The Union Budget 2020 has proposed certain amendments in the existing TDS and TCS provisions, widened the scope of existing TDS and TCS provisions and introduced new TDS and TCS provisions vide Finance Bill, 2020. The changes in all the proposed provisions related to TDS and TCS for AY 2021-22 are listed in this article.
Introduction
The Finance Bill, 2020 contains many provisions relating to amendment and changes in various TDS and TCS provisions and further introduced many new TDS and TCS provisions in the statute. Besides, certain provisions of the Income Tax Act have been amended which are related to compliance of the TDS provisions.
A snapshot of TDS and TCS provisions amended and introduced in the Finance Bill, 2020 are listed below-
Amendment in Existing TDS Provisions:
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1. Reduction in rate of Tax
Deduction at Source (TDS): In
order to reduce litigation, it is proposed to reduce rate for TDS in case of
fees for technical services (other than professional services) to two per
cent from existing ten per cent in order to align the same with the rate of
TDS on works contract.
2. Enlarging the scope of TDS
on interest: It is proposed to extend the TDS on
interest paid by certain large co-operative societies whose gross receipts
exceed Rs. 50 crore during the last financial year.
3. Modifying the definition of
‘work’: It is proposed to amend the definition of
“work” for the purpose of TDS under section 194C to provide that in a
contract manufacturing, the raw material provided by the assessee or its
associate shall fall within the purview of the ‘work’ under section 194C.
4. Enlarging the scope of TDS
on Dividend: After the abolishment of DDT on
distribution by a domestic company and a Mutual Fund, the dividend income is
made taxable in the hands of the recipient. It is proposed to include the
payment of such dividend income within the ambit of section 194 @ 10 percent
subject to a threshold limit of Rs. 5,000 which is increased from Rs. 2,500.
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Introduction of New TDS
Provisions:
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1. TDS on E-commerce
transactions: In order to widen and deepen the tax net,
it is proposed to provide that e-commerce operator shall deduct TDS on all
payments or credits to e-commerce participants at the rate of 1% in
PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases. In order to provide relief
to small businessman, it is proposed to provide exemption to an individual
and HUF who receives less than Rs. 5 lakh and furnishes PAN/Aadhaar.
2. TDS on income from Mutual
Fund: It is proposed to insert a new section 194K to
provide for deduction of income tax for payment of any income in respect of
units of a Mutual Fund at the rate of 10 percent. It may also be provided for
a threshold limit of Rs 5,000 so that income below this amount does not
suffer tax deduction.
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Amendment in TDS Compliance
Provisions
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TDS obligation on Turnover
based limit delinked with Tax Audit Provision: It is proposed to enhance the tax audit threshold limit from Rs.
1 crore to Rs. 5 crore if at least 95 percent of all the receipts and
payments are carried on through any mode other than cash.
The amendment relating to extending threshold for
getting books of accounts audited will have consequential effect on TDS/TCS
provisions contained in sections 194A, 194C, 194H, 194I, 194J and 206C as
these provisions fasten liability of TDS/TCS on certain categories of person,
if the gross receipt or turnover from the business or profession carried on
by them exceed the monetary limit specified in clause (a) or clause (b) of
section 44AB.
Therefore, it is proposed to amend these sections
so that reference to the monetary limit specified in clause (a) or clause (b)
of section 44AB of the Act is substituted with Rs. 1 crore in case of
the business or Rs. 50 lakh in case of the profession, as the case may
be.
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Introduction of New TCS
Provisions:
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Widening the scope of TCS: It is proposed to provide for tax collection at source (TCS) on
remittance under Liberalised Remittance Scheme of Reserve Bank of India
exceeding seven lakh rupees in a year and on sale of the overseas tour
package. Further, TCS is also proposed on the sale of goods in excess of Rs.
50 lakh in a year by a seller whose turnover is more than Rs. 10 crore.
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The above provisions as amended or introduced are detailed below.
