Starting April 1, 2025, the Income-tax Act will see amendments reducing the time limit for orders deeming a person as an assessee in default for failing to deduct or collect taxes. Section 201 and Section 206C will now require that no orders be made beyond six years from the end of the financial year or two years from the correction statement, whichever is later. This aims to provide greater certainty and fairness regarding tax compliance and penalties.
Budget 2024: Reducing time limitation for orders deeming any person to be assessee in default
Section 201 and section 206C of the Act provides for the consequences when a person does not deduct/ collect, or does not pay, or after so deducting/ collecting fails to pay, the whole or any part of the tax, as required by or under the Act.
2. As per sub-section (3) of section 201 of the Act, there is a time limit of seven years for order made under sub-section (1) of section 201 of the Act deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax where the payee is a person resident in India. However, there is no time limit when there has been a failure to deduct the whole or any part of the tax from a nonresident. This creates uncertainty in the case of non-residents.
3. Similarly for TCS, sub-section (6A) of section 206C of the Act provides the consequences when a person does not collect the whole or part of the tax or after collecting fails to pay the tax as required by or under this Act, he shall be deemed to be an assessee in default.
4. It is proposed to amend sub-section (3) of section 201 and insert new subsection (7A) in section 206C of the Act to provide that no order shall be made deeming any person to be assessee in default for failure to deduct/ collect the whole or any part of the tax from any person, at any time after the expiry of six years from the end of the financial year in which payment is made or credit is given or tax was collectible or two years from the end of the financial year in which the correction statement is delivered, whichever is later.
5. The amendments will take effect from the 1st day of April, 2025.
[Clauses 69 & 70]
Extract of Clause 69 of Finance Bill 2024
Clause 69 of the Bill seeks to amend section 201 of the Income-tax Act, relating to consequences of failure to deduct or pay.
Sub-section (3) of said section provides time limits for when order under sub-section (1) of the said section deeming a person to be an assessee in default can be made in respect of failure to deduct the whole or any part of the tax from a person resident in India.
It is further proposed to amend sub-section (3) of the said section so as to provide that no order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from any person after the expiry of six years from the end of the financial year, in which payment is made or credit is given or two years from the end of the financial year in which the correction statement is delivered, whichever is later.
This amendment will take effect from 1st April, 2025.
Extract of Clause 70 of Finance Bill 2024
Clause 70 of the Bill seeks to amend section 206C of the Income-tax Act relating to profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.
It is proposed to substitute sub-section (1F) of the said section to extend its scope to, inter alia, provide that every person, being a seller, who receives any amount as consideration for sale of any other goods of value exceeding ten lakh rupees, as may be notified by the Central Government shall, at the time of receipt of such amount, collect from the buyer, a sum equal to one per cent. of the sale consideration as income-tax.
This amendment will take effect from 1st January, 2025.
Sub-section (3B) of the said section requires that the person collecting tax may also deliver to the prescribed authority, a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under the proviso to sub-section (3) in such form and verified in such manner, as may be specified by the authority.
It is further proposed to amend the said sub-section (3B) to provide that no correction statement shall be delivered after the expiry of six years from the end of the financial year in which the statement referred to in the proviso to sub-section (3) is required to be delivered.
This amendment will take effect from 1st April, 2025.
It is also proposed to amend the sub-section (4) of the said section, to provide that credit for amount collected and paid to the Central Government shall also be given to any other person eligible for credit for the amount so collected in a particular assessment year in accordance with the rules as may be made under the said Act.
This amendment will take effect from 1st January, 2025.
Sub-section (7) of the said section provides that if any person who is liable to collect tax at source does not collect it or after so collecting fails to pay the same to the credit of the Central Government, then he shall be liable to pay interest at the rate of one per cent. for every month or part of month on the amount of such tax from the date on which such tax was collected to the date on which such tax is actually paid.
It is also proposed to amend the said sub-section so as to increase the rate of simple interest from one per cent. to one and one-half per cent. if the person responsible for collecting tax, after collecting the tax fails to pay it as required under this section.
It is also proposed to insert a new sub-section (7A) to the said section so as to provide that no order shall be made under sub-section (6A) deeming a person to be an assessee in default for failure to collect the whole or any part of the tax from any person, at any time after the expiry of six years from the end of the financial year in which tax was collectible or two years from the end of the financial year in which the correction statement is delivered under sub-section (3B), whichever is later.
These amendments will take effect from 1st April, 2025.
Sub-section (9) of the said section provides that where the Assessing Officer is satisfied that the total income of the buyer or licensee or lessee justifies the collection of the tax at any lower rate than the relevant rate specified in sub-section (1) or sub-section (1C), the Assessing Officer shall, on an application made by the buyer or licensee or lessee in this behalf, give to him a certificate for collection of tax at such lower rate than the relevant rate specified in sub-section (1) or sub-section (1C).
It is also proposed to amend sub-section (9) of the said section so as to include sub-section (1H) of that section under its purview.
It is also proposed to insert a new sub-section (12) in the said section so as to provide that no collection of tax shall be made or collection of tax shall be made at such lower rate in respect of specified transaction, from such person or class of persons, including institution, association or body or class of institutions, associations or bodies, as the Central Government may, by notification in the Official Gazette specify in this behalf.
These amendments will take effect from 1st October, 2024.
