Proposed changes in provisions for TDS u/s 194C for transporters

Proposed amendment in the TDS provision u.s 194C applicable on payments to transporters vide Finance Bill, 2015

CURRENT SCENARIO:

Under the existing provisions of sub section (6) of section 194C of the Income Tax Act, 1961, there is no deduction of tax from payments made to the contractor during the course of plying, hiring and leasing goods carriage if the contractor furnishes his Permanent Account Number (PAN) to the payer.

REASON FOR THE AMENDMENT:

This exemption (as mentioned above) applies to all the transporters irrespective of their size, which defeat the real intention of bringing this amendment vide Finance Bill, 2009.

The memorandum explaining the provisions of Finance (No.2) Bill, 2009 indicates that the intention was to exempt only small transport operators (as defined in section 44AE of the Act) from the purview of TDS on furnishing of Permanent Account Number (PAN). Thus, the intention was to reduce the compliance burden on the small transporters. However, the current language of sub-section (6) of section 194C of the Act does not convey the desired intention and as a result all transporters, irrespective of their size, are claiming exemption from TDS under the existing provisions of sub-section (6) of section 194C of the Act on furnishing of PAN.

PROPOSED AMENDMENT:

Now to bring the more rationale, it is proposed to amend the provisions of section 194C of the Act to expressly provide that the relaxation under sub-section (6 ) of section 194C of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE of the Act (i.e. a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN.

We can depict the changes made by Finance Bill, 2015 in Section 194C(6) as follows:-

This amendment will take effect from 1st June, 2015.

Points to note:-

1. As per Explanation (ii) of Section 194C the ‘Goods carriages” shall have the meaning assigned to it in the Explanation to subsection (7) of Section 44AE.

2. In continuation of Note 1, “Goods Carriage” means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage. [Explanation (a) to subsection (7) of Section 44AE read with Section 2 of the Motor Vehicles Act, 1988.]

3. A person, who is in possession of goods carriage, whether taken on hire purchase or on instalments and for which the whole or part of the payment is still due, shall be deemed to be the owner of such goods carriages. [Explanation (b) to subsection (7) of Section 44AE.]

IMPACT AREA:

This proposed amendment will have impact on both the parties i.e. payer and payee. As far as payees are concerned, the inflow of cash will be lower now as there going to be a deduction of 1% / 2% from the revenues. Further, it may also bring the larger amount of revenue under the tax umbrella as the deduction of tax will imply to declare that income to the income tax department curbing the unfair practices. Those entities which are not profitable and making losses, this deduction of Tax may block the money for a very long time until they get it back via income tax refund after processing of the income tax return. To cater this problem, one may obtain the certificate u/s 197 of Income Tax Act, 1961 for deduction of tax at lower/nil rate.

Taking the look at the impacts on other side i.e. on payers the major work stands to identify all such cases where no TDS was made and now it is required to deduct the TDS, if declaration is not available.  It is advisable on the part of the payer to communicate (if possible) to all the payees and ask for the declaration well in advance so that any lack of communication regarding these provisions can be avoided.. This process will also require the changes in the accounting software/ERP/SAP of the payee so that there will be the deduction of tax. Further, the proper record and documentation of declarations and PAN, should be maintained to substantiate the cases where deduction of tax is not to be made. A sample declaration is enclosed as Annexure –A of the article.

Annexure – A

Sample Declaration u/s 194C(6) for non-deduction of tax at source.

To,

__________ (name of the Payer)

__________  (Address of the Payer)

Declaration

I, ________, Proprietor / Partner / Director of M/s _________________ (name and address of Payee) [hereinafter “the contractor”] do hereby makes the following declaration as required by sub section (6) of Section 194C of the Income Tax Act, 1961 for receiving payments from the payer without deduction of tax at source:-

1. That I/We am/are authorized to make this declaration in the capacity as proprietor/partner/director.

2. That the contractor is engaged by the payer for plying, hiring or leasing of goods carriage* for its business.

3. That the contractor does not own more than 10 goods carriage* as on date.

4. That if the number of goods carriages* owned by the contractor exceeds ten at any time during the previous year 2015-16 (i.e. 01.04.2015 to 31.03.2016) or after furnishing this declaration, the contractor shall forthwith, in writing intimate the payer of this fact.

5. That the Income Tax Permanent Account Number (PAN) of the contractor is ____________ . A self-attested photocopy of the PAN is furnished to the payer along with this declaration. 

Place : ______

Date : _______                                                                                             (Name of Declarant)

Verification

I, the above named declarant do hereby verify that the contents of the above paragraphs one to five are true to the best of my knowledge and belief, and no part of it is false and nothing material has been concealed in it.

Place :

Date:                                                                                                  

(name of Declarant)

* Goods Carriage” means any motor  vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage. [Explanation (a) to subsection (7) of Section 44AE read with Explanation (ii) of Section 194C and  Section 2 of the Motor Vehicles Act, 1988.]