79. In section 194J of the Income-tax Act, in sub-section (1),––
Section 194J of the Act provides that any person, not being an individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services, or fees for technical services, or any remuneration or fees or commission by whatever name called (other than those on which tax is deductible under section 192 of the Act, to a director), or royalty or any sum referred to in clause (va) of section 28, shall, at the time of payment or credit of such sum to the account of the payee, deduct an amount equal to ten per cent as income-tax
Section 194C of the Act provides that any person responsible for paying any sum to a resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract shall at the time of payment or credit of such sum deduct an amount equal to one percent in case payment is made to an individual or a HUF and two per cent in other cases. It is noticed that there are large number of litigations on the issue of short deduction of tax treating assessee in default where the assessee deducts tax under section 194C, while the tax officers claim that tax should have been deducted under section 194J of the Act.
Therefore to reduce litigation, it is proposed to reduce the rate for TDS in section 194J in case of fees for technical services (other than professional services) to 2 percent from the existing 10 percent. The TDS rate in other cases under section 194J would remain same at 10 percent.
This amendment will take effect from 1st April, 2020.
Out of such exclusions, two of the exclusions contained in clause (v) and clause (viia) to section 194A(3) are proposed to be amended by the Finance Bill, 2020.
Clause (v) of section 194A(3) provides that Section 194A(1) shall not apply to such income credited or paid by a cooperative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a cooperative society to any other co-operative society.
Clause (viia) of section 194A(3) provides that Section 194A(1) shall not apply to such income credited or paid in respect of, deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; and deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a cooperative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking.
Clause 75 of the Finance Bill, 2020 seeks to amend section 194A.
Amendment of section 194A.
75. In section 194A of the Income-tax Act,––
It is proposed to amend sub-section (3) so as to insert a proviso to provide that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of Section 194A(1), if––
(a) the total sales, gross receipts or turnover of the co-operative society exceeds Rs. 50 crore during the financial year immediately preceding the financial year in which the interest referred to in Section 194A(1) is credited or paid; and
(b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than Rs. 50,000 in case of payee being a senior citizen and Rs. 40,000 in any other case.
It is further proposed to provide that the Explanation which provides for the meaning of the expression “senior citizen” will be for the purposes of the said sub-section, instead of clause (i) of the said sub-section.
It is proposed to extend the TDS on interest paid by certain large co-operative societies whose gross receipts exceed Rs. 50 crore during the last financial year.
These amendments will take effect from 1st April, 2020.
The definition of the term 'work' as contained in section 194C is proposed to be amended to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the ‘work’ under section 194C.
Explanation (iv) to Section 194C defines the tern 'work' for the purpose of section 194C which includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer within the definition.
However, it excludes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such a customer.
[Sub-clause (e) to Clause (iv) to the Explanation]
Clause 76 of the Finance Bill, 2020 seeks to amend section 194C.
It is proposed to amend the definition of “work” under section 194C to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the ‘work’ under section 194C. "Associate" is proposed to be defined to mean a person who is placed similarly in relation to the customer as is the person placed in relation to the assessee under the provisions contained in section 40A(2)(b) of the Act.
This amendment will take effect from 1st April, 2020.
Section 194 provides for deduction of income-tax from the payment made for dividend income. It excludes and provides that no such deduction shall be made in respect of any dividends on which DDT is paid. Thus, dividends declared by a domestic company was not liable for TDS under section 194.
Clause 74 of the Finance Bill, 2020 seeks to amend section 194.
It is proposed to amend section 194 to include dividend for a tax deduction.
At the same time, the rate of ten per cent is proposed to be prescribed and the threshold limit is proposed to be increased from Rs. 2,500 to Rs. 5,000 for the dividend paid. Further, at present, the mode of payment is given as “an account payee cheque or warrant”. It is proposed to change this to any mode.
Therefore, the obligation to deduct TDS or collect TCS in the case of an Individual and HUF is governed by the turnover limit prescribed in section 44AB.
However, it is proposed to enhance the tax audit threshold limit from Rs. 1 crore to Rs. 5 crore in section 44AB if at least 95 percent of all the receipts and payments are carried on through any mode other than cash.
