Recent Amendments in TDS Provisions

CPE Session for ICAI, Trivandrum

Radhesh L Bhat
Partner
Varma & Varma

03rd September 2022

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 Scope of TDS and TCS enlarged in the last 3 budgets

There are about 65 sections in IT Act relating to TDS/TCS

Various provisions relating to TDS/TCS amended

Significance
New sections added/ no uniform rate of TDS
of TDS
compliance Applicable for individuals/HUF, if total sales / gross receipts
from business exceeds Rs.1 cr / Rs.50 lakhs for profession
Increased compliance burden on assessee

Responsibility of Tax auditor u/s.44AB

Penal consequences for non-compliance

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 Important amendment to TDS provisions
effective from FY 2019-20 onwards

Related CBDT Circulars

Topics
covered Common issues

Consequences of non-compliance

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 ▪ Sec. 17(2)(vi) of the Act - Taxation of value of Sweat
192 – TDS on Equity Shares (ESOP) allotted to employee
Salary – ESOP ▪ TDS applicable at the time of exercise of option (FMV
less Exercise price is perquisite)
- Startup Amendment:
Amendment ▪ To ease the burden on Start ups, inserted Subsection
w.e.f AY 2021- (1C) to sec.192.
▪ For eligible start-up referred to in section 80-IAC, TDS
22 shall be made within 14 days from earliest of
(i) after the expiry of 48 months from the end of the
relevant assessment year; or
(ii) from the date of the sale of such specified
security or sweat equity share by the assessee; or
(iii) from the date of the assessee ceasing to be the
employee of the person

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 ▪ Sec.10(12) provided for tax exemption of
accumulated balance due and becoming payable
to an employee participating in a recognised
194A – TDS provident fund (Referred to in Fourth Schedule)
▪ Amendment:
on PF ▪ Exception to exemption – Interest credited to
Amendment employee’s a/c. in a recognised PF is taxable in
respect of his contribution in excess of Rs.2.50 *
(w.e.f AY lakhs in a financial year (on or after the 1st day of
2022-23) April, 2021)
*Rs.5.00 lakh if there is no contribution by employer to
the fund
▪ TDS @ 10% is applicable u/s.194A (if interest
exceeds Rs.5000/-)

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 ▪ Sec.194A deals with TDS on interest income
▪ Exemption earlier available for interest paid by:
▪ Co-op society (other than co-op Bank) to
194A – TDS on members
interest ▪ Co-op society to any other co-op society
▪ On deposits with Primary agri. Credit
income - Co- society/primary credit society or coop land
op. society mortgage Bank
▪ On deposits (other than time deposits) with a
- Amendment coop society engaged in banking business
w.e.f Amendment:
▪ Co-op Society has to deduct Tax in all cases if:
AY 2020-21 ▪ Total sales, gross receipts or turnover of Co-op
Society (deductor) exceed Rs.50 cr. during
immediately PY
▪ Interest during the FY exceeds Rs.50000/- for Sr.
citizen and Rs.40000/- for others

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 ▪ Individual or HUF required to deduct tax at
Turnover source u/s.194A, 194C, 194H, 194I and 194J, if
threshold total sales, gross receipts or turnover exceed *
(A) Rs.1 crore in case of business or
amended- (B) Rs.50 lakhs in case of profession
Fin Act 2020 during the financial year immediately
preceding the financial year in such sum is
(w.e.f credited or paid.
01.04.2020) ▪ Effect is that, individual/HUF carrying on
business and whose total sales, gross receipts or
turnover exceeds Rs. 1 crore; but does not
exceed Rs. 2 crore in preceding financial year &
opted for section 44AD of the Act are also liable
to deduct tax at source u/s.194A, 194C, 194H,
194I and 194J
*prior to amendment – reference was to sec.44AB

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 Amendment
194C - Payments • The expression ‘work’ includes
to Contractors “manufacturing or supplying a product according to the
requirement or specification of a customer by using
for carrying out material purchased from such customer or its
work associate, being a person placed similarly in relation
to such customer as is the person placed in relation to
(incl. supply of the assessee under the provisions contained in clause
(b) of sub-section (2) of section 40A;
labour for
carrying out but does not include manufacturing or supplying a
product according to the requirement or specification of
such work) a customer by using material purchased from a
person, other than such customer or associate of such
customer”
Amendment is ▪ Not a ‘work’ if material used is supplied by other than
customer/associate
w.e.f 01.04.2020
• Effect is that in contract manufacturing, raw material
provided by assessee or its associate shall fall within the
purview of the ‘work’
• Amendment is w.e.f 01.04.2020

