The Finance Act, 2020 has made several changes to the Chapter-XVII (Collection and Recovery of Tax). Twenty-Five Sections of the Income-tax Act, 1961 have been impacted due to the Finance Act, 2020 either by way of amendment to the existing provision or by insertion of new provisions for deduction or collection of tax. E- Commerce operators, tour operators, Mutual Funds, domestic companies and authorized dealers have been entrusted with obligations of deduction or collection of tax at source from certain transactions. To incorporate the impact of recent changes, the CBDT has notified the amendment to Rule 31A and Annexure to Form 26Q and Form 27Q vide Income-tax (16th Amendment Rule), 20201.
A summary of the changes introduced in the form for
filing of TDS Statement and Rule 31A are explained in the below paragraphs.
1. Reporting of nil or lower
deduction of tax in cases notified under Section 194A(5) or Section 197A(1F)
As per section 194A of the Income-tax Act, every person
(other than an individual or HUF, whose turnover or gross receipt during the
preceding year does not exceed Rs. 1 crore in the case of business
and Rs. 50 lakhs in case of the profession) is required to deduct tax at the rate of 10% from interest, other than on securities, paid or payable
to a resident person.
Section 194A(3) contains
clauses (i) to (xi) to provide an exemption from deduction of tax in certain cases. As per clause
(iii), no tax is required to be deducted by a person from the interest paid or
payable to a Bank, Financial Corporation, Insurance Company or such other
institutions or bodies as may be notified by the Central Government. Various
persons had been notified for this purpose by the Government through various notifications.
The Finance Act, 2020 amended the said clause (iii) of
Section 194A(3) to provide that no notification shall be issued by the Central Government in respect of the said clause
on or after 01-04-2020. Alternatively, a new sub-section (5) has been inserted
to empower the Central Government to notify the cases where no tax shall be
deducted or the tax shall be deducted at the lower rate. In other words, this
amendment empowers the Central
Government to provide
an exemption from deduction of tax or
deduction at the lower rate for entire section 194A
instead of issuing notifications clause-wise or sub-section wise.
A similar amendment has also been made to Section 197A.
As per current provisions of Section 197A(1F), no deduction of tax shall be
made from the specified payment to such institution, as may be notified by the
Central Government in this behalf. To empower the Central Govt. to notify the
specified payments for both nil deduction
of tax and lower deduction of tax, the sub-section (1F) of Section 197A has
been substituted. The new sub-section provides that no deduction of tax shall
be made or deduction of tax shall
be made at a lower
rate by the deductor in cases notified
by the Central Government.
Accordingly, the CBDT has made the consequential changes
to Rule 31A and Form 26Q requiring deductor to furnish the particulars of the
amount paid or credited on which tax was not deducted or deducted at a lower
rate in view of the notification issued under sub-section (5) of section 194A
or sub-section (1F) of Section 197A. Further,
the deductor shall be required
to provide the following remarks
in respect of such
payments:
|
Remark |
Reason for no
deduction or lower deduction of tax |
|
D |
If no deduction
or lower deduction is on account of payment made to a person or class of
person on account of notification issued under sub- section (5) of section 194A |
|
Z |
if no deduction or lower deduction is on account
of payment being notified under section 197A(1F) |
2. Reporting of interest paid by Offshore banking unit without
deduction of tax
As per sub-section (1D) of section 197A, an Offshore Banking Unit is
not required to deduct tax from ‘interest’ paid in respect of deposit made by
or borrowing from a ‘non-resident’ or ‘not ordinarily resident in India’.
New Form 27Q now requires Offshore banking unit to furnish
particulars of the amount paid or credited on which tax was not deducted under
sub-section (1D) of section 197A and write remark “G” under reasons for not
deducting tax.