The amendment relating to extending threshold for getting books of accounts audited will have consequential effect on TDS/TCS provisions contained in sections 194A, 194C, 194H, 194I, 194J and 206C as these provisions fasten liability of TDS/TCS on certain categories of person, if the gross receipt or turnover from the business or profession carried on by them exceed the monetary limit specified in clause (a) or clause (b) of section 44AB.
Therefore, it is proposed to amend these sections so that reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act is substituted with Rs. 1 crore in case of the business or Rs. 50 lakh in case of the profession, as the case may be.
Clauses 75, 76,77,78,79,93 of the Finance Bill, 2020 seeks to amend sections 194, 194C, 194H, 194I, 194J and 206C respectively.
Clause 77 is reproduced below. Others are worded similarly.
Amendment of section 194H.
In section 194H of the Income-tax Act, in the second proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession” shall be substituted.
It is proposed to amend these sections so that reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act is substituted with rupees one crore in case of the business or rupees fifty lakh in case of the profession, as the case may be.
These amendments will take effect from 1st April, 2020.
For this purpose, a new section 194-O is introduced in the Income Tax Act, 1961 vide clause 84 in the Finance Bill, 2020 as follows-
84. After section 194N of the Income-tax Act, the following section shall be inserted, namely:––
Payment of certain sums by e-commerce operator to e-commerce participant.
A new section 194K is introduced to provide for deduction of income-tax on any income payable by a mutual fund in respect of units to its unitholders.
Clause 80 of the Finance Bill, 2020 seeks to amend section 194K.
Explanation 2.––For the removal of doubts, it is hereby clarified that where any income referred to in this section is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.’.
The salient features of section 194K are as follows-
1. This section shall apply only to a resident unitholders.
2. This rate of TDS is 10 percent. In non-PAN/non-Aadhaar case, the rate of TDS shall be 20 percent.
3. A threshold limit of Rs 5,000 is provided so that income below this amount does not suffer tax deduction. This threshold limit is applicable to all types of unitholders.
4. The threshold limit of Rs. 5,000 shall apply even in non-PAN / non-Aadhaar cases.
5. CBDT vide a press release dated 04.02.2020 has clarified that a Mutual Fund shall be required to deduct TDS @ 10% only on dividend payment and no tax shall be required to be deducted by the Mutual Fund on income which is in the nature of capital gains.
This amendment will take effect from 1st April, 2020.
Sub-section (1) of the said section, inter-alia, provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of certain goods a sum equal to specified percentage, of such amount as income-tax.
In order to widen and deepen the tax net, it is proposed to amend section 206C to levy TCS on overseas remittance, overseas tour package, and sale of goods.
The salient features of amendment under section 206C are given below-
1. An authorised dealer receiving an amount or an aggregate of amounts of Rs. 7 Lakh or more in a financial year for remittance out of India under the LRS of RBI shall be liable to collect TCS, if he receives a sum in excess of said amount from a buyer being a person remitting such amount out of India.
2. A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS. In this case, no threshold limit is provided.
3. The rate of TCS is 5 percent in the above two cases. In non-PAN/non-Aadhaar cases, the rate shall be 10 percent.
4. The above TCS provision shall not apply if the buyer is,-
Amendment in Section 194J to reduce the rate of TDS
Section 194J provides for deduction of income tax from the payments made towards fees for professional or technical services at the rate of 10 percent.
The rate of TDS for both the 'fees for professional services' and 'fees for technical services' is 10 percent.
The amendment has proposed to reduce the rate of TDS for payments made towards 'fees for technical services' to two percent.
Clause 79 of the Finance Bill, 2020 seeks to amend section 194J.
Amendment of section 194J.