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194IA - TDS on • If consideration exceeds Rs.50 lakhs, TDS @1%
payment for of the consideration is applicable
transaction Amendment
in immovable • 1% of TDS is applicable on the amount
property – determined for Stamp Duty Valuation if such
value is higher than consideration
‘Stamp duty • Effect is that - If both consideration and
value’ stamp duty value is less than Rs.50 lakhs, no
TDS
• Amendment effective from AY 01.04.2022 (AY
w.e.f 01.04.2022 2023-24)
▪ Practical issues in filing TDS returns

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 ➢ Sec.194IB Inserted in by Fin Act 2017, w.e.f 01.07.2017

194IB – ▪ Individuals / HUF (not covered in proviso to 194I) paying rent

to a resident exceeding Rs 50,000 per month or part of a month
Payment of deduct taxes @ 5%
▪ Rent for use of land or building
rent ▪ TDS on yearly basis/end of tenancy
Amendments ▪ File Form 26QC (challan cum TDS statement) online within 30
days from the end of the month in which tax is paid
w.e.f ▪ Issue Form 16C to the landlord within 15 days from due date of
01.07.2021 filing 26QC
▪ [If the Landlord / Lessor/ Payee is a non-resident, liability to
deduct TDS is u/s.195 of the Act]
Amendment:
▪ If tax is to be deducted as per Sec.206AA (No PAN) or Sec
206AB (for non-filers) *
➢ such deduction shall not exceed rent payable for last
month of PY or last month of tenancy, as case may be
* “or sec. 206AB” omitted in Fin Act 2022, w.e f 01.04.2022

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 ➢ Sec.194M Inserted in by Fin Act 2 of 2019, w.e.f 01.09.2019
194M - • Individuals / HUF (not covered in 194C, H and J)
responsible for paying any sum to any resident
Payment for • for carrying out any work (including supply of labour for
work by carrying out any work) in pursuance of a contract, by way of
commission or brokerage or by way of fees for professional
individual/HUF services during the financial year
• shall, at the time of credit/ at the time of payment in cash or
(w.e.f by issue of a cheque or draft or by any other mode,
whichever is earlier,
01.09.2020, i.e., • deduct an amount equal to 5% of such sum:
AY 21-22) ➢ No deduction if such sum/aggregate of such sums
credited/paid during a FY does not exceed Rs.50 Lakhs
➢ Challan-cum statement in Form No. 26QD to be filed within
30 days from the end of the month in which TDS is deducted
➢ (No TAN required)
➢ TDS Certificate in Form No.16D to be given to deductee
within 15 days.

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194M & 194IA - Illustration

▪ Mr.CA acquired land and started construction of house

Particulars Amount paid Sec. Rate of Amount of

reference TDS TDS
Land purchased 60,00,000 194 IA 1% 60,000
Construction of house 75,00,000 194M 5% 3,75,000
Interior work 65,00,000 194M 5% 3,25,000
Painting/finishing 40,00,000 - -

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 ▪ Applicable to those sellers whose total sales, gross

206C(1H) –
receipts or turnover from the business exceeds Rs. 10
crore in the immediate previous year.
TCS on sale ▪ On the amount of sales consideration received on or
after 1st October, 2020
of goods ▪ Applies only in cases where receipt of sale consideration
[w.e.f exceeds Rs. 50 lakh in a financial year. The threshold is
based on yearly receipt.
01.10.2020] ▪ Sales does not include ‘Export sales’
▪ Rate of TCS is 0.1% in excess of Rs.50 Lakhs, from the
buyer
▪ If no PAN/Aadhar, 5% as per sec.206CC
▪ Not applicable to goods covered in 206C –
▪ (1F-motor vehicles), (1G-forex), i.e., other TCS provisions

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206C(1H) – ‘Buyer’ does not include:
▪ Central Government, a State Government, an
TCS on sale embassy, a High Commission, legation, commission,

of goods
consulate and the trade representation of a foreign
State
[w.e.f ▪ Local authority as defined in the Explanation to clause
(20) of section 10
01.10.2020] ▪ Person importing goods into India or other notified
persons

