Section 193 of the Act- Tax deduction at source from payment
of interest on debentures
Existing Provision
Presently, under Section 193 of the
Income- tax Act, 1961 ('the Act') a person responsible for paying any income by
way of interest on securities to a resident is required to deduct income- tax
at the rates in force on the amount of the interest payable. However, certain
payments are excluded from tax deduction at source by virtue of proviso to
Section 193.
As per clause (v) of the proviso, any
interest payable to:
(a) a
resident individual;
(b) on
debentures listed on a recognised stock exchange;
(c)
where such debentures are issued by a company in which the public are
substantially interested
was not subject to tax deduction at
source if the aggregate amount of interest paid during a financial year does
not exceed Rs 2,500 and the interest is paid by way of an account payee cheque.
Amendment proposed by Finance Bill 2012
Finance Bill 2012 proposes to amend
clause (v) of the proviso to Section 193, whereby tax shall not be required to
be deducted on any interest payable:
(a) to
an individual or a Hindu undivided family, who is resident in India;
(b) on
any debenture issued by a company in which the public are substantially
interested;
(c)
where the aggregate amount of interest paid during a financial year does not
exceed Rs. 5,000 and the interest is paid by account payee cheque.
This amendment will take effect from 01
July 2012.
Impact of the amendment
The above amendment has brought about
the following main changes:
1.
Interest payment made to resident Hindu Undivided Family ('HUF') has now been
exempted from tax deduction at source requirement.
2. The
withholding tax exemption would now apply to debentures issued by a company in
which the public are substantially interested, irrespective of the fact whether
such debentures are listed on a recognized stock exchange or not.
3. The
exemption limit of Rs 2,500 has been increased to Rs 5,000. This would reduce
the tax burden (by way of withholding tax) on the small tax payers and also
reduce compliance obligations of the company
Section 194E of the Act - Tax deduction
at source from payment to non- resident entertainer
Existing Provision
Presently, under Section 194E of the
Act, where any income referred to in Section 115BBA is payable to a
non-resident sportsman (including an athlete), who is not a citizen of India or
a non-resident sports association or institution, the person responsible for
making the payment is required to deduct income-tax at source at the rate of
10%.
Amendment proposed by Finance Bill 2012
The Finance Bill 2012 proposes to
extend the scope of Section 194E to cover payments made to 'entertainer' within
its ambit. The rate of deduction of tax for all payments covered under Section
194E of the Act is proposed to be increased to 20%. This amendment will take
effect from 01 July 2012.
Impact of the amendment
By virtue of this amendment, any
payment to an entertainer, who is not a citizen of India and is a non-resident,
for his performance in India shall also be subject to tax deduction at source
in India.
Further, the quantum of tax deduction
on payment made to a non-resident sportsman, sports association or institution
or to an entertainer has been doubled from 10% to 20%.
In this regard, it may be noted the
term entertainer has not been defined anywhere. This is may lead to ambiguity
and consequent litigation on interpretation and scope of the term
'entertainer'.
Section 194J of the Act - Tax deduction
at source from payment to director
Existing Provision
Presently, as per Section 194J of the
Act any person (other than an Individual or a Hindu undivided family)
responsible for paying to a resident any income by way of:
(a) Fees
for professional services; or
(b) Fee
for technical services; or
(c)
Royalty; or
(d) Any
sum referred to in clause (va) of Section 28,
is required to deduct Income-tax at the
rate of 10% of such income. However, there is no specific provision for
deduction of tax on remuneration paid to a director, which is not in the nature
of salary.
Amendment proposed by Finance Bill 2012
Finance Bill 2012 proposes to insert
another clause under sub-section (1) of Section 194J, whereby any remuneration
or fees or commission payable to a director of a company, other than those on
which tax is deductible under section 192, shall also be liable for tax
deduction under the provisions of Section 194J. This amendment will take effect
from 01 July 2012.