79. In section 194J of the Income-tax Act, in sub-section (1),––
(a) in the long line, for the words “ten per cent. of such sum”, the words and brackets “two per cent. of such sum in case of fees for technical services (not being a professional service) and ten per cent. of such sum in other cases,” shall be substituted;
Section 194J of the Act provides that any person, not being an individual or a HUF, who is responsible for paying to a resident any sum by way of fees for professional services, or fees for technical services, or any remuneration or fees or commission by whatever name called (other than those on which tax is deductible under section 192 of the Act, to a director), or royalty or any sum referred to in clause (va) of section 28, shall, at the time of payment or credit of such sum to the account of the payee, deduct an amount equal to ten per cent as income-tax
Section 194C of the Act provides that any person responsible for paying any sum to a resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract shall at the time of payment or credit of such sum deduct an amount equal to one percent in case payment is made to an individual or a HUF and two per cent in other cases. It is noticed that there are large number of litigations on the issue of short deduction of tax treating assessee in default where the assessee deducts tax under section 194C, while the tax officers claim that tax should have been deducted under section 194J of the Act.
Therefore to reduce litigation, it is proposed to reduce the rate for TDS in section 194J in case of fees for technical services (other than professional services) to 2 percent from the existing 10 percent. The TDS rate in other cases under section 194J would remain same at 10 percent.
This amendment will take effect from 1st April, 2020.
Amendment in section 194A to enlarge the scope of TDS on interest
Section 194A(1) provides for deduction of income-tax on Interest other than "Interest on securities". It inter alia covers TDS on interest on bank deposits, etc. Section 194A(3) provides certain exclusions where the provisions related to deduction of income tax on such interest shall not apply.Out of such exclusions, two of the exclusions contained in clause (v) and clause (viia) to section 194A(3) are proposed to be amended by the Finance Bill, 2020.
Clause (v) of section 194A(3) provides that Section 194A(1) shall not apply to such income credited or paid by a cooperative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a cooperative society to any other co-operative society.
Clause (viia) of section 194A(3) provides that Section 194A(1) shall not apply to such income credited or paid in respect of, deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; and deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a cooperative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking.
Clause 75 of the Finance Bill, 2020 seeks to amend section 194A.
Amendment of section 194A.
75. In section 194A of the Income-tax Act,––
(I) in sub-section (1), in the proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession” shall be substituted;
(II) in sub-section (3),––
(A) in clause (i), the Explanation shall be omitted;
(B) after clause (xi) and before Explanation 1, the following proviso shall be inserted, namely:––
“Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if––
(a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and
(b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees in any other case.”;
(C) after Explanation 1, the following Explanation shall be inserted, namely:––
‘Explanation 2.–– For the purposes of this sub-section, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year.’.
It is proposed to amend sub-section (3) so as to insert a proviso to provide that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of Section 194A(1), if––
(a) the total sales, gross receipts or turnover of the co-operative society exceeds Rs. 50 crore during the financial year immediately preceding the financial year in which the interest referred to in Section 194A(1) is credited or paid; and
(b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than Rs. 50,000 in case of payee being a senior citizen and Rs. 40,000 in any other case.
It is further proposed to provide that the Explanation which provides for the meaning of the expression “senior citizen” will be for the purposes of the said sub-section, instead of clause (i) of the said sub-section.
It is proposed to extend the TDS on interest paid by certain large co-operative societies whose gross receipts exceed Rs. 50 crore during the last financial year.
These amendments will take effect from 1st April, 2020.
Amendment in section 194C to modify the definition of ‘work’
Section 194C of the Act provides that any person responsible for paying any sum to a resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract shall at the time of payment or credit of such sum deduct an amount equal to 1 percent in case payment is made to an individual or a HUF and 2 percent in other cases.Explanation (iv) to Section 194C defines the tern 'work' for the purpose of section 194C which includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer within the definition.
However, it excludes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such a customer.
[Sub-clause (e) to Clause (iv) to the Explanation]
Clause 76 of the Finance Bill, 2020 seeks to amend section 194C.