➢ The buyer gets credit of tax so paid, in 26AS

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206C(1H) - Guidelines CBDT vide circular no.17/2020

Not applicable on any sale consideration received before 01.10.2020

Not applicable to (a) transactions in securities and commodities which are traded/cleared/settled through/by
recognized stock exchanges/recognized clearing corporation (b) transactions in electricity, renewable energy
certificates and energy saving certificates traded through power exchanges registered in accordance with Regulation
21 of the CERC;
Only for the purpose of calculation of this threshold of Rs. 50 lakh, the receipt from the beginning of the financial
year i.e., from 01.04.2020 shall be taken into account

Receipt of sale consideration from a dealer would not be subjected to TCS under 206C(IH) of the Act, if such sales
is subjected to TCS sec.206C(1F) ---------- 206C(1F) is for individual retail sales

In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of the value of Rs.10 Lakhs or
less to a buyer would be subjected to TCS u/s.206C(1H), if the receipt of sale consideration (aggregate) for such
vehicles during the previous year exceeds Rs.50 lakhs.
No adjustment on account of sale return or discount or indirect taxes including GST is required to be made since
TCS is made with reference to amount of sale consideration (?)
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194Q
Tax Deduction at Source (TDS) on purchase of goods
[w.e.f 01.07.21]
Who is liable to deduct Buyer of any goods
When to deduct At the time of :
▪ credit of such sum to the account of the seller or
▪ at the time of payment thereof by any mode.
- for purchase of any goods
Applicability on TDS obligation will arise only if the payment is made to a Resident seller
payment to non-
resident ?
What is the rate Normal rate
@ 0.1% of sale consideration on payment exceeding Rs.50 Lakhs in a Financial
Year
Higher rate
@ 5%, if the seller does not provide PAN
Turnover threshold to If the person making the payment for purchases (i.e., buyer) has gross
invoke S.194Q receipts/turnover from business exceeding Rs.10 Crores in the immediately
preceding financial year 16
194Q - Tax Deduction at Source (TDS) on purchase of goods
[w.e.f 01.07.21]

Exceptions This section does not apply if;

▪ Tax is deductible under any of the provisions of the IT Act; and
• Tax is collectible u/s.206C, except sec.206C(1H)
Applicable from 01st July 2021

Effect of non- As per section 40a(ia) of IT Act, if the Buyer fails to deduct TDS, 30% of
compliance the expenditure (purchases) will be disallowed

Form for furnishing 26Q

quarterly return

Certificate to be Form 16A

issued by the buyer
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 Illustration – 1
? ABC Ltd purchases goods worth Rs. 55 lakhs and debits the
same in his books of accounts on 30.6.2021. ABC makes payment
for the said purchases on 15.7.2021. ABC’s turnover from his
business in FY 2020-21 was Rs.11 crores.
• In this case ABC is not liable to deduct TDS u/s194Q since the
purchase was accounted in the books before 01.07.2021 though
payment is made after 01.07.2021
194Q - Illustration – 2
Illustration ? ABC Ltd makes advance payment of Rs. 55 lakhs for purchase
of goods on 30.6.2021 and debits such purchases in books on
15.07.2021. ABC’s turnover from his business in FY 2020-21 was
Rs.11 crores.
• In this case, ABC will not be liable to deduct TDS u/s 194Q on
such purchases of Rs. 55 lakhs, for which payment was made
before 1.7.2021, though debited after 1.7.2021.

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 Illustration – 3
? ABC Ltd purchases goods worth Rs. 55 lakhs and debits the same in his books of accounts
on 30.6.2021. ABC makes payment for the said purchases on 15.7.2021. ABC again makes a
purchase of Rs.30 lakhs on 01.07.2021 from the same seller and credits the seller’s account
in his books on 01.07.2021. ABC’s turnover from his business in FY 2020-1 was Rs.11 crores.
• In this case, ABC shall be required to deduct TDS @ 0.1% on purchases of Rs 30 lakhs
debited on 1.7.2021, since the threshold purchase limit of Rs. 50 lakhs for the FY 2021-22,
has already been crossed by way of earlier purchases of Rs 55 lakhs booked on 30.6.2021.
194Q - The payment of Rs. 55 lakhs made on 15.7.2021, towards purchases debited by him on
30.6.2021, shall not be liable for deduction of TDS u/s 194Q.

