• Mar
  • 19
  • 2012

Amendment in TDS provisions – Budget 2012-13

Section 193 of the Act- Tax deduction at source from payment of interest on debentures

Threshold for TDS on payment of interest on debentures

Under the existing provisions of section 193 of the Income-tax Act, a person responsible for paying interest to a resident individual on listed debentures of a company, in which the public are substantially interested, is not required to deduct tax on the amount of interest payable if the aggregate amount of interest paid during a financial year does not exceed Rs.2,500/- and the interest is paid by account payee cheque. However, in the case of unlisted debentures of a company, no threshold limit is specified for deduction of tax on payment of interest.

In order to reduce the compliance burden on small assessees and companies, it is proposed that no deduction of tax should be made from payment of interest on any debenture, (whether listed or not) issued by a company, in which the public are substantially interested, to a resident individual or Hindu undivided family, if the aggregate amount of interest on such debenture paid during the financial year does not exceed Rs.5,000 and the payment is made by account payee cheque.

This amendment will take effect from 1st  July, 2012.

The above amendment has brought about the following main changes:

1.  Interest payment made to resident Hindu Undivided Family (‘HUF’) has now been exempted from tax deduction at source requirement.

2.  The withholding tax exemption would now apply to debentures issued by a company in which the public are substantially interested, irrespective of the fact whether such debentures are listed on a recognized stock exchange or not.

3.  The exemption limit of Rs 2,500 has been increased to Rs 5,000. This would reduce the tax burden (by way of withholding tax) on the small tax payers and also reduce compliance obligations of the company

Section 194E of the Act – Tax deduction at source from payment to non-resident entertainer, sports person etc.

Section 115BBA of the Income Tax Act provides a concessionary tax regime in the case of income of sports persons who are non-citizen and non-resident. The provision covers income received by way of participation in any game or sport, advertising or contribution of article in any newspaper etc. The income of such sportsmen is taxed at the rate of 10% of the gross receipts. The same regime is also available to a non-resident sports association or institution for guarantee money payable to such institution in relation to any game or sport played in India.

Under the Double Tax Avoidance Agreement (DTAA’s), there is parity between a non-resident sportsman and a non-resident entertainer. A similar tax regime i.e. taxation on basis of gross receipts rather than net income would simplify the process of taxation in the case of entertainer. The special treatment in respect of entertainer is required because determination of deductible expenses for performance is complicated, especially when the production expenses of an international tour need to be allocated across performances in various countries.

Internationally, similar tax rates exist for both entertainer and sportsperson. International comparisons also reveal that the tax rate ranges between 10% to 30% in case of entertainer and sportsperson. Therefore, rate of 20% on gross receipts is a reasonable rate of tax in case of non-resident, non-citizen entertainer. The tax rate in case of non-resident, noncitizen sportspersons and non-resident sports associations also needs to be raised to 20%.

It is proposed to amend section 115BBA to provide that income arising to a non-citizen, non-resident entertainer (such as theatre, radio or television artists and musicians) from performance in India shall be taxable at the rate of 20% of gross receipts. It is also proposed to increase the taxation rate, in case of non-citizen, non-resident sportsmen and non-resident sports association, from 10% to 20% of the gross receipts.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Consequential amendment is proposed in section 194E to provide for withholding of tax at the rate of 20% from income payable to non-resident, non-citizen, entertainer, or sportsmen or sports association or institution.

This amendment will take effect from 1st July, 2012.

Section 194J of the Act – Tax deduction at source from payment to director

Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including Managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary.

It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration.

Impact - By insertion of the new clause, now any amount payable to a director of a company, by way of remuneration or fees or commission, which is not in the nature of salary, shall be liable for tax deduction under Section 194 at the rate of 10%.  Accordingly, any payment to a director (whether whole-time or not) including siting fee made by a company would be liable for tax deduction at source. This would levy an extra compliance burden and responsibility on the companies for deducting taxes on payment made to its directors.