3. Reporting of tax deducted under Section 194J at concessional rate of 2%.
Section 194J of the Income-tax Act requires every person
(other than an individual or HUF whose turnover or gross receipts does not
exceed Rs. 1 crore in case of business and Rs. 50 lakhs in case of the
profession) to deduct tax at the rate of 10% from the payment made to a
resident if such payment is in the nature of fees for professional services,
fees for technical services, director’s fee, non-compete fees or royalty.
The Finance Act, 2020, has amended Section 194J with effect from
01-04-2020, to provide for a concessional rate of TDS at the rate of 2%. This concessional rate shall be applied to the fees for technical
services (not being professional services) and royalty paid or payable for the
sale, distribution or exhibition of cinematographic films.
The annexure to Form 26Q has been amended to incorporate the effect
of this amendment. New annexure has revised the list of section codes to
bifurcate section 194J in two parts as follows:
|
Section |
Nature of
payment |
Section Code |
|
194J(a) |
Fees for technical services (not being
professional services), royalty for sale, distribution or exhibition of cinematography
films and call centre (at the rate of 2%) |
94J-A |
|
194J(b) |
Fee for professional services or royalty etc. (at
the rate of 10%) |
94J-B |
4. Reporting of tax deducted by an e-Commerce operator under Section 194-O
The Finance Act, 2020 has inserted a new Section 194-O in the
Income-tax Act with effect from 01-10-2020, to provide that every e-commerce operator facilitating the sale
of goods or provision of services of an e-commerce participant through its
digital or electronic facility or platform, shall be required to deduct tax at
source at the rate of 1% of the gross amount of sale or service or both
facilitated by the e-commerce operator.
The annexure to Form 26Q has been amended to incorporate the effect
of this amendment. New annexure has revised the list of section codes to
incorporate reference of section 194-O, namely:
|
Section |
Nature of
payment |
Section Code |
|
194-O |
Payment of certain sums by the e-commerce operator
to e- commerce
participant |
94O |
5. Reporting of payment made to the entities whose income is exempt
from tax
The CBDT has clarified2 that no tax is required to be deducted from the following income of
Ramakrishna Math and Ramakrishna Mission as they are exempt under section
10(23C)(iv):
(a) Interest on
securities (Section 193);
(b) Interest other
than 'interest on securities' (Section 194A);
and
(c) Income
in respect of units of Mutual fund specified under section 10(23D) or of Unit
trust of India (Section 194K)
The CBDT has further clarified3 that no tax is required
to be deducted from the income
of specified entities which are unconditionally exempted under section 10 and
which are also statutorily not required to file the return of income under
section 139.
The amended Rule 31A(4) requires
deductor to furnish
particulars of the amount paid or credited on which tax was not
deducted due to the aforesaid circulars.
Consequently, new annexure to Form 26Q has incorporated a new code
"E" under "Reason for non-deduction/lower deduction/ Higher
Deduction/ Threshold/ Transporter etc." requiring the deductor to furnish
the information in respect of payment made to these entities without deduction
of tax.
6. Reporting of tax deducted from income in respect of units of mutual fund
The Finance Act, 2020, has abolished dividend distribution tax with
effect from Assessment Year 2021-22. Consequently, a new Section 194K has been
inserted to provide for deduction of tax at source at the rate of 10% from
income paid or payable in respect of units of a Mutual Funds.
Consequently, the annexure to Form 26Q has been amended to
incorporate the effect of this amendment. New annexure has revised the list of
section codes to incorporate reference of section 194K, namely:
|
Section |
Nature of
payment |
Section Code |
|
194K |
Income in respect of units |
94K |
7.
Reporting of tax deducted on
cash withdrawal
The Finance Act, 2020 has expanded the scope of
provisions related to deduction of tax at source
(TDS) on cash withdrawal by substituting the existing section
194N with a new Section 194N.
The new section 194N provides different tax rates for two different class of
persons. Further, it also prescribes two threshold limits.
As per the new section 194N, a banking company or a
co-op. bank or a post office which is responsible for paying any sum, being the
amount or the aggregate of amounts, in cash exceeding Rs. 1 crore during the
previous year, to any person from one or more account, shall at time of payment
of such sum, deduct 2% of such sum as income-tax.
