Section 194F of Income Tax Act: Impact on Your Income Tax Return

Section 194F of the Income Tax Act is designed to deal with the tax deduction at source (TDS) on positive transactions related to the transfer of property

This article shall let you know about the impact of Section 194F of Income Tax on your Income Tax Return.

What do you mean by Section 194F of the Income Tax Act?

Section 194F mandates the deduction of tax at supply for any payment made at the transfer of a capital asset. This phase targets non-residents, ensuring tax is collected upfront on transactions that are hard to track or tax.

Key Provisions of Section 194F

• Applicability: Section 194F applies when a non-resident transfers an extended-time period capital asset to a resident.
• Rate of Tax: The tax is deducted at the fee of 20%, that's the standard rate for long-term period capital gains below the Income Tax Act.
• Threshold Limit: Unlike other sections, there may be no minimum threshold restriction for the applicability of Section 194F.
• Exemption: This phase no longer applies to transactions where the asset is transferred in a way that is not difficult to capital profits tax, which include certain reorganizations or mergers.

Impact on Your Income Tax Return

• TDS Deduction: The tax deducted at supply may be referred to for your Form 26AS, and you'll want to encompass it for your income tax return.
• Capital Gains Reporting: The profits from the capital asset ought to be said below an appropriate head (e.g., "Income from Capital Gains"). You'll also need to account for the TDS in this phase.
• Claiming Credit for TDS: Since TDS is deducted at source, you may claim a credit for the amount deducted. This may reduce your tax liability or lead to a refund if excess tax is deducted.
• Impact on Foreign Transactions: Section 194F ensures non-resident taxpayers' tax duties are managed by the payer, simplifying compliance with Indian tax laws.

Conclusion

Section 194F of the Income Tax Act guarantees that tax on long-term capital profits arising from the transfer of belongings is deducted at the supply, accordingly simplifying the taxation system for non-residents.