Illustration Illustration – 4
? ABC Ltd makes an advance payment of Rs. 55 lakhs for purchase of goods on 30.6.2021,
and debits such purchases in books on 15.7.2021. ABC makes an advance payment of Rs 30
lakhs in respect of purchase of another tranche of goods on 1.7.2021 from the same seller
and is yet to credit the seller’s account in his books. ABC’s turnover from his business in FY
2020-21 was Rs.11 crores.
• In this case, ABC shall be required to deduct TDS @ 0.1% on advance payment towards
purchases of Rs. 30 lakhs, paid by him on 1.7.2021, since the threshold purchase limit of
Rs. 50 lakhs for the FY 2021-22, has already been crossed by him by way of his earlier
advance payment towards purchases of Rs 55 lakhs on 30.6.2021.

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 llustration – 5
? ABC Ltd purchases goods worth Rs. 15 lakhs and
debits the same in his books of accounts on 30.6.2021.
ABC makes payment for the said purchases on
15.7.2021. ABC again makes a purchase of Rs.40 lakhs
on 01.07.2021 from the same seller and credits the
seller’s account in his books on 01.07.2021. ABC’s
194Q - turnover from his business in FY 2020-1 was Rs.11
crores.
Illustration • In this case, ABC shall be required to deduct TDS @
0.1% on purchases of Rs 5 lakhs. Total purchase of ABC
in the FY 2021-22 amounts to Rs.55 lakhs and TDS is
deductible on amount exceeding Rs.50 lakhs.

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 llustration – 6
? ABC Ltd purchases goods worth Rs. 70 lakhs and debits the
same in his books of accounts on 01.07.2021. However, ABC
returns goods worth Rs.10 lakhs on 15.08.2021 and purchases
another tranche of goods for Rs.30 lakhs from the same seller on
20.08.2021. ABC’s turnover from his business in FY 2020-1 was
Rs.11 crores.
• For the First Tranche of 70 lakhs - In this case, ABC shall be
required to deduct TDS @ 0.1% of Rs. 2000/- on purchases of
194Q - Rs. 20 lakhs which are in excess of the threshold purchase value
limit of Rs. 50 lakhs, and deposit the same with the exchequer
Illustration on or before 7.8.2021.
• For the Second Tranche of 30 lakhs - In order to incorporate
the due effect of subsequent purchase returns of Rs 10 lakhs,
the corresponding excess TDS @ 0.1% of Rs 1000/- on such
purchase returns is required to be adjusted from the TDS of Rs.
3000/- u/s 194Q on the next purchase of Rs. 30 lakhs from the
same seller.

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 ❖If GST is separately mentioned, no TDS on such GST
portion
❖If TDS u/s.194Q on payment basis (being earlier than
invoice), TDS on full amount paid

194Q – CBDT ❖For purchase return, adjust in next purchase!!!!

Guidelines on ❖Not applicable to a non-resident whose purchase of

goods from seller resident in India is not effectively
implementation - connected with PE of such non-resident in India
circular dt ❖No TDS if seller is wholly exempt from tax (like person
30.06.2021 exempt from tax u/s.10)
❖Not applicable for an assessee in the first year of
incorporation
❖For computing threshold limit of Rs.10 cr, non business
turnover is not considered
❖194Q will prevail over 206C(1H). However, if seller has
collected tax u/s.206C(1H), then no TDS u/s.194Q

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194Q vs 206C(1H) – Illustration 1

In Rs. lakhs

Whether party Value of

Customer Sales till Sales after has deducted transaction on
Annual Sales
Name 30.06.2021 30.06.2021 tax u/s 194Q which TDS u/s.
after 1.7.2021 * 206C(1H)

A 23 57 80 YES NIL
B 52 159 211 YES 2
C 13 43 56 NO 6
D 52 48 100 NO 50

For Yes - Assuming deduction is done on all applicable transactions after 1.7.2021
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194Q vs 206C(1H) – Illustration 2

In Rs. lakhs

Whether party
Purchases Purchases Taxable
Annual has collected tax
Vendor Name till after transaction value
Purchases u/s 206C(1H)
30.06.2021 30.06.2021 under 194Q
after 1.7.2021 *

