TDS & TCS Recent Reforms and Provisions Part I & II
Tax Deducted at Source (TDS) is a crucial aspect of the Indian Income Tax Act. It mandates that certain individuals or entities must deduct tax at the specified rates before making payments to others. This article explores various sections of the Income Tax Act related to TDS, including Section 194N, 1940, 194P, 194Q, 194R, 194S, 206C(1G), 206AB, and 206CCA, and provides insights on their applicability, rates, exceptions, and compliance procedures.
Section 194N: Payment of certain amounts in cash
Provisions of section 194N applies to:
(I) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii) a co-operative society engaged in carrying on the business of banking; or
(iii) a post office,
Threshold Amount (in case of filer of ITR): Being the amount or the aggregate of amounts, as the case may be, in cash exceeding one crore rupees during the previous year.
Rate of TDS: 2% of such sum.
In case of Non filer of ITR: In case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit to file return of income under sub-section (1) of section 139 has expired.
Threshold Amount (non-filer): It shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous Year.
Rate of TDS: @ 2% for the amounts of Rs. 20 Lakh to 1 crore and @ 5% for amounts more than Rs. 1 crore.
Exceptions of this provision: Section 194N shall not apply to any payment made to:
(i) the Government;
(ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;
(iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);
(iv) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007)
Section 1940: TDS on payment made to e-Commerce participant
Scope of the section:
The purpose of the introduction of Section 1940 is to widen the TDS base by bringing e-Commerce participants under the tax. It is difficult to identify small sellers (e-Commerce participants) who don’t file their income tax returns. Thus, the government has enlarged the tax base to bring such e-Commerce participants under the tax base.
e-Commerce Operator: An e-Commerce operator is a person who owns, operates or manages a digital/ electronic facility for the sale of goods and services. He is responsible for making payments to the e-Commerce participant on such sales.
e-Commerce Participant: An e-Commerce participant is a person who sells goods, services or both through an electronic facility provided by an e-Commerce operator. He must be a resident of India.
Scope of section 1940: e-Commerce operators should deduct TDS @1% (0.75% w.e.f. 14.05.2020 to 31.03.2021) at the time of credit of the amount of sale of goods, services or both to the account of an e-commerce participant or at the time of making payment to an e-Commerce participant by any other mode, whichever is earlier.
Responsibility: The responsibility of deduction of TDS will be on e-commerce operator.
e-Commerce participant must be a resident of India. Thus, no TDS will be deducted if the participant is a nonresident.
As per circular No. 23/2017 dated 19.07.2017, if GST is indicated separately in the invoice, it shall be excluded for the purpose of TDS.
Exceptions of this provision: If e-commerce participant is Individual or HUF and the gross amount of sale of goods, services or both during the previous year does not exceed Rs 5 lakh and has furnished his PAN or Aadhaar.
If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be deducted at the rate of 5%, as per provisions of Section 206AA.
Other important issues related to section 1940: As per CBDT circular no 17 of 2020 dated 29.09.2020, the provisions of section 1940 are not applicable in relation to:
(a) Transactions related to securities and commodities which are traded through recognized stock exchanges.
(b) Transactions in electricity, renewable energy certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation 21 of the CERC.
Applicability on payment gateway: It is provided that the payment gateway will not be required to deduct TDS u/s 1940 on a transaction, if the tax has been deducted by the e-Commerce operator on the same transaction. To facilitate, proper implementation, undertaking from the operator can be taken in this regard.
Applicability of an insurance agent or insurance aggregator: If the insurance agent or the aggregator has no involvement in transactions between insurance company and the buyer, he would not be liable to deduct TDS u/s 1940 for the period subsequent to first year.
Section 194P: Tax deduction in case of a specified senior citizen :
Provisions of section 194P provide conditional relaxation to the specified senior citizen from filing of an Income Tax Return.The person will qualify as a ‘specified senior citizen’ if it satisfies the following conditions-
(a) who is a resident in India;
(b) who is of the age of seventy-five years or more at any time during the previous year;
(c) who is having income of the nature of pension and no other income except the income of the nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and
(d) has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as prescribed.
Benefits: As per provisions of section 194P, in case of a specified senior citizen, the specified bank shall, after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A, compute the total income of such specified senior citizen for the relevant assessment year and deduct income-tax on such total income on the basis of the rates in force.
Provisions of section194P applies to: The specified bank to whom the declaration has been filed by the senior citizen as detailed above.
Section 1940: Deduction of tax at source on payment of certain sum for purchase of goods:
Provisions of section194Q applies to a buyer in the following cases:
(a) A buyer whose turnover or gross receipt or sales in the immediately preceding financial year was more than Rs 10 crore, and
(b) A buyer is responsible for making payment of a sum to the resident seller, and
(c) Such payment is to be done for the purchase of goods of the value/aggregate of the value exceeding Rs 50 lakh.
Exceptions to the application of the provisions:
a) Provisions of section 194Q would not apply in cases where the TDS is to be deducted on the transaction of a purchase under any other provision of the Income-tax Act.
b) If any transaction on purchase of goods attracts TDS under Section 194Q as well as tax collected at source under Section 206C(1H), then only Section 194Q shall apply in such a case.
