Vide Finance Bill, 2015 certain amendments have been proposed in the provisions governing deduction of tax at source under the Income-tax Act. In this article an effort is being made to discuss amendments in TDS provisions, other than in section 195 of the Act.
Submitting evidence for claims to employer in prescribed form (section 192)
An employer while determining tax deductible under section 192 of the Act from salary income is authorised to allow certain deductions, exemptions or allowances or set-off of loss under the head “Income from house property”. There is no guidance or format prescribed at present as to the manner and nature of evidence/documents to be obtained from the employee in support of the claim. Sub-section (2D) is proposed to be inserted in section 192 of the Act to provide that the evidence or proof or particulars of the prescribed claims (including claim for set-off of loss) shall be obtained in the prescribed form and the manner. The amendment will be effective from 1st June, 2015.
Deduction of tax at source from payment of taxable accumulated balance in Provident Fund Account (section 192A)
Under section 10(12) of the Act read with Rule 8 of Part A of Schedule IV of the Act accumulated balance received by an employee from a recognised provident fund will be exempt if the employee has rendered continuous service of 5 years or more or has been terminated due to ill health, discontinuance of business etc. or has opted for transfer of balance to new employer’s recognised provident fund. Rule 9 has provided the manner for determining the tax payable on accumulated balance, if same is taxable. Trustees are liable to deduct tax at the time of making the payment. Section 192A is being inserted to provide that, notwithstanding anything contained in the Act, trustees will deduct tax at 10% of amount payable to employee, if the amount payable is Rs. 30,000/- or more. Tax will, however, be deductible at maximum marginal rate i.e. 30%, if Permanent Account Number is not given by the employee.
In regard to proposed provision following two points can be made:
(a) Presently trustees of a provident fund are liable to determine the tax payable / deductible as per Rule 9 of part A of Schedule IV of the Act. Section 192A is being inserted. It is not clear that if tax deductible as per Rule 9 is higher, whether trustees will be required to deduct tax as per Rule 9 or as per section192A of the Act.
(b) The procedure provided in Rule 9 for determination of tax payable is quite cumbersome and requires recomputation of tax liability for earlier years. This procedure should have been done away in the interest of simplicity.
Amendments in regard to deduction of tax from interest other than interest on securities (section 194A)
Following amendments are proposed in section 194A of the Act:-
(a) Under the existing provisions of section 194A(3)(i) amount of interest credited or paid on time deposits with a banking company or a co-operative society or on deposit with public company engaged in the business of housing finance is to be computed with reference to branch of the bank, society or company. In view of computerisation, it is proposed to amend the provision so as to provide that amount of interest will be determined with reference to bank, co-operative society or public company, where it has adopted core banking salutations. Time deposit will also include recurring deposit for fixed period.
(b) Under Clause (v) of sub-section (3) of section 194A of the Act income credited or paid by a co-operative society to its members is exempt from TDS. Since, co-operative societies engaged in banking business are at par with banks, same are being excluded and as a result tax will be deductible from interest paid to members by a co-operative society engaged in banking business, subject to other provisions.
(c) Under section 145A and section 56(2)(viii) of the Act interest received on compensation is chargeable to tax on receipt basis. Under clause (ix) of section 194A (3), however, reference was made to credit or payment of interest on compensation awarded by Motor Accidents Claim Tribunal. As per the clause tax is deductible if amount of interest is credited or paid of Rs. 50,000/- or more. By amending the clause it is being clarified that tax will not be deductible at the time of credit of interest. Tax will, accordingly, be deductible only at stage of payment of interest.
Deduction from Transport Contracts (section 194C)
Presently section 194C(6) provides that no deduction of tax is to be made from payments to contractors carrying on the business of plying, hiring or leasing of goods carriages on furnishing of Permanent Account Number. The aforesaid amendment was made vide Finance (No. 2) Act, 2009. Prior to above amendment exemption from deduction of tax at source was available only to a contractor, being an individual, who was owning not more than two goods carriages at any time during the previous year, on furnishing declaration in prescribed form. It is proposed vide the Finance Bill that the exemption from TDS will be available only to a contractor owning not more than ten goods carriages at any time during the previous year on furnishing a declaration along with Permanent Account Number. It has been stated that the intention had been to give exemption only to small transport operators as defined in section 44AE of the Act, whereas as per the language of sub-section (6) of section 194C of the Act tax is not being deducting from all transporters.
Deduction of tax at source from transport contracts had always been a difficult preposition for the reason that transportation business is mainly in unorganised sector. Individuals own transport carriages and driver bringing the material insist for cash payment to the full extent. Because of the difficulty that the Government was not able to collect tax on real income of transporters section 44AE was inserted in the Act providing for presumptive taxation scheme vide Finance Act, 1994. The condition of making payment by account payee cheque or bank draft for an amount exceeding Rs. 20,000/- provided in section 40A(3) of the Act had also been relaxed in case of payment to a transporter and payment in cash can be made up to Rs. 35,000/-.