A 23 57 80 YES NIL
B 52 159 211 NO 159
C 13 43 56 NO 6
D 52 48 100 NO 48

For Yes - Assuming tax collection is done on all applicable transactions after 1.7.2021
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 194Q –
Issues ✓ Whether PY turnover Rs.10 crore is inclusive of GST?

addressed / ✓ Whether 194Q is applicable on payment to KSEBL

✓ Whether applicable on payments to primary agri.
to be Coop. societies
✓ Compliance burden
addressed ✓ Whether 194Q to be applied on tax/duty portion on
purchase of petrol/diesel by dealers
✓ (clarified in CBDT circular dt 25.11.2021)

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206C(1G) - TCS on Foreign remittance under LRS & sale of
overseas tour program package (w.e.f. 1st October 2020)

206C (1G) covers ▪ Foreign remittance under Liberalized Remittance (LRS)

▪ Purchase of Tour Package which includes expenses for travel or hotel
stay / boarding / lodging etc

Who is liable to collect ▪ Authorised dealer for foreign remittance

When to collect
What is the Threshold limit
▪ Seller of overseas tour program package
Earlier of :
▪ at the time of debiting the buyer or i.e., amount due from buyer
▪ at the time of Receipt from the buyer, i.e., actual receipt
▪ No TCS if aggregate amount in FY is less than Rs. 7 Lakhs and remittance
is for the purpose other than overseas tour programme package.
▪ If the payment is for overseas tour programme package to an operator, then
TCS is liable to be collected without any threshold

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 206C(1G) - TCS on Foreign remittance under LRS & sale of
overseas tour program package (w.e.f. 1st October 2020)

Rate of TCS Authorised dealer (AD)

▪ 5% on an amount/aggregate amounts in excess of Rs. 7 lakhs in a Financial Year
▪ 0.5% if the remittance is out of educational loan obtained from bank or notified financial
institution (as defined in sec.80E)
Tour operator
▪ 5% without any threshold limit
Higher Rate
▪ Rate of TCS will be 10% / 1% respectively, if the buyer does not furnishes PAN/Aadhar
Exception ▪ If tax already collected by Tour Operator, then no TCS by AD for remittance

Not applicable to ▪ Buyer is liable to deduct TDS and has deducted and produced proof
▪ Buyer is Central / State Government, Embassy, High Commission etc.
▪ No TCS on NRI u/s.6(1)/(1A), visiting India*
▪ Buyer who is a non-resident in terms of sec.6 of the Act and who does not have a PE
in India **
* CBDT notification dt 30.03.2022
** CBDT notification dt 17.08.2022 27
206C(1G) - Illustrations

1.If remittance outside India for medical treatment of Rs.10 Lakhs?

TCS u/s. 206C(1G) @5% to be collected on Rs. 3 Lakhs– i.e., Rs.15,000

2. If amount remitted under LRS in a financial year is INR 8,00,000 for pursuing overseas education?

TCS at 0.5% will be applicable on INR 1,00,000 (INR 8,00,000 – INR 7,00,000)

3. If in (1) above, the buyer does not furnish PAN/Aadhar?

TCS u/s. 206C(1G) @10% to be collected on Rs. 3 Lakhs– i.e., Rs.30,000 (as per sec.206CC)

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 206C(1G) -
TRANSACTION TCS

Illustrations Transaction 1 – Rs.

5,00,000
No TCS since amount is
below Rs 7,00,000/-

Transaction 2 – Rs TCS applicable on Rs

8,00,000 6,00,000
Mr. India has made remittance during FY
[(Rs 5,00,000 + Rs
2021-22 as follows:
8,00,000 = Rs 13,00,000) –
✓ Transaction 1 – Rs. 5,00,000 Rs 7,00,000 = Rs
✓ Transaction 2 – Rs 8,00,000 6,00,000]

✓ Transaction 3 – Rs 1,50,000 Transaction 3 – Rs TCS applicable on Rs

1,50,000 1,50,000 entirely since Rs
7,00,000 limit has been
exceeded in Transaction 2.