Rate of TDS: 0.1% on the amount exceeding Rs 50 lakh in a financial year from a seller from whom the buyer has purchased goods worth more than Rs 50 lakh.
Higher rate of TDS: It would be applicable in cases where a seller fails to furnish a Permanent Account Number (PAN) to a buyer, the TDS would be deducted at the rate of 5% instead of 0.1%.
Time of deduction: At a time when such amount is credited to the seller or paid to him, whichever is earlier.
Section 194R: Deduction of tax on benefit or perquisite in respect of business or profession.
Provisions of section194R applies: To 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.
It also applies on the benefit or perquisite paid in kind or partly in cash and partly in kind.
Time of deduction of tax: Before releasing such benefit or perquisite.
Rate of TDS: 10% of the value or aggregate of value of such benefit or perquisite.
Threshold Limit: Value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed Rs. 20000/-.
Exceptional cases of Section 194R:
Provision of this section shall not apply to a person being an individual or a Hindu Undivided Family (HUF), whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case maybe, is provided by such person.
Section 194S: TDS on Payment on transfer of virtual digital assets
Provisions of section194S applies to: Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset.
Time of deduction of tax: at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier.
Rate of TDS: 1% of such sum as Income Tax.
Payment in kind/cash & kind:
In a case where the consideration for transfer of virtual digital asset is—
(a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or
(b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer,
the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset.
Exceptional cases of Section 194S:
(a) the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed fifty thousand rupees during the financial year; or
(b) the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ten thousand rupees during the financial year.
(a) In case of a transaction to which the provisions of the section 1940 are also applicable along with the provisions of this section, then, tax shall be deducted under this section.
(b) Where any sum 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 sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.
Section 206C(1G): Tax Collection at Source on foreign remittance under Liberalised Remittance Scheme of the Reserve Bank of India and Overseas tour program package‑
Provisions of this section applies: To Every person—
(a) being an authorised dealer, who receives an amount, 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.
Time of deduction: 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
Rate of TCS: A sum equal to 5% of such amount as Income Tax.
Exceptions: Provisions of this section shall not apply if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year and is for a purpose other than purchase of overseas tour program package:
|Rate of TCS|
|For the purchase of overseas tour program package||5% on amount or aggregates of amounts in a financial year|
|For the purpose other than purchase of overseas tour program package||Nil if amount or aggregates of amounts is less than Rs.7 lakh|
|5% if amount or aggregates of amounts in excess of Rs. 7 lakh.|
|For the purpose of pursuing any education.||0.5% of the amount or aggregate of the amounts in excess of Rs. 7 lakh remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E,|
The authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:
Exceptions: The provisions of this sub-section shall not apply, if the buyer is,—
(i) liable to deduct tax at source other provision of this Act 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.
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 (42 of 1999) to deal in foreign exchange or foreign security;
(ii) “overseas tour programme 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.
Section 206AB: Special provision for deduction of tax at source for non-filers of Income Tax Return.
Notwithstanding anything contained in any other provisions of Income Tax Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194-IA, 194-IB, 194LBC, 194M or 194N on any sum or income or amount paid or payable or credited, by a person to a specified person, the tax shall be deducted at the higher of the following rates, namely:-
(i) at twice the rate specified in the relevant provisions of the Act; or
(ii) at twice the rate or rates in force; or
(iii) at the rate of five per cent.
If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.
For the purposes of this section “specified person” means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the return of income under sub-section (1) of section 139 has expired and the aggregate of tax deducted Income Tax Department at source and tax collected at source in his case is rupees fifty thousand or more in the said previous year:
Provided, the specified person shall not include a nonresident who does not have a permanent establishment in India.
Section 206CCA:Special provision for collection of tax at source for non-filers of Income Tax Return.
Notwithstanding anything contained in any other provisions of Income-tax Act, where tax is required to be collected at source under the provisions of Chapter XVIIBB, on any sum or amount received by a person from a specified person, the tax shall be collected at the higher of the following two rates, namely:—
(i) at twice the rate specified in the relevant provisions of the Act; or
(ii) at the rate of five per cent.
If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.
For the purposes of this section “specified person” means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be collected, for which the time limit for furnishing the return of income under sub-section (1) of section 139 has expired and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in the said previous year:
Provided, that the specified person shall not include a nonresident who does not have a permanent establishment in India.
Compliance Check for Section 206AB & 206CCA.
Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income-tax Act, 1961 which takes effect from the 1st day of July, 2021. These sections impose a higher TDS/TCS rate on the ‘Specified Persons’, as defined in the new sections.
In view of the above, Income Tax Department has facilitated a new functionality ‘Compliance Check for Section 206AB & 206CCA’ to facilitate tax deductors/collectors to verify if a person is a ‘Specified Person’ as per section 206AB & 206CCA. This functionality is made available through Reporting Portal of the Income Tax Department. CBDT vide Notification No. 1 of 2021 dated 22.06.2021 notifies the procedure for using the Compliance Check functionality for Section 206AB and Section 206CCA.
Conclusion: Understanding and adhering to TDS and TCS provisions under the Indian Income Tax Act is essential for individuals, businesses, and financial institutions. Comprehending the applicability, rates, exceptions, and compliance procedures of these sections ensures that taxpayers remain on the right side of the law, helping in efficient tax management and avoidance of penalties.
Source: Income Tax Website