Amendment of TDS in Budget 2020

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Amendment of ‘Section 194LC’ towards Concessional TDS Rate extended by 3 Years from Assessment Year 2021-22

[Applicable from 01-04-2020]

Section 194LC of the Act provides for a concessional rate of 5% for deduction of tax at source, by a specified company or a business trust, from interest paid to the non-residents. The tax is required to be deducted at the concessional rate if the borrowing is made before 01-07-2020. It has been proposed that the period for applicability of the concessional rate of 5°h shall be extended from 01-07-2020 to 01-07-2023.

Further, it has been proposed that the rate of TDS shall be further reduced to 4% in respect of interest payment to a non-resident on or after 01-04-2020 but before 01-07-2023 against borrowings in foreign currency through issues of long-term bonds and Rupee Denominated Bonds which are listed on a recognised stock exchange in any IFSC.

Amendment of ‘Section 194LD’ towards Concessional  Rate of TDS extended by 3 Years from 01-07-2020 to 01-07-2023 from Assessment Year 2021-22

[Applicable from 01-04-2020]

Section 194LD of the Act provides for concessional rate of TDS of 5% in case of interest payments to Foreign Institutional Investors (FII) and Qualified Foreign Investors (QFIs) on their investment in Government Securities and Rupee Denominated Bonds of an Indian company. The section provides that the tax is required to be deducted under this section only if interest is payable between 01-06-2013 and 01-07-2020.

It has been proposed that the period for concessional rate of shall be extended from 01-07-2020 to 01-07-2023. Further, the concessional rate of TDS of 5% shall also be available in respect of interest payable on or after 01-04-2020 but before 01-07-2020 to an FII or QFI in respect of the investment made in municipal debt security.

Amendment of Section 194J towards Fees for  Technical Services (FTS) Reduced to 2% Withholding Tax from 10% from Assessment Year 2021-22

[Applicable from 01-04-2020]

Fee for Technical Services (FTS) has always been subject matter of dispute from the withholding tax point of view. Deductors always try to bring the payments within the ambit of Section 194C, whereas department argues to treat it as FTS under section 194J. To reduce litigation, the Finance Bill, 2020 has proposed to reduce the rate of withholding tax to 2% from existing 10% under section 194J in respect of fees for technical services. Tax from fees for professional services shall continue to be deducted at the rate of 10% under Section 194J.

This provision takes reference from Section 9(1)(vii) for the meaning of ‘fees for technical services’. As per Explanation 2 to Section 9(1)(vii), ‘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”.

As per Explanation (a) to Section 194J, ‘professional service’ 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.

Following professions have been notified by the CBDT:

(a) Film artist

(b) Authorized Representative

(c) Accountancy Profession

(d) Company secretary

(e) Information Technology

Certain Co-operative Society is required to Deduct Tax (TDS) from ‘Payment of Interest’ from Assessment Year 2021-22

[Applicable from 01-04-2020]

The Finance Bill, 2020 proposes that a co-operative society is required to deduct tax from payment of interest, if the following conditions are satisfied:

  1. Interest is credited or paid:
    1. by a co-op. society (other than a co-operative bank) to a member;
    2. by a co-op. society to any other co-op. society;
    3. In respect of deposits with a primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; or
    4. In respect of deposits (other than time deposits) with a co-operative bank other than a co-operative society or bank engaged in carrying on the business of banking.
  2. the total sales, gross receipts or turnover of the co-operative society exceeds Rs. 50 crores during the financial year immediately preceding the financial year in which the interest is credited or paid; and
  3. the amount of interest credited or paid during the financial year is more than Rs. 50,000 (if payee is a senior citizen) and Rs. 40,000 (in any other case).

Amendment of Section 194-O for e-Commerce Operators to Deduct Tax (TDS) from Proceeds Payable to Participants @ 1% from Assessment Year 2021-22

[Applicable from 01-04-2020]

In order to widen the tax net by bringing participants of ecommerce within tax net, Govt. has proposed to insert a new section 194-O in the Act so as to provide for deduction of tax at source at the rate of 1%.

Who will deduct the tax?

Every person who owns, operates or manages a digital or electronic facility or platform for electronic commerce and is responsible for paying to e-commerce participant shall deduct tax under this provision.

Who will be the deductee ?

The tax under this provision shall be deducted from the sum paid or payable to a resident person who is selling goods or providing services, including digital products, through digital or electronic facility or platform of e-commerce operator.

Rate of TDS

Tax shall be deducted at the rate of 1%. If PAN or Aadhaar is not furnished by the recipient, the tax is proposed to be deducted at the rate of 5% under Section 206AA.

Time of Deduction

The tax shall be deducted by the e-commerce operator at the time of credit of amount to the account of e-commerce participant or at the time of payment thereof, whichever is earlier.
Tax will also be deducted from the amounts paid by purchaser of goods or recipient of services directly to an e-commerce participant. The amount paid by the purchaser of goods shall be deemed to be amount credited or paid by the e-commerce operator to the e-commerce participant and will be liable for deduction of TDS.

Threshold Limit

No tax shall be deducted under this provision if following conditions are satisfied:

  1. Sum is paid or payable to an individual or HUF; and
  2. The gross amount paid or payable during the previous year does not exceed 5 lakhs; and
  3. Participant furnishes his PAN or Aadhaar number to the e-commerce operator.

Exceptions

Deduction under this provision shall not be made in respect of any amount received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with above sale or services.

Other amendments

The existing provisions of section 204 of the Act defines the meaning of ‘person responsible for paying’ which includes employer, company or its principal officer or the payer.
In order to cover non-resident e-commerce operators within the ambit of TDS provisions, a new clause (v) has been proposed to be inserted in section 204 to provide that in case of non-resident person, the ‘person responsible for paying’ shall include:

  1. Such non-resident person himself;
  2. Any person authorised by such non-resident person; or
  3. Agent of such non-resident person in India including any person treated as an agent under section 163.

Application for lower deduction

An e-commerce operator can apply before Assessing Officer under Section 197 for lower deduction or nil deduction of tax.

Turnover Limit for purpose of Deduction Of Tax (TDS) has been specifically Defined from Assessment Year 2021-22

[Applicable from 01-04-2020]

Every person, other than an individual or HUF, shall be required to deduct tax under the current provisions of Sections 194A, 194C, 194H, 194-I and 194J. However, an individual or HUF shall also be liable to deduct tax under these provisions if his turnover or gross receipts, from business or profession, exceeds the monetary limit specified under Section 44AB during the financial year immediately preceding the financial year in which interest is paid or credited.
The threshold limit of audit under section 44AB is proposed to be increased, by the Finance Bill, 2020 to Rs. 5 crore on fulfilment of certain conditions.

To avoid any ambiguity, Sections 194A, 194C, 194H, 194-I and 194J of the Act are proposed to be amended to make these provisions applicable in case of an Individual/HUF if their total sales, gross receipts or turnover from business carried on by them exceeds Rs.1 Crore or Rs. 50 Lakhs in case of profession. The Finance Bill removes the reference to turnover under section 44AB from all provisions of TDS as specified above.

Amendment in definition of ‘Work’ under Section 194C towards TDS from Assessment Year 2021-22

[Applicable from 01-04-2020]

Section 194C provides for deduction of tax (TDS) from sum paid or payable to a resident person for carrying out any “work”.

The definition of ‘work’ has been amended to provide that if any product is supplied or manufactured according to requirements or specifications of the customer, it shall fall under the category of ‘work’ even if raw material is supplied by related persons of such customer as defined under section 40A(2)(b).

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