This amendment will take effect from 1st  July, 2012.

Section 194LA of the Act- Exemption on enhanced compensation

Under the existing provisions of the section 194LA of the Income-tax Act, a person responsible for paying any compensation or consideration for compulsory acquisition of immovable property (other than agricultural  land) is required to deduct tax at the rate of 10% in case the consideration exceeds one lakh rupees.

In order to reduce the compliance burden of small assessees, it is proposed to increase the aforesaid threshold limit from one lakh rupees to two lakh rupees.

This amendment will take effect from 1st  July, 2012.

Section 194LAA- Tax deduction at source from payment for immovable property in certain cases

Under the existing provisions of the Income-tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc.

On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties.

In order to collect tax at the earliest point of time and also to have a reporting mechanism of transactions in the real estate sector, it is proposed to insert a new provision to provide that every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), shall deduct tax, at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds –

(a)  fifty lakh rupees in case such property is situated in a specified urban agglomeration; or

(b)  twenty lakh rupees in case such property is situated in any other area.

It is further proposed to provide that where the consideration paid or payable for the transfer of such property is less than the value adopted or assessed or assessable by any authority of a State Government for the purposes of payment of stamp duty, the value so adopted or assessed or assessable shall be deemed as consideration paid or payable for the transfer of such immovable property.

For better compliance, it is also proposed to provide that a registering officer appointed under the Indian Registration Act, 1908 (Registrar) shall not register the transfer of any immovable property where taxes are required to be deducted under this provision unless the transferee furnishes proof of deduction and payment of TDS.

For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one time transaction.  The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS.

This amendment will take effect from 1st  October, 2012.

Section 194LC- Tax deduction at source from payment of interest to a non-resident by an Indian company- New provision

Section 115A of the Income Tax Act provides that any interest income received by any non-resident from the Government or an Indian concern shall be taxable at the rate of 20% on the gross amount of such interest income. The interest income received by a non-resident from a notified Infrastructure Debt Fund (IDF) is taxable at a reduced rate of 5% on gross amount of such interest income.

Section 195 of the Act provides that in case of any interest payment made to a non-resident tax shall be deducted (withholding tax) at the rate in force. Currently, the rate of 20% withholding tax is prescribed, in case of any interest paid by the Government or Indian concern to a non-resident.

In order to augment long-term low cost funds from abroad for the infrastructure sector, it is proposed to provide tax incentives for funding certain infrastructure sectors from borrowings made abroad subject to certain conditions.

It is proposed to amend Section 115A of the Income Tax Act to provide that any interest paid by a specified company to a non-resident  in respect of borrowing made in foreign currency from sources outside India between 1st  July, 2012 and 1st  July, 2015, under an agreement, including rate of the interest payable, approved by the Central Government, shall be taxable at the rate of  5% (plus applicable surcharge and cess).

The specified company shall be an Indian company engaged in the business of –

(i)   construction of dam,

(ii)  operation of Aircraft,

(iii)  manufacture or production of fertilizers, (iv)  construction of port including inland port, (v)   construction of road, toll road or bridge;

(vi)  generation, distribution of transmission of power

(vii) construction of ships in a shipyard; or

(viii) developing and building an affordable housing project as is presently referred to in section 35AD(8)(c)(vii).

This amendment will take effect from 1st   April, 2013 and will, accordingly, apply in relation to the  Assessment Year 2013-14  and subsequent assessment years.

It is further proposed to insert a new section 194LC to provide that interest income paid by such specified company to a non- resident shall be subjected to tax deduction at source at the rate of  5% (plus applicable surcharge and cess).

This amendment will take effect from 1st  July, 2012.