Impact of the amendment
By insertion of the new clause, now any
amount payable to a director of a company, by way of remuneration or fees or
commission, which is not in the nature of salary, shall be liable for tax
deduction under Section 194 at the rate of 10%.
Accordingly, any payment to a director
(whether whole-time or not) including siting fee made by a company would be
liable for tax deduction at source. This would levy an extra compliance burden
and responsibility on the companies for deducting taxes on payment made to its
directors.
Section 194LA of the Act- Exemption on
enhanced compensation
Existing Provision
Presently, as per Section 194LA of the
Act, a person responsible for paying any sum to a resident in the nature of
compensation or the enhanced compensation or the consideration or the enhanced
consideration on account of compulsory acquisition of any immovable property
(other than agricultural land) is required to deduct an amount equal to 10%of
such sum as income-tax.
However, as per the proviso to the
Section, no deduction is to be made in case the amount of payment does not
exceed Rs 100,000 during the financial year.
Amendment proposed by Finance Bill 2012
Finance Bill 2012 proposes to increase
the exemption limit from Rs 100,000 to Rs 200,000. This amendment will take
effect from 01 July 2012.
Section 194LAA- Tax deduction at source
from payment for immovable property in certain cases
Proposal by the Finance Bill 2012
♦ The
Finance Bill 2012 proposes to insert a new Section 194LLA with effect from 01
October 2012 whereby any person responsible for paying any sum to a resident
transferor by way of consideration for transfer of any immovable property
(other than agricultural land), shall deduct an amount equal to 1% of such sum
as income-tax thereon.
♦ It is
further provide that no deduction shall be made where the consideration for
transfer of an immovable property is less than Rs 50 lakhs in case such
property is situated in a 'specified urban agglomeration area' or is less than
Rs 20 lakhs in case such property is situated in any area other than specified areas.
'Specified areas' have been categorically listed down and include metro and
cities and other areas.
♦ It is
further proposed to provide that where the consideration paid or payable for
the transfer of such property is less than the value adopted or assessed or
assessable by any authority of a State Government for the purposes of payment
of stamp duty, the value so adopted or assessed or assessable shall be deemed
as consideration paid or payable for the transfer of such immovable property.
♦ For
effective administration and to ensure compliance with these provisions, it is
proposed that a registering officer appointed under the Indian Registration
Act, 1908 (Registrar) shall not register the transfer of any immovable
property, where taxes are required to be deducted under this provision, unless
the transferee furnishes proof of deduction and payment of TDS.
♦ It is
proposed that the provisions of Section 203A (Tax deduction and collection
account number) shall not apply to the person required to deduct tax in
accordance with the provisions of this section.
♦ As per
Memorandum Explaining the provisions of Finance Bill 2012, it is proposed that
a simple one page challan for payment of TDS would be prescribed containing
details (including PAN) of transferor and transferee and also certain details
of the property. The transferee would not be required to obtain any Tax
Deduction and Collection Account Number (TAN) or to furnish any TDS statement
as this would be mostly a one- time transaction. The transferor would get
credit of TDS like any other pre-paid taxes on the basis of information
furnished by the transferee in the challan of payment of TDS.
Impact of the amendment
♦ The
present Act has provisions for deduction of tax at source on transfer of
immovable property situated in India by a non-resident. However, there is no
such requirement of deduction of tax on transfer of immovable property by a
resident except in the case of compulsory acquisition of certain immovable
properties.
♦ The proposed
amendment would help in reducing the flow of black money in the market and
would ensure the adequate reporting of these sale / purchase transactions.
♦ The
proposed amendment seeks to widen the scope of withholding tax on payments made
on transfer of immovable property by a resident. This would also ensure
collection of tax at the earliest point of time and proper reporting mechanism.
♦
However, the proposed amendment would have an adverse impact on the individuals
who purchase a property above the specified limit since this would result in an
extra compliances burden on them.
