Key amendments in TDS & TCS provisions

Union budget 2020: Key amendments in TDS & TCS provisions

TDS and TCS are one of the modes of recovery of income tax for the government that can be recovered in the previous year itself. The Union Budget 2020 has brought several changes in the provisions of TDS and TCS which will take effect this financial year. Here are the Key Amendments that were introduced in the TDS and TCS Provision:

Section 192: TDS on salary

Subsection 1C has been introduced in TDS Section 192 

• Applicable to a person, being an eligible start-up referred to in section 80-IAC 
• paying any income to the assessee being perquisite of the nature specified in clause (vi) of sub-section (2) of section 17 in any previous year relevant to the assessment year
• shall deduct or pay, as the case may be, tax on such income within fourteen days(14 days)
  • after the expiry of forty-eight months from the end of the relevant assessment year; or
  • from the date of the sale of such specified security or sweat equity share by the assessee; or
  • from the date of the assessee ceasing to be the employee of the person,

whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred.

Analysis

Section 17(2)(Vi) deals with specified securities and ESOP. When an employee exercises his option at the exercise price the difference between the exercise price and the FMV of the shares is treated as 'Perquisite' in the hands of the employee and the employer is required to deduct tax at source. Hitherto, tax to be deducted in the year of exercise. Now the Government has given time to deduct tax as mentioned above. This is applicable only in case of eligible start-ups referred in sec 80 IAC.

Section 194 - Dividends

Dividend declared by domestic companies were subject to Dividend Distribution Tax (DDT) and dividend received was not taxable in the hands of recipient except income exceeding 10 Lakhs. With effect from 1st April 2020 , dividend received is taxable in the hands of the recipient if paid in any mode if income exceeds Rs. 5000, at the rate of 10 %.

Analysis

Dividend distribution tax has been withdrawn and the liability of taxability on dividend vests in the hands of the recipient. Also basic amount for exemption of 2500/- raised to 5000/-

Section 194A - Interest other than interest on securities

Exemption was given to interest paid or credited by certain cooperative societies referred u/s 194(3) (v) and (viia). A new proviso has been inserted to withdraw the exclusion on certain conditions as:

• the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees (50 crores )during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and
• the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees in any other case.”

Analysis

1. Now specified co-operative societies are brought under the TDS provisions.
2. Both the conditions are to be satisfied.
3. Sales, Gross receipts or turnover for the preceding previous year is considered for applicability of the provision.

Read- All about TDS Section 194A

Section 194C - Payment to contractors

The term “work” has been expanded by substituting the sub clause (e) in the Explanation. As per existing sub clasue (e) work includes

• manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer,
• but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such a customer.

Certain assesses were using the lacuna of this provision by purchasing material from its associates or related parties whatever the case may be.

Now the sub-clause is amended to include customers with its associates being a person placed similarly in relation to such customer as is the person placed in relation to the assessee under the provisions contained in clause (b) of sub-section (2) of section 40A.

Section 194J - Fees for professional or technical services

Hitherto, the TDS rate for both professional and technical services was 10 %. Amendment has been proposed to reduce the tax rate for technical services at 2%.

Analysis:
Professional services - 10 %
Technical services - 2%

The amendment will lead to new litigations regarding the correct classification of professional services and technical services.

Now, look at the definition of professional services and technical services.

"Professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.

"Fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".

Both the definition includes “technical or consultancy services”. Chances are there to take this loophole to classify the specified services to avail the reduced tax rate.

Read What is TDS Section 194J

Section 194K - Income in respect of units

The said section was omitted w.e.f 01.06.2016 by the Finance Act 2016 and now the same is reintroduced.

Section specifies

Any person responsible for paying to a resident any income in respect of

(a) units of a Mutual Fund specified under clause (23D) of section 10; or
(b) units from the Administrator of the specified undertaking; or
(c) units from the specified company,

shall, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon at the rate of ten percent.

This section shall not apply if such income or aggregate of such income in a financial year does not exceed 5000 rupees.

Analysis

This section applies only for income in respect of units and not for capital gain.

Section 194O - Payment of certain sums by the e-commerce operator to e-commerce participant.

A new section is introduced to bring the e-commerce participants under the TDS provisions. Under this section,

• where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent. of the gross amount of such sales or services or both.

• Amount paid or credited shall also include any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator,

• This section shall not apply , if

sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

• If tax is deducted or not deducted under this section, then no deduction under any other chapter shall not be made.
• Further, the sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1).

Analysis

1. Applicable for E-commerce operators.
2. Exemption limits applicable to only Individuals and HUF participants.
3. Not applicable to advertisement services.

Major changes in TCS provisions.

Now the foreign remittance are brought under the tax net by introducing sub section (1G). As per the subsection

(a)being an authorised dealer, who receives an amount, or an aggregate of amounts, of seven lakh rupees or more (Rs. 7 lakhs or more)in a financial year 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

shall, 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, collect from the buyer, a sum equal to five per cent. of such amount as income-tax:

Provided that the provisions of this sub-section shall not apply, if the buyer is,- -

(i) liable to deduct tax at source under any other provision of this Act and has 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.

Further subsection (1H) introduced to bring more assesses to the tax circle. As per this

Every person, being a seller, who receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, other than the goods covered in sub-section (1) or sub-section (1F) or sub-section (1G) shall, at the time of receipt of such amount, collect from the buyer, a sum equal to 0.1 per cent. of the sale consideration exceeding fifty lakh rupees as income-tax .

Provided that if the buyer has not provided the Permanent Account Number or the Aadhaar number to the seller, then TCS one percent shall be collected.

Provided further that the provisions of this sub-section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act and has deducted such amount.

Analysis

1. It is to be noted that it is applicable to every person irrespective of applicability of audit.
2. Applicable to all kinds of goods other than goods for which TCS provisions applicable.
3. Not applicable to services.
4. Provision applies only if value of goods or aggregate value of goods in a financial year from a buyer exceeds 50 lakhs and TCS to be collected on the excess amount.
5. Either PAN or Aadhar to be furnished , other wise higher rate of 1% to be deducted.
6. Not applicable if TDS to be deducted by the buyer under any other provisions.

Note: Source of information from Finance Bill 2020.

Also read- Analysis of TDS Section 194I