Section 195 – Amendment – Scope of Section 195 of the Act

Applicability of Section 195 of the Act on non- resident -Amendment in Section 197A of the Act – Reduction of the eligible age for senior citizens for certain tax reliefs

The Finance Act, 2011 amended the effective age of a senior citizen being an Indian resident from sixty-five years of age to sixty years for the purposes of application of various tax slabs and rates of tax under the Income Tax Act, 1961 for income earned during the financial year 2011-12 (assessment year 2012-13).  There are certain other provisions of the Act in which the age for qualifying as a senior citizen is now proposed to be similarly amended.

(i) Section 80D of the Income-tax Act provides for a deduction in respect of premia paid towards a health insurance policy for the assessee or his family (spouse and dependant children) and a further deduction is also allowed for buying a health insurance policy for parent(s). Where the premium is paid to effect or keep in force an insurance on the health of any person who is a senior citizen, the deductions are allowable up to a higher sum of Rs. 20,000/- instead of Rs. 15,000/-.

(ii) Section 80DDB of the Income-tax Act provides for a deduction up to Rs. 40,000/- for the medical treatment of a specified disease or ailment in the case, inter alia, of an individual or his dependant. This deduction is enhanced to Rs. 60,000/ – where the amount actually paid is in respect of any of the above persons who is a senior citizen.

(iii) Section 197A(1C) of the Income-tax Act provides that in respect of tax deduction at source under section 193 (interest on securities) or section 194 (dividends) or section 194A (interest other than interest on securities) or section 194EE  (payments in respect of deposits under NSS etc.) or section 194K (income in respect of units), no deduction of tax shall be made in the case of a senior citizen, if such individual furnishes a declaration in the prescribed form (Form No. 15H) to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.

In all of the above-mentioned provisions, i.e., under sections 80D, 80DDB and 197A the effective age for a “senior citizen” who can avail of the benefit is mentioned as sixty-five years or more at any time during the relevant previous year.

In order to make the effective age of senior citizens uniform across all the provisions of the Income Tax Act, it is proposed to reduce the age for availing of the benefits by a senior citizen under the aforesaid sections (sections 80D, 80DDB and 197A) from sixty-five years to sixty years.

The amendments to section 80D and section 80DDB will take effective from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

The amendment to section 197A will take effect from 1st July, 2012.

Section 201- Assessee in Default- Amendment –  S. 201 Deemed date of payment of tax by resident payee is date of furnishing of return of income

Under the existing provisions of Chapter XVII-B of the Income-tax Act, a person is required to deduct tax on certain specified payments at the specified rates if the payment exceeds specified threshold. In case of non-deduction of tax in accordance with the provisions of this Chapter, he is deemed to be an assessee in default under section 201(1) in respect of the amount of such non-deduction.

However, section 191 of the Act provides that a person shall be deemed to be assessee in default in respect of non/short deduction of tax only in cases where the payee has also failed to pay the tax directly. Therefore, the deductor cannot be treated as assessee in default in respect of non/short deduction of tax if the payee has discharged his tax liability.

The payer is liable to pay interest under section 201(1A) on the amount of non/short deduction of tax from the date on which such tax was deductible to the date on which the payee has discharged his tax liability directly. As there is no one-to-one correlation between the tax to be deducted by the payer and the tax paid by the payee, there is lack of clarity as to when it can be said that payer has paid the taxes directly. Also, there is no clarity on the issue of the cut-off date, i.e. the date on which it can be said that the payee has discharged his tax liability.

In order to provide clarity regarding discharge of tax liability by the resident payee on payment of any sum received by him without deduction of tax, it proposed to amend section 201 to provide that the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee in default in respect of such tax if such resident payee –

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due on the income declared by him in such return of income,

and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed.

The date of payment of taxes by the resident payee shall be deemed to be the date on which return has been furnished by the payer.

It is also proposed to provide that where the payer fails to deduct the whole or any part of the tax on the payment made to a resident and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the such resident, the interest under section 201(1A)(i) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee.

Amendments on similar lines are also proposed to be made in the provisions of section 206C relating to TCS for clarifying the deemed date of discharge of tax liability by the buyer or licensee or lessee.

