Tax Deduction at Source
1. Widening of TDS provisions on payment by Individual/HUF contractors and professionals u/s 194M
Presently, no individual /HUF is liable to deduct TDS on any payment made to a resident contractor or professional when it is for personal use or in case of carrying on business or profession which is not subjected to audit u/s 44AB.
It is proposed to insert a new section 194M in the Act to provide for levy of TDS at the rate of 5% per cent on the sum, or the aggregate of sums, paid or credited in a year on account of contractual work or professional fees by an individual /HUF (other than those covered u/s 194C &194J of the act), if such sum, or aggregate of such sums, exceeds 50 lakhs rupees in a year. There is no need to obtain TAN no. by such individual/HUF and TDS can be paid by them by using their PAN No.
2. TDS at the time of purchase of immovable property
Section 194-IA of the Act relates to payment on transfer of certain immovable property other than agricultural land and provides for levy of TDS at the rate of 1% on the amount of consideration paid or credited for transfer of such property. The term ‘consideration for immovable property’ is presently not defined under the said section. The term “consideration for immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property. This implies that TDS u/s 194-IA should be deducted on the entire consideration paid to the builder/seller.
3. Revision in rates of deduction of tax at source on various payments mentioned in the relevant sections of the Act:
Section Nature Existing rate of TDS Proposed rate of TDS
194DA Payment in respect of Life
Insurance Policy 1% 5%
194M Payments by
Individual/HUF
to contractor or
professional Nil 5%
4. Relaxing the provisions of sections 201 and 40 of the Act in case of payments to non-residents
The first proviso to sub-section (1) of the said section provides that any person, including the principal officer of a company specified therein, who fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVIIB on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished a return of his income, has taken into account such sum for computing income in such return of income, has paid the tax due on the income declared by him in such return of income and furnishes a certificate to this effect from an accountant in the prescribed form.
It is proposed to amend the said first proviso so as to substitute the word "resident" with the words "payee". It is further proposed to make a similar amendment in the proviso to sub-section (1A) of the said section. Sub-section (3) of the said section provides that no order deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a payment made to a resident 102 shall be made after the expiry of seven years from the end of the financial year in which payment is made or credit is given. It is proposed to amend the said sub-section to specify that in respect of a correction statement delivered by the assessee under the proviso to sub-section (3) of section 200, no order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a resident, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given, or two years from the end of the financial year in which such correction statement is delivered under the proviso to sub-section (3) of section 200, whichever is later.
This relief in section 201 is available to the deductor, only in respect of payments made to a resident. In case of similar failure on payments made to a non-resident, such relief is not available to the deductor. To remove this anomaly, it is proposed to amend the proviso to sub-section (1) of section 201 to extend the benefit of this proviso to a deductor, even in respect of failure to deduct tax on payment to non-resident. Consequent to this amendment, it is also proposed to amend the proviso to sub-section (1A) of section 201 to provide for levy of interest till the date of filing of return by the non-resident payee (as is the case at present with resident payee). For the same reason, it is also proposed to amend clause (a) of section 40 to provide that where an assessee fails to deduct tax in accordance with the provisions of Chapter XVII-B on any sum paid to a non-resident, but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of the return of income by the payee referred to in that proviso. Thus, there will be no disallowance under section 40 in respect of such payments.
5. TDS on non-exempt portion of life insurance pay-out on net basis.
Under section 194DA of the Act, a person is obliged to deduct tax at source, if it pays any sum to a resident under a life insurance policy, which is not exempt under section 10(10D). The present requirement is to deduct tax at the rate of 1% of such sum at the time of payment.
It is not justified to deduct tax on gross amount creates difficulties to an assessee who otherwise has to pay tax on net income (i.e. after deducting the amount of insurance premium paid by him from the total sum received). Hence, it is proposed to provide for tax deduction at source at the rate of 5%. on income component of the sum paid by the person i.e. maturity value paid minus insurance premium paid by the person.
6. TDS on cash withdrawal to discourage cash transactions
The new section 194N has been proposed to provide that a banking company, a cooperative society engaged in carrying on the business of banking or a post office, which is responsible for paying any sum or aggregate of sums, in excess of Rs 1 crore in aggregate to a person from an account maintained by the recipient, shall deduct TDS @ 2% on cash payment. Recipients who are involved in handling of substantial amounts of cash as a part of their business operations, such as Government, banking company, cooperative society engaged in carrying on the business of banking, post office, banking correspondents and white label ATM operators are exempt from this section. Central Government is empowered to exempt other recipients in consultation with RBI through notification in official Gazette.