Section 194LC- Tax deduction at source
from payment of interest to a non-resident by an Indian company- New provision
Provision proposed by Finance Bill 2012
♦
Finance Bill 2012 proposes to amend Section 115A of the Act by inserting a new
clause in sub-section (1) as per which tax shall be charged at the rate of five
per cent on any income of a non-resident (not being a company) or a foreign
company by way of interest of the nature and extent referred to in section
194LC of the Act.
♦ In
line with amendment in Section 115A, it is also proposed to insert a new
Section 194LC with effect from 01 July 2012 as per which tax would require to
be deducted at source by a specified company from any income
payable to a non-resident (not being a company) or a foreign company, by way of
interest. The tax deduction is required to be made at the rate of five per
cent.
♦ The
interest shall be the income by way of interest payable by the specified
company -
i. in respect of
monies borrowed by it at any time on or after the 1st day of July, 2012 but
before the 1st day of July, 2015 in foreign currency, from a source outside
India under a loan agreement approved by the Central Government in this behalf;
and
ii. to the extent
to which such interest does not exceed the amount of interest calculated at the
rate approved by the Central Government in this behalf, having regard to the
terms of the loan and its repayment.
Impact of proposed provision
♦ In
order to augment long-term low cost funds from abroad for the infrastructure
sector, it is proposed to provide tax incentives for funding certain
infrastructure sectors from borrowings made abroad subject to certain
conditions.
♦ A new
clause inserted in sub-section (1) of Section 115A would result in relief in
tax rate from 20% to 5% on interest payable to a non-resident and to a foreign
company by specified company.
♦
Further a new Section 194LC is inserted for deduction of tax at source on
payment of such interest to a non-resident. No tax shall be deducted under
Section 195 of the Act on this interest.
♦ The
provisions of this Section would apply to an Indian company engaged in the
business of construction of dam, or operation of Aircraft, or manufacture or
production of fertilizers, or construction of port including inland port, or
construction of road, toll road or bridge, or generation, distribution of
transmission of power, or construction of ships in a shipyard or developing and
building an affordable housing project as is presently referred to in section
35AD(8)(c)(vii).
♦ The
amendment would help players in the above sectors to garner funds at lower
interest rates to help finance their operations.
♦ This
would result in higher flow of funds in the infrastructure sector for
development purpose.
Section 195 - Amendment
Scope of Section 195 of the Act
Applicability of Section 195 of the Act
on non- resident
♦ An
amendment has been made in Section 195 of the Act, through which it is proposed
to clarify, by way of an explanation, that the obligation to comply with
withholding tax provisions under Section 195 of the Act and to make deduction
thereunder applies and shall be deemed to have always applied and extends and
shall be deemed to have always extended to all persons, resident or
non-resident, whether or not the non-resident person has-
i. a residence
or place of business or business connection in India; or
ii. any other
presence in any manner whatsoever in India;
The amendment is brought into
retrospective effect from 1 April 1962.
♦ The
amendment widens the withholding tax provisions of Section 195 of the Act by
applying it to all persons whether resident or non- resident. It is further
clarified that such non- resident may or may not have a residence or place of
business or business connection or any other presence in India.
Determination of sum chargeable to tax
♦ A new
sub- section has been introduced as per which the Central Board of Direct Taxes
('the Board') may, by notification in the Official Gazette, specify a class of
persons or cases, where the person responsible for paying to a non-resident,
not being a company, or to a foreign company, any sum, whether or not
chargeable under the provisions of the Act, shall make an application to the
Assessing Officer to determine, by general or special order, the appropriate
proportion of sum chargeable, and upon such determination, tax shall be
deducted under sub-section (1) on that proportion of the sum which is so
chargeable.
♦
Accordingly, the Board shall in future specify the class of persons or cases
where the person responsible for paying to a non-resident, shall make an
application to the Assessing Officer to determine the appropriate proportion of
sum chargeable to tax.