Amendment of section 194C
76. In section 194C of the Income-tax Act, in the Explanation,––
(I) in clause (i), in sub-clause (l), in item (B), for the words, brackets, letters and figures “is liable to audit of accounts under clause (a) or clause (b) of section 44AB”, the words “has total sales, gross receipts or turnover from business or profession carried on by him exceeding one crore rupees in case of business or fifty lakh rupees in case of profession” shall be substituted;
(II) in clause (iv),––
(i) for sub-clause (e), the following sub-clause shall be substituted, namely:––
“(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer or its associate, being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A,”;
(ii) in the long line, after the words “other than such customer”, the words “or associate of such customer” shall be inserted.
It is proposed to amend the definition of “work” under section 194C to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the ‘work’ under section 194C. "Associate" is proposed to be defined to mean a person who is placed similarly in relation to the customer as is the person placed in relation to the assessee under the provisions contained in section 40A(2)(b) of the Act.
This amendment will take effect from 1st April, 2020.
Amendment in section 194 to provide for TDS on Dividend
Finance Bill, 2020 has abolished the Dividend Distribution Tax (or DDT) payable by a domestic company on the dividend declared by it under section 115-O. When DDT was applicable on dividend distributed by a domestic company, the same was made exempt in the hands of the recipients. With the abolishment of DDT, the exemption is withdrawn and hence the dividend income is taxable in the hands of the recipients.Section 194 provides for deduction of income-tax from the payment made for dividend income. It excludes and provides that no such deduction shall be made in respect of any dividends on which DDT is paid. Thus, dividends declared by a domestic company was not liable for TDS under section 194.
Clause 74 of the Finance Bill, 2020 seeks to amend section 194.
Amendment of section 194
74. In section 194 of the Income-tax Act,––
(A) for the words “in cash or before issuing any cheque or warrant”, the words “by any mode” shall be substituted;
(B) for the words “at the rates in force”, the words “at the rate of ten per cent.” shall be substituted;
(C) in the first proviso,––
(i) in clause (a), for the words “an account payee cheque”, the words “any mode other than cash” shall be substituted;
(ii) in clause (b), for the words “two thousand five hundred rupees”, the words “five thousand rupees” shall be substituted;
(D) the third proviso shall be omitted.
It is proposed to amend section 194 to include dividend for a tax deduction.
At the same time, the rate of ten per cent is proposed to be prescribed and the threshold limit is proposed to be increased from Rs. 2,500 to Rs. 5,000 for the dividend paid. Further, at present, the mode of payment is given as “an account payee cheque or warrant”. It is proposed to change this to any mode.
TDS obligation on Turnover based limit delinked with Tax Audit Provision
For the following section related to TDS, it is provided that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum of payment or income is credited or paid, shall be liable to deduct income-tax under this section.
Section
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Tax Deduction or Collection on the Incomes
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Section 194A
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Interest
income, other than interest on securities
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Section 194C
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Payment
to contractors
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Section 194H
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Commission
and Brokerage
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Section 194I
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Rent
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Section 194J
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Fees for
Professional or Technical services
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Section 206C
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TCS on Profits
and gains from the business of trading in alcoholic liquor, forest produce,
scrap, etc.
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Therefore, the obligation to deduct TDS or collect TCS in the case of an Individual and HUF is governed by the turnover limit prescribed in section 44AB.
However, it is proposed to enhance the tax audit threshold limit from Rs. 1 crore to Rs. 5 crore in section 44AB if at least 95 percent of all the receipts and payments are carried on through any mode other than cash.
The amendment relating to extending threshold for getting books of accounts audited will have consequential effect on TDS/TCS provisions contained in sections 194A, 194C, 194H, 194I, 194J and 206C as these provisions fasten liability of TDS/TCS on certain categories of person, if the gross receipt or turnover from the business or profession carried on by them exceed the monetary limit specified in clause (a) or clause (b) of section 44AB.
Therefore, it is proposed to amend these sections so that reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act is substituted with Rs. 1 crore in case of the business or Rs. 50 lakh in case of the profession, as the case may be.
Clauses 75, 76,77,78,79,93 of the Finance Bill, 2020 seeks to amend sections 194, 194C, 194H, 194I, 194J and 206C respectively.