A proviso has been inserted to Section 194N to reduce
the threshold limit for deduction of tax from Rs. 1 crore to Rs. 20 lakh if the person has not filed return of income for all
of the three assessment years relevant to three previous
years, immediately preceding the previous year in which cash
is withdrawn, and the due date for filing ITR under section 139(1)
has expired. The deduction of tax under
this situation shall be at the rate mentioned in sub-clause (a) and (b):
(a) 2%
from the amount withdrawn in cash if the aggregate of the amount of cash
withdrawal exceeds Rs. 20 lakhs during the previous year but does not exceed
one crore rupees; or
(b) 5%
from the amount withdrawn in cash if the aggregate of the amount of cash withdrawal exceeds Rs. 1 crore
during the previous year.
The tax is deductible under the sub-clause (a) if the
aggregate of the amount withdrawn during the previous year exceeds Rs. 20 lakhs
but does not exceed Rs. 1 crore. The tax under the sub-clause (b) shall be
deducted if the aggregate of the amount withdrawn during the year exceeds Rs. 1
crore. Where the payee is covered in sub-clause (b), that is, the amount or aggregate of the amount withdrawn exceeds Rs.
1 crore, the tax shall be deducted at the rate of 2% from the sum in excess of
20 lakhs but up to Rs. 1 crore and at the rate of 5% from the sum in excess of
Rs. 1 crore.
The necessary changes have been made to the annexures to
Form 26Q and Form 27Q to enable the deductor to furnish the information of tax deducted
under Section 194N or
First Proviso to Section
194N. The details
are required to furnished deductee/payee wise.
The new Forms
26Q and 27Q have following three columns to report the details of tax
deducted under Section 194N:
(a)
Amount of cash withdrawal in excess of Rs. 1 crore (in cases not covered by the
first proviso to Section 194N);
(b)
Amount of cash withdrawal in excess
of Rs. 20 lakhs but does not exceed Rs. 1 crore (for cases covered by
sub-clause (a) of clause (ii) of first
proviso to section 194N);
(c)
Amount of cash withdrawal in excess
of Rs. 1 crore (for cases covered by sub- clause (b) of clause (ii) of first proviso to section 194N).
Example, Mr. X withdraws the following sum in cash during the financial year
2020- 2021 as follows:
|
Date |
Amount
withdrawn |
|
|
|
|
01-08-2020 |
10,00,000 |
|
15-09-2020 |
35,00,000 |
|
17-11-2020 |
25,00,000 |
|
28-01-2021 |
45,00,000 |
|
16-03-2021 |
30,00,000 |
He has not furnished his return of income for the
previous year 2016-17, 2017-18 and 2018-19 and the due date for filing of
return has already expired.
Since Mr. X has not filed return of income for three assessments
years immediately preceding the previous year in which cash is withdrawn, and
the due date for filing the return under section 139(1) has expired, the tax
shall be deducted as follows:
|
Date |
Amount
withdraw n |
Aggregate of amount withdraw n |
Tax Deducted at Source |
Reporting of cash withdrawa l in Column of Form 26Q |
Reporting of cash withdrawa l in Column of Form 27Q |
||
|
Rat
e |
Computatio
n |
Tax to be deducte d |
|||||
|
|
|
|
|
|
|
|
|
|
01- |
10 lakhs |
10 lakhs |
- |
- |
- |
419B |
720B |
|
08- |
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
15- |
35 lakhs |
45 lakhs |
2% |
[45 lakhs (-) |
50,000 |
419B |
720B |
|
09- |
|
|
|
20 lakhs] * |
|
|
|
|
202 |
|
|
|
2% |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
17- |
25 lakhs |
70 lakhs |
2% |
25 lakhs * |
50,000 |
419B |
720B |
|
11- |
|
|
|
2% |
|
|
|
|
202 |
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
28- |
30
lakhs |
100
lakhs |
2% |
30
lakh * 2% |
60,000 |
419B |
720B |
|
01- |
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
28- |
15 lakhs |
115 lakhs |
5% |
15 lakh * 5% |
75,000 |
419C |
720C |
|
01- |
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
16- |
30 lakhs |
145 lakhs |
5% |
30 lakh * 5% |
1,50,000 |
419C |
720C |
|
03- |
|
|
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|||||
Second, Third and
Fourth proviso to section 194N empower Central
Government to notify the class of recipients where the provisions of this
Section shall not apply or would apply a reduced rate of tax.