The proposed amendment will require deduction of tax at source from payments made to transporters except in the cases where a declaration is given by the transporter that he is owning not more than 10 goods carriages at any time during the previous year and he furnishes his Permanent Account Number. The exemption is available also to persons engaged in the transport business while making payment to another transporter on receipt of declaration. The proposed amendment will give rise to difficulties to the assessees in compliance of the provision for following reasons:-
1. As per section 194C of the Act tax is required to be deducted at the time of making payment to the contractor. Declaration as envisaged can be given only after the end of the year. How a declaration can be given by the transporter in the beginning of the year that he will not be owning more than 10 goods carriage at any time during the year and same can be relied upon by deductor? If declaration is violated during the year, what will be the liability of the payer?
2. In most of the cases transportation arrangement is made with one transporter, whereas goods are transported by truck owned by another transporter. Transportation bill may be issued by one transporter, whereas payment is collected by the driver of another transporter. It will be difficult for the payer to decide, whose declaration is valid.
3. In most of the cases transportation charges have to be paid in cash to truck drivers. They do not accept the payment after deduction of tax at source. Driver will also not carry declaration of the owner. Even, if declaration is submitted by the driver, how the payer will satisfy himself that this is the declaration of the owner.
4. How the payer of transportation charges can ensure that declaration is correct and the owner is not owning more than 10 goods carriages. There is no way to verify the correctness of the declaration by the payer.
It is stated that purpose and intention of the amendment is appreciable, but acting upon the amended provision will be difficult proposition. This will cause undue hardship and harassment to payers of transportation charges.
No TDS from payment of rent to Real Estate Investment Trust
With a view to provide pass through benefit for rental income of Real Estate Investment Trust Section 10(23FCA) is being inserted in the Income-tax Act providing that any income of Real Estate Investment Trust by way of renting or leasing or letting out any real estate assets will be exempt from tax. As a corollary to aforesaid exemption provision of section 194-I has been amended to provide that any income paid by way of rent to Real Estate Investment Trust will be exempt from TDS under above section.
Deduction of tax at source from payment to unit holders to Real Estate Investment Trust
It is also proposed to amend provision of Section 194LBA of the Income-tax Act to provide for deduction of tax at source from payments made by REIT to unit holders on account of rental in case of residents at the rate of 10% and in case of non-residents at the rate applicable to them.
TDS on income paid by Investment Fund to Unit holders
Section 194LBB is proposed to be inserted in the Income-tax Act providing for TDS at the rate of 10% on income paid by the investment fund to unit holders of the nature referred to in section 10 (23FBB) of the Act, which is the income chargeable in the case of fund as business income. This amendment also is in corollary to the scheme of providing pass through benefit and benefit is available also to unit holders making investments through investment funds.
Extension of time limit for concessional deduction of tax from interest payable to foreign institutional investors or qualified foreign investors
Section 194LD provides for concessional rate of 5% in case of interest paid to foreign institutional investors or qualified foreign investors. The aforesaid relaxation was available upto 1-6-2015. The relaxation is being extended to 1-6-2017.
Submission of declaration forms for non-deduction of tax
Section 197A of the Act provides that on submitting declaration by the payee to the payer in Form No. 15G/15H to the effect that his income is not chargeable to tax, tax will not be deducted at source as is required vide various sections of the Income-tax Act. By way of amendment, it is being further provided that tax will not be deducted on furnishing the declaration in respect of tax deductible under section 192A from payment by Provident Fund Trust and from payments made under life insurance policy, which is chargeable under the Income-tax Act and on which tax is deductible under section 194DA of the Income-tax Act.
Filing of details by Government officers in respect of depositing tax
In case of Government departments the system for depositing TDS and TCS is that Drawing and Disbursing Officer advises the Pay and Accounts Officer or the Treasury Office to deposit a particular amount as TDS or TCS. The amount is deposited by transfer entry to the credit of Central Government. On deposit of tax the return is required to be filed by the DDO. In many cases intimation of deposit of tax is not given by Pay and Accounts Officer. As a result filing of return and allowing credit to deductees is delayed. It is being provided by inserting sub-section (2A) in the section 200 and sub-section (3A) in section 206C of the Act that in such cases the concerned officer shall deliver in the prescribed form particulars of such payments to the income tax authority and delay in giving details will entail penalty of Rs. 100 per day.
No requirement to obtain TAN in certain cases
By way of amendment in section 203A of the Act it is being provided that in the case of persons, to be notified, where payment in normally one time, like in case of purchase of immovable property, it will not be necessary to obtain Tax Deduction/Collection Account Number.
Correction in the return for tax collection at source
In the existing provision of section 206C of the Income-tax Act, there is no provision for correction of the return/statement filed by a person who is collecting tax at source under section 206C of the Act. It is being provided by inserting sub-section (3B) that the person will be entitled to correct the statement filed in respect of TCS.
Processing of statements of tax collected at source
As per the existing provisions of Income-tax Act returns filed for TDS are processed by the Department and difference, if any, in the amount deductible and actually deducted is raised as tax demand and penalty is also levied for delay in filing the returns. Similar provision is being made by inserting section 206CB in the Act in regard to processing of returns filed for tax collection at source under section 206C of the Income-tax Act. Intimation issued on processing determining demand or refund will also be rectifiable and appealable.
V. P. Gupta,