Clause 77 is reproduced below. Others are worded similarly.
Amendment of section 194H.
In section 194H of the Income-tax Act, in the second proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession” shall be substituted.
It is proposed to amend these sections so that reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act is substituted with rupees one crore in case of the business or rupees fifty lakh in case of the profession, as the case may be.
These amendments will take effect from 1st April, 2020.
New Section 194O - TDS on e-commerce operator
In order to widen and deepen the tax net by bringing participants of e-commerce within the tax net, it is proposed to insert a new section 194-O in the Act.For this purpose, a new section 194-O is introduced in the Income Tax Act, 1961 vide clause 84 in the Finance Bill, 2020 as follows-
84. After section 194N of the Income-tax Act, the following section shall be inserted, namely:––
Payment of certain sums by e-commerce operator to e-commerce participant.
‘194-O. (1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent. of the gross amount of such sales or services or both.
Explanation.––For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this subsection.
(2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.
(3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter:
Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1).
Explanation.––For the purposes of this section,––
(a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;
(b) “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce and is responsible for paying to e-commerce participant;
(c) “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;
(d) “services” includes ‘fees for technical services’ and fees for ‘professional services’, as defined in the Explanation to section 194J.’.
The salient features of section 194-O on payments of certain sums by the e-commerce operator to an e-commerce participant are as follows-
1. Clause 84 of the Bill seeks to insert a new section 194-O in the Income-tax Act relating to the payment of certain sums by the e-commerce operator to e-commerce participants.
2. This provision is applicable to an e-commerce operator. Thus, an e-commerce operator is under obligation to deduct TDS from the payments made to e-commerce participants facilitated by the e-commerce operator through its digital or electronic facility or platform (by whatever name called).
3. The tax is required to be deducted at the time of -
(a) credit of amount of sale or services or both to the account of an e-commerce participant or
(b) at the time of payment thereof to such e-commerce participant by any mode,
whichever is earlier.
4. It is further clarified that any payment made by a purchaser of goods or recipient of service directly to an e-commerce participant for sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sales or services for the purpose of deduction of income-tax under section 194-O.
5. A threshold limit of Rs. 5,00,000 is provided for Individual and Hindu undivided family (HUF) e-commerce participants. In other words, if any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sales or services or both during the previous year does not exceed Rs. 5 Lakh.
6. To avail the benefit of no TDS on the threshold limit of Rs. 5,00,000, the individual or HUF e-commerce participant must have to furnish his Permanent Account Number (PAN) or Aadhaar number to the e-commerce operator. In case, PAN or Aadhaar Number is not furnished, the benefit of the threshold limit will not apply. Further, such an individual or a HUF e-commerce participant shall be subject to a higher rate of tax deduction under this section.
7. The rate of TDS under this section is 1 percent. In case PAN or Aadhaar Number is not available, then the rate of TDS shall be 5 percent.
8. A transaction in respect of which tax has been deducted by the e-commerce operator under this section or which is not liable to deduction under the exemption discussed in the previous bullet, there shall not be further liability on that transaction for TDS under any other provision of Chapter XVII-B of the Act. This is to provide clarity so that same transaction is not subjected to TDS more than once. However, it has been clarified that this exemption will not apply to any amount received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale of goods or services referred to in sub-section (1) of the proposed section.
Consequential amendments to section 195, section 197 and 206AA in respect of section 194-O
1. Amendment in section 195
The second proviso to section 195(1) excludes deduction of income-tax from the payment of dividends to non-residents which suffered DDT under section 115O.
Clause 85 of the Bill seeks to amend section 195 to abolish the exclusion subsequent to abolishment of DDT under section 115O.
It is proposed to amend the second proviso to section 195(1) to provide for omission of such proviso from the section 195(1).
Clause 85 of the Finance Bill, 2020 seeks to amend section 195.
Amendment of section 195.