In case, deductor has not deducted tax or has deducted
tax at a rate lower than the prescribed rate, the reasons for same are required
to be mentioned in Annexure to Form 26Q and Form 27Q.
Annexure prescribes a list of notes which is to be mentioned
in column ‘Reason for such
non-deduction/lower deduction/higher deduction’.
New Annexure to Form 26Q and 27Q have inserted
following two new notes for non-
deduction or lower deduction of TDS under section 194N:
(a) ‘M’
shall be used if no deduction or lower deduction of tax is on account of
notification issued under the second
proviso to section 194N;
(b) ‘N’
shall be used if no deduction or lower deduction of tax is on account of
payment made to a person referred to in the third
proviso/fourth proviso to section 194N.
8. Reporting of tax deducted from the income distributed by a Business Trust
Business Trust (REIT/InVIT) has been provided with the status of a
hybrid pass- through entity under the Income-tax Act whereby it can pass
certain income to its unit-holders without paying the income-tax at its end.
Thus, ultimately unit holders are liable to pay tax on such distributed income.
The incomes which a business trust can pass to its unit-holders are
as follows:
(a) Rental income
from real estate property directly owned by the REIT;
(b) Interest received
from SPV.
With effect from Assessment Year 2021-22, the Finance Act, 2020 has
abolished the Dividend Distribution Tax and move to the traditional system of
taxation wherein units-holders are liable to pay tax on dividend income. Thus,
if a business trust distributes any dividend received from SPV to its unit-holders
then such dividend income shall be taxable in the hands of unit-holders.
However, if the dividend is received from SPV who has not opted for
concessional tax regime of section 115BAA then such dividend shall be exempt in
the hands of the unit-holders under section 10(23FD).
A business trust is liable
to deduct tax while distributing the income to its unit-holders as per section 194LBA. Thus,
the consequential amendment has also been made to section 194LBA and a new
sub-section (2A) is inserted to provide that no tax shall be deducted by a
business trust from dividend distributed to the unit-holders if such dividend is distributed out of sum received as dividend from an SPV and the SPV has not exercised the option under
section 115BAA.
Accordingly, the Rule 31A and Annexure to Form 26Q and Form 27Q have
been amended to incorporate the effect of this amendment.
Form 26Q has been amended
to bifurcate the section codes relating to section 194LBA in following parts:
|
Section |
Nature of
payment |
Section Code |
|
|
|
|
|
194LBA(a) |
Certain income in the form of interest from units
of a business trust to a residential unit-holder |
4BA1 |
|
194LBA(b) |
Certain
income in the form of a dividend from units of a business trust to a resident unit-holder |
4BA2 |
Form 27Q has been
amended to bifurcate the section codes relating to section 194LBA in following
parts:
|
Section |
Nature of payment |
Section Code |
|
|
|
|
|
194LBA(a) |
Income referred to in section 10(23FC)(a) from
units of a business trust |
LBA1 |
|
194LBA(b) |
Income referred to in section 10(23FC)(b) from
units of a business trust |
LBA2 |
|
194LBA(c) |
Income
referred to in section 10(23FCA) from units of a business trust |
LBA3 |
Further, the
business trust shall be required to write remark “O” under reason for not
deducting tax if tax is not deductible in view of sub-section (2A) of Section
194LBA.
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