♦ The
amendment has been brought into effect from 1 July 2012.
Amendment in Section 197A of the Act
Existing Provision
Presently, as per sub-section (1C) of
Section 197A of the Act, no deduction of tax shall be made in the case of an
individual resident in India, who is of the age of sixty-five years or more at
any time during the previous year, if such individual furnishes to the person
responsible for paying any income of the nature referred to in section 193 or section
194 or section 194A or section 194EE or section 194K, as the case may be, a
declaration in writing in duplicate in the prescribed form and verified in the
prescribed manner to the effect that the tax on his estimated total income of
the previous year in which such income is to be included in computing his total
income will be nil.
Amendment proposed by Finance Bill 2012
and impact
Finance Bill 2012 proposes to reduce
the age limit from sixty-five to sixty.
This amendment will take effect from 01
July 2012.
This is a welcome change for the
individual tax payers of the age of sixty, who are in receipt of income in the
nature of interest on securities, dividends, interest other than interest on
securities, in respect of deposits under National Savings Scheme and units of
mutual funds specified in Section 10(23D).
They have to furnish a declaration in
Form 15H verified by him to the effect that the tax on his estimated total
income in the previous year will be Nil.
Section 201- Assessee in Default-
Amendment
Existing Provision
Under the Act, in case person fails to
deduct taxes on specified payments, he is considered as 'assessee in default'
and interest and penalty implications follow such default.
Amendment proposed by Finance Bill 2012
The Finance Bill, 2012 proposes to
dilute the responsibility of the 'assessee in default' by providing that a
person, including the principal officer of a company, who fails to deduct tax
on the sum paid to a resident shall not be deemed to be an 'assessee in
default' in respect of such tax if such resident-
i. has duly
furnished his return of income;
ii. has taken
into account such sum for computing income in such return of income; and
iii. has paid the
tax due on the income declared by him in such return of income,
Further, the person is required to
furnish a certificate to this effect from a Chartered Accountant in the
prescribed form.
Impact of the amendment
The amendment seeks to absolve the
'assessee in default' in case the tax has been duly paid to the Government
Exchequer, though by the payee and not by the payer.
Accordingly, in case the taxes have
been paid and the income has been duly reported in the return of income by the
resident payee, the person making the default would not be regarded as
'assessee in default'. Thus, no interest and penalty would be leviable.
Section 154 of the Act – Rectification
of mistake in intimation with respect to TDS statement
Existing Provision
As per the provisions of Section 154 of
the ITA, Income- tax authority referred to in Section 116 may amend any order
passed by it or amend any intimation issued under Section 143(1) of the ITA.
Amendment proposed by Finance Bill 2012
Finance Bill 2012 proposes to include
another clause under sub-section (1) of Section 154, whereby Assessing Officer
may amend any intimation issued under sub-section (1) of Section 200A of the
ITA. Further, amendments are proposed in other sub-sections of Section 154,
whereby it is specified that provisions of Section 154 shall also apply to the
deductors
Further, under sub-section (1) of
Section 246 of the Act an amendment has been made wherein the assessee may
appeal to Commissioner (Appeals) against the intimation issued under
sub-section (1) of Section 200A.
This amendment will take effect from 01
July 2012.
Impact of the amendment
As per Memorandum explaining the
Finance bill, Section 200A was inserted Vide Finance (No.2) Act, 2009 to
provide for processing of TDS statement. After processing of TDS statement,
intimation is generated specifying the amount payable or refundable.
The intimation generated after
processing of TDS statement is not:
(i)
subject to rectification under section 154;
(ii)
appealable under section 246A; and
(iii)
deemed as notice of demand under section 156.
In order to reduce the compliance
burden of the deductor and also to rationalise the provisions of processing of
TDS statement, it is proposed to provide that the intimation generated after
processing of TDS statement can be rectified under section 154, shall be
appealable under section 246A and deemed to be a notice of demand under section
156 of the ITA.
