To proceed, we selected "C – Higher Rate of TDS may be applicable due to non-availability of PAN" under the remarks column. This allowed us to generate the FVU file. However, as per provisions of the Act higher deduction does not apply to non-residents without PAN. As a result of we tagging "C", we received a default in the TDS return for short deduction of TDS.

Now, when we try to remove the remark through the TRACES portal, it does not allow us to make the change, and the default still persists.

Has anyone faced a similar issue? Is there any way to resolve this—perhaps by submitting a written representation to the department? If so, to whom should it be addressed?

Regards,

S Ram

AI Summary

Relief for compliant non-residents prevents higher TDS, but filing system limits may trigger defaults requiring TRACES justification.
A deductor filing Form 27Q for a non-resident without PAN was forced by NSDL's FVU utility to select a higher-TDS remark, causing TRACES to raise defaults despite the deductor having furnished prescribed non-resident documentation. The higher-withholding provision for payees without PAN does not apply where the non-resident has provided required residency information and tax identifiers. Remedies: submit a corrected Form 27Q if FVU permits, use TRACES' default-justification submission with supporting TIN/TRC/invoice and FVU evidence, and if unsuccessful, write to the jurisdictional TDS Assessing Officer with enclosures requesting manual rectification.