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 194 O: Tax deduction at source by Ecommerce operators
(Inserted in Fin Act 2020, w.e.f 01.10.2020)

• E-com operator facilitating sale of goods or provision of services of an E-com Participant through its
digital or electronic Facility or platform (by whatever name called).
• TDS either at the time of credit of amount of sale/services to an e-commerce participant’s a/c OR
at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier.
• TDS @1% on the gross amount of sales or services or both
• No TDS for only hosting advertisements or providing any other services which are not in connection
with the sale or services
• No TDS for individual/HUF, if gross sale/service does not exceed Rs.5 lakhs & PAN or Aadhar is
furnished,
• If no Pan, @5% (Sec.206AA)
Electronic Commerce means the supply of goods or services or both, including digital products over digital or
electronic network.
E-commerce operator: means a person who owns, operates or manages digital or electronic facility or platform
for electronic commerce and is responsible for paying to e-commerce participant.
E-commerce participant means a person resident in India selling goods or providing services or both, including
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 ▪ Not applicable on any sale consideration received
before 01.10.2020
194 O - ▪ The ‘payment gateway’ not required to deduct tax on a

Guidelines
transaction, if the tax deducted by the ecommerce
operator under section 194-0, on same transaction.

by CBDT ▪ Insurance agents or insurance aggregators having no

involvement in transactions between insurance
vide circular company and the buyer for subsequent years, 194O is
not applicable for those subsequent years
no.17/2020 • Not applicable to: (a) transactions in securities and
commodities which are traded/cleared/settled
through/by recognized stock exchanges/recognized
clearing corporation (b) transactions in electricity,
renewable energy certificates and energy saving
certificates traded through power exchanges
registered in accordance with Regulation 21 of the
CERC;

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194 O - Issues

TDS deduction on gross amount including operator’s charges/commission?

TDS is required to be deducted by e-commerce operator on gross amount received from customer, including the
amount retained by e commerce operator as his commission / packing charges etc. (Two views)
TDS deduction on GST portion?

If GST is indicated separately in invoice, it shall be excluded for the purpose of TDS (CBDT Circular No. 23/2017
dt 10.07.2017)

Whether TDS to be deducted if e-commerce participant receives the payment directly?

1. TDS is required to be paid by the e-commerce operator even if the payment is received directly by the e-
commerce participant.
2. How to deduct tax for E com services rendered (like Zomoto, Swiggy) when payment made to
participant net of their charges

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 • Exemption for e-auctions from Sec.194O, (where e-
auctioneer is only a facilitator):
• TDS for services by e-auctioneer will apply as usual
• 194Q and 206C will apply as the case may be for buyer
Further CBDT and seller
clarification dt • In the case of non GST products (like alcohol or petroleum
products) if VAT/Sales tax/Excise duty/CST is indicated
25.11.2021 separately in the invoice, then TDS u/s.194Q is on the
on 194O,
amount credited without including such VAT/Excise
duty/Sales tax/CST.
194Q & 206C • If payment is first, on whole amount
• Govt Departments which is not carrying out any
business/commercial activity, it is not treated as ‘buyer’ for
sec. 194Q of the Act and will not be liable to deduct tax on
the goods so purchased by them
• In case where Central Government or State Government
are seller of goods shall not be considered as 'seller’ for the
purpose of sec.194Q and no tax is to be deducted by the
buyer

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 Sec.165 - (EL) is a tax leviable @ 6% on the amount of consideration
for any specified service received or receivable by a NON RESIDENT
from
(i) a person RESIDENT in India and carrying on business or
profession; or
EQUALISATION (ii) a non-resident having a PE in India.
LEVY (EL) ➢ specified service" means online advertisement, any provision for
digital advertising space or any other facility or service for the
(Introduced in purpose of online advertisement and includes any other service as
may be notified by the Central Government in this behalf;
Fin Act 2016) ➢ EL u/s.165 is not charged where:
a) the non-resident providing the specified service has a PE in
India and the specified service is effectively connected with such
PE
b) the aggregate amount of consideration for specified service in
a PY, does not exceed Rs 1 lakh;
c) where the payment for specified service is not for the purposes
of carrying out business or profession
➢ PE defined in sec. 92F(iiia) of the IT Act includes a fixed place of
business through which the business of the enterprise is wholly or
partly carried on