85. In section 195 of the Income-tax Act, in sub-section (1), the second proviso shall be omitted.
2. Amendment in section 197
The benefits of a lower rate of TDS certificates have been given and extended to e-commerce participants.
Clause 89 of the Bill seeks to amend section 197 of the Income-tax Act relating to certificate for deduction at lower rate.
It is proposed to amend section 197(1) to provide that the sums on which tax is required to be deducted under section 194-O shall also be eligible for certificate for deduction at a lower rate.
Clause 89 of the Finance Bill, 2020 seeks to amend section 197.
Amendment of section 197.
89. In section 197 of the Income-tax Act, in sub-section (1), for the figures and letter “194M”, the figures and letters “194M, 194-O” shall be substituted.
3. Amendment in section 206AA
Clause 92 of the Bill seeks to amend section 206AA of the Income-tax Act relating to the requirement to furnish Permanent Account Number.
Section 206AA prescribes for a higher rate of TDS at 20 percent if the deductee fails to furnish his valid PAN or Aadhaar number.
It is proposed to insert a proviso in sub-section (1) of the said section so as to provide that where the tax is required to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words “twenty per cent.”, the words “five per cent.” had been substituted.
Clause 92 of the Finance Bill, 2020 seeks to amend section 206AA.
Amendment of section 206AA.
92. In section 206AA of the Income-tax Act, in sub-section (1), the following proviso shall be inserted, namely:––
‘Provided that where the tax is required to be deducted under section 194-O, the provisions of clause (iii) shall apply as if for the words “twenty per cent.”, the words “five per cent.” had been substituted.’.
If an e-commerce participant fails to provide its PAN to the e-commerce operator and the tax is deductible under section 194-O then the higher rate of 5 percent shall apply instead of 20 percent in other cases.
Section 194-O and the consequential amendments in section 197 and section 206AA will take effect from 1st April, 2020.
New Section 194K - TDS on income from Mutual Fund
Finance Bill, 2020 has abolished the Dividend Distribution Tax (or DDT) payable by a mutual fund on the income distributed by it under section 115-R. When DDT was applicable on the distributed income by a mutual fund, the same was made exempt in the hands of the recipients. With the abolishment of DDT, the exemption is withdrawn and hence such distributed income is taxable in the hands of the recipients or unitholders.A new section 194K is introduced to provide for deduction of income-tax on any income payable by a mutual fund in respect of units to its unitholders.
Clause 80 of the Finance Bill, 2020 seeks to amend section 194K.
Income in respect of units
80. After section 194J of the Income-tax Act, the following section shall be inserted, namely:–
‘194K. Any person responsible for paying to a resident any income in respect of––
(a) units of a Mutual Fund specified under clause (23D) of section 10; or
(b) units from the Administrator of the specified undertaking; or
(c) units from the specified company,
shall, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent.:
Provided that the provisions of this section shall not apply where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person responsible for making the payment to the account of, or to, the payee does not exceed five thousand rupees.
Explanation 1.—For the purposes of this section,
(a ) “Administrator” means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
(b) “specified company” means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
(c) “specified undertaking” shall have the meaning assigned to it in clause (i) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
Explanation 2.––For the removal of doubts, it is hereby clarified that where any income referred to in this section is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.’.
The salient features of section 194K are as follows-
1. This section shall apply only to a resident unitholders.
2. This rate of TDS is 10 percent. In non-PAN/non-Aadhaar case, the rate of TDS shall be 20 percent.
3. A threshold limit of Rs 5,000 is provided so that income below this amount does not suffer tax deduction. This threshold limit is applicable to all types of unitholders.
4. The threshold limit of Rs. 5,000 shall apply even in non-PAN / non-Aadhaar cases.
5. CBDT vide a press release dated 04.02.2020 has clarified that a Mutual Fund shall be required to deduct TDS @ 10% only on dividend payment and no tax shall be required to be deducted by the Mutual Fund on income which is in the nature of capital gains.
This amendment will take effect from 1st April, 2020.