Impact –  The amendment seeks to absolve the ‘assessee in default’ in case the tax has been duly paid to the Government Exchequer, though by the payee and not by the payer.  Accordingly, in case the taxes have been paid and the income has been duly reported in the return of income by the resident payee, the person making the default would not be regarded as ‘assessee in default’. Thus, no interest and penalty would be leviable.

These amendments will take effect from 1st July, 2012.

Section 154 of the Act – Rectification of mistake in intimation with respect to TDS statement – Intimation after processing of TDS statement

Vide finance (No.2) Act, 2009, section 200A was inserted in the Income-tax Act to provide for processing of TDS statement. After processing of TDS statement, an intimation is generated specifying the amount payable or refundable.  The intimation generated after processing of TDS statement is not

(i)   subject to rectification under section 154; (ii)  appealable under section 246A; and

(iii)  deemed as notice of demand under section 156.

In order to reduce the compliance burden of the deductor and also to rationalise the provisions of  processing of TDS  statement, it is proposed to provide that the intimation generated after processing of TDS statement shall be

(i)   subject to rectification under section 154;

(ii)  appealable under section 246A; and

(iii)  deemed as notice of demand under section 156.

Impact –  As per Memorandum explaining the Finance bill, Section 200A was inserted Vide Finance (No.2) Act, 2009 to provide for processing of TDS statement. After processing of TDS statement, intimation is generated specifying the amount payable or refundable.

The intimation generated after processing of TDS statement is not:  (i)  subject to rectification under section 154; (ii)  appealable under section 246A; and (iii)  deemed as notice of demand under section 156.

In order to reduce the compliance burden of the deductor and also to rationalise the provisions of processing of TDS statement, it is proposed to provide that the intimation generated after processing of TDS statement can be rectified under section 154, shall be appealable under section 246A and deemed to be a notice of demand under section 156 of the ITA.

These amendments will take effect from 1st July, 2012.

Section 271 H- Penalty for failure to furnish TDS/TCS returns.

(New insertion- applicable w.e.f. 1st day of July 2012)

A person shall be liable to pay a sum between Rs 10000/- to Rs 1,00,000/- if he fails to deliver or delivers an incorrect information under section 200 (3) or 206 C (3) of the Income tax Act.

However, no penalty shall be levied if the person proves that he had delivered the required statement within one year of the period prescribed under the said sections.

The intention seems to be to reduce the furnishing of statements with inaccurate particulars so it has been proposed to levy a penalty so that no such default arises on account of incorrect quoted PAN of deductee, amount of TDS deducted, etc. in the TDS statement.

Section 234E (New Section) Levy of fee in certain cases (w.e.f. 1st day of July 2012)

The section proposes to levy a fee of Rs 200/- per day (subject to the total amount of TDS/TCS) in case of late furnishing of TDS/TCS returns.

The above amendment is proposed to be introduced to ensure timely claim of TDS credit and consequent refund to the deductee. However, it may result in unnecessary burden on the deductor in terms of time and cost.


3 Responses to “Amendment in TDS provisions – Budget 2012-13”

  1. vswami says:

    Section 194LAA- Tax deduction at source from payment for immovable property in certain cases>

    The proposed section requires TDS on consideration for transfer of immovable property; and presumably, will apply also to transfer of a residential property. As per the extant law (section 54), subject to fulfilment of the specified conditions, capital gains on any such transfer, would, it appears, be exempt from taxation on capital gains for the assessment year 2013-14 as well. On that premise, one would have expected a corresponding new provision for no deduction or lower deduction of tax in cases qualifying for such exemption (refer section 197). But there seems to be none. Is that not so; if so, why? The doubt may be clarified.

  2. shri says:

    budget

  3. Raj says:

    I would like further Clarification.  As Senior Citizens are exempted from paying Advance Tax in this Budget then should the Banks deduct TDS from their Accounts ?????

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