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 • Sec. 165A (w.e.f 01.04.2020), 2% on consideration
received/receivable by a Non-resident E Com operator from e-
commerce supply or services made or provided or facilitated by it to
(i) a resident in India
(ii) a Non-resident in specified circumstances
EQUALISATION (iii) to a person who buys such goods or services or both using

LEVY
internet protocol address located in India
• Specified circumstance
(Introduced in (i) sale of advertisement, which targets a customer, who is
resident in India or a customer who accesses the advertisement
Fin Act 2016) though internet protocol address located in India; and
ii) Sale of data, collected from a person who is resident in India or
from a person who uses internet protocol address located in India
EL u/s.165A is not charged where:
(i) where the E-com operator making or providing or facilitating e-com
supply or services has a PE in India and such e-commerce supply or
services is effectively connected with such PE
(ii) where the equalisation levy is leviable under section 165
(iii) Sales/turnover/gross receipts of the e-com operator from the e-
com supply or services made or provided or facilitated as referred to in
sub-section (1) is less than Rs. 2 crores during the previous year

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 • The person making the payment is liable for the deposit
of EL to the Government treasury and all related
compliances viz. the filing of EL return, etc.
• The EL deducted during the calendar month is to be deposit
by every assessee to the credit of Central Government by
the 7th of the following month through an Equalization levy
Challan
• The amount, which is subject to the charge of EL, is exempt

Equalisation
from income tax under Section 10(50).
• The ‘consideration’ received or receivable for specified
levy services and for e-commerce supply or services shall not
include the consideration, which are taxable as royalty or
fees for technical services in India under the Income-tax Act,
read with the agreement notified by the Central Government
under section 90 or section 90A of the said Act
• As the EL does not form a part of the Income-tax Act, 1961,
tax credit may not be allowed under the tax treaty for the
EL paid in the source country and therefore it results in an
additional cost to the business (?).

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 194 – ▪ Applicable to resident in India
Dividend ▪ On dividend within the meaning of sec.2(22)(a) to (e),
including on pref. shares
Income ▪ @10% on dividend paid (earlier ‘at the rate in force’)
W.e.f by any mode other than cash

01.04.2020 ▪ Before making payment or before making any

distribution or payment to a shareholder
(Fin Act 2020) ▪ In excess of Rs.5000/- (earlier Rs.2500/-)

➢ Dividend to Non residents is covered by sec.195, r.w.s

115A and rate of TDS is 20% (Subject to DTAA) –
Rate in Force – important – Part II of First Schedule of
Fin Act

37
 When taxable
194 – ✓ Dividend can be distributed before year end; but paid

Dividend
in the next year, within time limit specified in
Sec.123/124 of the Companies Act/Rules therein –

Income -
when taxable to recipient?
✓ Final Dividend – earliest of ‘declared, distributed or
taxability paid by the company – Sec.8 (a)
✓ Interim dividend is taxable in the previous year in
which the amount of such dividend is unconditionally
made available by the company to the shareholder,
i.e., chargeable to tax on receipt basis.(Sec.8(b))
✓ ICDS IV– recognition as per provisions of the Act

38
 194J – Fees ▪ Reduced rate of 2% of in case of fees
▪ for technical services (not being a professional
for services),
▪ or royalty in the nature of consideration for sale, distribution
professional or exhibition of cinematographic films

or technical ▪ Debatable issue

▪ ‘Professional’ – service rendered by a person in the
services course of carrying on legal, medical, engineering or
architectural profession or the profession of accountancy or
(w.e.f technical consultancy or interior decoration or advertising
or such other profession notified……….(explained to
01.04.2020) s.194J)
▪ ‘Technical service’– ……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 defined in Sec.9(1)(vii)]

39
 “Royalty" means consideration (including any lump sum consideration but
excluding any consideration in the nature of "Capital gains") for:—

(i) the transfer of all or any rights (including the granting of a licence) in
respect of a patent, invention, model, design, secret formula or process or
trade mark or similar property ;

(ii) the imparting of any information concerning the working of, or the use
of, a patent, invention, model, design, secret formula or process or trade
mark or similar property ;

(iii) the use of any patent, invention, model, design, secret formula or
194J – process or trade mark or similar property ;

‘Royalty’
(iv) the imparting of any information concerning technical, industrial,
commercial or scientific knowledge, experience or skill ;

(iva) the use or right to use any industrial, commercial or scientific

equipment but not including the amounts referred to in section 44BB;

(v) the transfer of all or any rights (including the granting of a licence) in
respect of any copyright, literary, artistic or scientific work including films or
video tapes for use in connection with television or tapes for use in
connection with radio broadcasting ; or

(vi) the rendering of any services in connection with the activities referred to
in sub-clauses (i) to (iv), (iva) and (v).

