Amendment in TDS provisions- Finance Bill 2022
TDS deduction at higher rates in case of non-filers of return
Section 206AB & 206CCA of the Income Tax Act, 1961 provides for deduction of tax or collection of tax at a higher rate in the case of non-filers of returns. Earlier, the aforesaid sections provided that TDS & TCS rates will be higher in the case of the “Specified Person”. Presently, the term “Specified Person” covers a person who has not filed his return of income for both of the two previous years preceding the financial year in which tax is to be deducted or collected for which the time limit of filing ITR u/s 139(1) has expired and TDS and TCS in whose case is Rs. 50,000 or more in each of these two previous years.
Amendment in Section 206AB & 206CCA
- To widen the scope of sections 206AB & 206CCA, an amendment has been proposed in these sections. The definition of “Specified Persons” has been amended to reduce the period of non-furnishing of return from 2 years to 1 year. As such, if a person has not filed his/her ITR for the previous year preceding the financial year in which tax is to be deducted or collected, tax shall be deducted or collected at higher rates as per section 206AB/ 206CCA.
- Further, the provisions of section 206AB are presently not applicable in relation to transactions on which tax is to be deducted under sections 192, 192A, 194B, 194BB, 194LBC, or 194N of the Act. However, to reduce the compliance burden on individuals or HUF liable to deduct tax without TAN in cases of section 194-IA, 194-IB, and 194M of the Act, the amendment has been proposed in section 206AB of the Act. Accordingly, the provisions of deducting tax at higher rates u/s 206AB shall not be applicable in the case of section 194-IA, 194-IB, and 194M also.
- Further, certain amendments are proposed in section 206AB & 206CCA wherein the terms “deductor” and “collectee” respectively were used incorrectly.
- The above amendments shall be applicable w.e.f. 01-04-2022.
Rationalization of TDS provisions under section 194-IA
- Section 194-IA provides for deduction of tax at source on payment on transfer of certain immovable property other than agricultural land in case the consideration for such transfer is Rs. 50 Lakhs or more. It is important to note that section 194-IA specifies for deduction of tax @ 1% on consideration for transfer of the property and does not make any reference to the stamp duty value of the property.
- In contrast, Section 43CA and 50C of the Act dealing with the calculation of business income or capital gains respectively on sale of an immovable property consider stamp duty value as the deemed consideration if actual sales consideration falls short of stamp duty value subject to tolerance limit of 10%.
- To bring consistency in the provisions, Finance Bill 2022 proposes to consider the stamp duty value also for calculation of threshold limit of Rs. 50 Lakhs. The proposed amendment is effective from 01-04-2022 as below:
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In section 194-IA of the Income Tax Act, -
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Effect of Amendment:
- The amendment has the effect that now TDS under section194-IA shall be deducted @ 1% of sum paid or credited to the resident or the stamp duty value of the property, whichever is higher.
- If both the stamp duty value, as well as the consideration for the property, are below Rs. 50 Lakhs, then no tax is to be deducted under section 194-IA.
TDS on benefit or perquisite of a business or profession- Section 194R
According to clause (iv) of section 28 of the Income Tax Act, the value of any benefit or perquisite whether convertible into money or not, arising from business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite.
Take an example: Mr. X is the Authorised Dealer of a Pharma Company. The Pharma company gives a foreign trip as an incentive to Mr. X valued at Rs. 2 Lakhs. Mr. X earned a net profit of Rs. 10 Lakhs from the sale of goods. For the purpose of income tax, Rs. 2 Lakhs should also be included in the total income as this amount is derived as a benefit or perquisite in the course of business by Mr. X.
However, it is noticed that in many cases, the recipient does not report the receipt of such benefits or perquisites in their ITR, leading to the furnishing of incorrect particulars of income. Accordingly, to widen the tax base, section 194R is proposed to be inserted to the Act mandating TDS @ 10% on the benefits or perquisites, arising in the course of business or profession, to a resident.
Section 194R reads as follows:
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“Any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of 10% of the value or aggregate of value of such benefit or perquisite.” |
Analysis:
- Section 194R is applicable on the payer (whether resident or non-resident)
- The section applies where the receiver of the benefits or perquisites is a resident. TDS under this section shall not be deductible if the receiver is a non-resident.
- Before providing any benefit or perquisite to a resident, the payer shall ensure that tax has been deducted on such benefit or perquisite.
- This section is unique as unlike other TDS sections, it does not use the sentence “at the time of credit or payment, whichever is earlier”. Under section 194R, the payer shall ensure tax deduction before providing such benefit or perquisite to the receiver.
- The rate of TDS shall be 10% of the benefit or perquisite.
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“Provided that in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of the whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax has been paid in respect of such benefit or perquisite.” |
Analysis:
The above proviso calls for the situation where benefit or perquisite is in kind or partly in cash & partly in kind. The proviso states that even in such a case, the payer of benefit or perquisite shall ensure tax deduction before providing the benefits or perquisites to the receiver.
In our example above, Mr. X was getting the benefit of a foreign trip having a value of Rs. 2 Lakhs. The pharma company should ensure that TDS Rs. 20,000 is deducted thereon. For this, the company should collect Rs. 20,000 from Mr. X in cash before providing foreign trip benefits. Alternatively, we may gross up the amount of Rs. 2 Lakhs (200000* 100/90) = Rs. 2,22,222 where the value of benefit shall be taken as Rs. 2,22,222 and TDS Rs. 22,222.
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“Provided further that the provisions of this section shall not apply in case of a resident where the value or aggregate of the value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed Rs. 20,000.” |
Analysis:
What is the threshold limit of TDS under section 194R?
The threshold limit prescribed under section 194R is Rs. 20,000. If the value of benefit or aggregate value of such benefit during the financial year is up to Rs. 20,000, no TDS is required. But if the threshold limit of Rs. 20,000 is breached, TDS is deductible on the entire amount @ 10%.
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“Provided also that the provisions of this section shall not apply to a person being an individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover does not exceed one crore rupees, in case of business or fifty lakh rupees in case of the profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.” |
Analysis:
Who is not liable to deduct tax at source under section 194R?
Individual or HUF whose turnover or gross receipts is not more than Rs. 1 crore (in case of a business) & Rs. 50 Lakhs (in case of a profession) during the immediately preceding financial year are not liable to deduct tax under section 194R.
In other words, the following are liable to deduct tax under section 194R:
- Company or Body Corporate
- Partnership Firm
- Limited Liability Partnership
- Individual or HUF with a turnover exceeding Rs. 1 crore (in case of a business) / Rs. 50 Lakhs (in case of profession)
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The provisions of section 194R are effective from 1st July 2022. |
About Author: The author of this article is CA Naveen Goyal. He is having an experience of more than 15 years in the field of Direct Taxation as well as Indirect Taxation. You can post him for further queries: ca.naveen80@gmail.com
Disclaimer: The above article is meant only for educational purposes and therefore, Taxwink is not responsible for any loss or damage caused to any person on account of the above information. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article.