Amendment in section 206C regarding TCS on overseas remittance, overseas tour package, and sale of goods
Section 206C of the Act provides for the collection of tax at source (TCS) on the business of trading in alcohol, liquor, forest produce, scrap, etc.Sub-section (1) of the said section, inter-alia, provides that every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of certain goods a sum equal to specified percentage, of such amount as income-tax.
In order to widen and deepen the tax net, it is proposed to amend section 206C to levy TCS on overseas remittance, overseas tour package, and sale of goods.
Amendment of section 206C.
93. In section 206C of the Income-tax Act,––
(I) after sub-section (1F), the following sub-sections shall be inserted, namely:––
' (1G) Every person,––
(a) being an authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more in a financial year for remittance out of India from a buyer, being a person remitting such amount out of India under the Liberalised Remittance Scheme of the Reserve Bank of India;
(b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package,
shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent. of such amount as income-tax:
Provided that the provisions of this sub-section shall not apply, if the buyer is,––
(i) liable to deduct tax at source under any other provision of this Act and has deducted such amount;
(ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.
Explanation.––For the purposes of this sub-section,––
(i) “authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security;
(ii) “overseas tour program package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
(1H) Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakh rupees as income-tax:
Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then the provisions of clause (ii) of sub-section (1) of section 206CC shall be read as if for the words “five per cent.”, the words “one per cent.” had been substituted:
Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount.
Explanation.––For the purposes of this sub-section,––
(a) “buyer” means a person who purchases any goods, but does not include,––
(A) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or
(B) a local authority as defined in the Explanation to clause (20) of section 10; or
(C) any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein;
(b) “seller” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the sale of goods is carried out, not being a person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.';
(II) in sub-section (2), for the words, brackets, figures and letter “sub-section (1) or sub-section (1C)”, the words “this section” shall be substituted;
(III) in sub-section (3), for the words, brackets, figures and letter “sub-section (1) or sub-section (1C)”, the words “this section” shall be substituted;
(IV) in sub-section (6A), in the first proviso, for the words “in accordance with the provisions of this section”, the words, brackets, figures and letter “in accordance with the provisions of sub-section (1) and sub-section (1C)” shall be substituted;
(V) in the Explanation, in clause (c),––
(i) for the word “means”, the words, brackets, figures and letter “with respect to sub-section (1) and sub-section (1F) means” shall be substituted;
(ii) for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty lakh rupees in case of profession” shall be substituted.
The salient features of amendment under section 206C are given below-
1. An authorised dealer receiving an amount or an aggregate of amounts of Rs. 7 Lakh or more in a financial year for remittance out of India under the LRS of RBI shall be liable to collect TCS, if he receives a sum in excess of said amount from a buyer being a person remitting such amount out of India.
2. A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS. In this case, no threshold limit is provided.
3. The rate of TCS is 5 percent in the above two cases. In non-PAN/non-Aadhaar cases, the rate shall be 10 percent.
4. The above TCS provision shall not apply if the buyer is,-
(a) liable to deduct tax at source under any other provision of the Act and he has deducted such amount.
(b) the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person notified by the Central Government in the Official Gazette for this purpose subject to such conditions as specified in that notification.
5. It is also proposed to amend section 206C to levy TCS on sale of goods.
6. Only those seller whose total sales, gross receipts or turnover from the business carried on by it exceed Rs. 10 crore during the financial year immediately preceding the financial year, shall be liable to collect such TCS.
7. Similarly, TCS shall be collected from a buyer from whom consideration of more than Rs. 50 lakh will be received in the previous year.
8. The provision only covers business entities and not professionals.
9. No TCS is to be collected from the Central Government, a State Government and an embassy, a High Commission, legation, commission, consulate, the trade representation of a foreign State, a local authority as defined in Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to conditions as prescribed in such notification.
10. Similarly, Central Government may notify persons, subject to conditions contained in such notification, who shall not be liable to collect such TCS.
11. No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.
12. In the case of the sale of goods, the rate of TCS is 0.1 percent. In non-PAN/non-Aadhaar cases the rate shall be 1 percent.
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