[Sec,9(1)(vi)]

40
194K – TDS on
income in Any person responsible for paying
respect of ▪ To a Resident

units of ▪ ‘Any’ income come in respect of units of MF

u/s.10(23D)/ Units from Admn. of specified
Mutual Fund undertaking/units from specified company referred to
(w.e.f
in UTI Act
▪ TDS @ 10%, subject to threshold of Rs.5000/-
01.04.2020)
▪ Clarification vide Press release dt 04.02.2020
a Mutual Fund shall be required to deduct TDS @
10% only on dividend payment and no tax shall
be required to be deducted by the Mutual Fund on
income which is in the nature of capital gains.

41
 194N
ITR Filer – 2% if cash withdrawal exceeds Rs.1cr from
(substituted) Bank/Coop bank/post office (on entire amount)
–by Finance ITR non filer :

Act, 2020, ITR for 3 preceding financial years

immediately preceding the financial year for which time
w.e.f limit u/s.139(1) has expired,
▪ tax to be deducted would be:
01.07.2020 @2%, if the cash withdrawal in a year is more
than Rs.20 lakh; but does not exceed Rs.1 crore (on
entire amount) &
@5%, if the cash withdrawal exceed Rs.1 crore (on
entire amount)

42
 194P – TDS • Relaxation to specified Sr. citizens having Age of 75
in case of years or more, from filling Income tax return if –
▪ Receiving pension income and interest income only
Specified Sr. from the same specified bank.

citizen ▪ He shall furnish declaration in Form 12BBA that the

information furnished to specified bank is correct
[w.e.f ▪ The specified bank after giving effect to deduction
01.04.2021] under Chapter VI-A & rebate u/s 87A
• deduct income tax on basis of rates applicable.
➢ Once the tax is so deducted, no need to file return
u/s.139
➢ CBDT notification dt 02.09.2021 prescribed the
specified banks to be any scheduled bank

43
 ▪ Whether Family pension covered under the section as
194P – TDS the same will be considered under Income from Other
Sources
in case of ▪ Whether the interest income includes interest from SB

Specified a/c or even interest from FD maintained by the Senior

Citizen in that same bank - Yes (any account)

Sr. citizen ▪ Whether benefit of section is available if assessee has

any exempt incomes also, like agri. income
Issues ▪ At what time tax is deductible by specified bank – It is
not given in section 194P presently.
▪ How the rate of tax would be practically computed by
the specified bank
▪ How refund, if any. is to be claimed under the section

44
 • New section 194R mandates TDS @10% by a
194 R – person responsible for providing any benefit or
perquisite to a resident, on the value or aggregate
TDS on of value of benefit or perquisite
business • Applicable w.e f 1st July 2022
promotion • The benefit/perq. should arise either from carrying
(benefit/perqs) out of business, or from exercising a profession,
w.e.f 01.07.2022 by such resident

(Fin Act 2022) • May or may not be convertible into money

• No TDS upto Rs.20,000/-.
• Not applicable for Individual/ HUF, whose total
sales/gross receipts or turnover does not exceed
Rs.1 crore in case of business or Rs.50 lakh in
case of profession, during the immediately
preceding financial year

45
 1. There is no requirement for deductor to check whether the amount
is taxable in the hands of recipient as business profits or
CBDT otherwise/under which section
2. Applicable for benefits/perqs is in cash/kind, partly in cash/kind

guidelines 3. Applicable even if the benefit is in the form of capital asset (i.e.,
car, land etc.)

dt 4. 194R not applicable on sales discount/cash discount/rebates

allowed to customers

16.06.2022
5. No TDS for discount in the form of qty (12 for price of 10)
➢ However, TDS applies for free samples

on 194R
6. TDS applies when benefits like free TV, laptop, cell phone, gold
coin /free trip for customer or his relatives/free ticket for events
/free samples to doctors, etc.
➢ TDS applicable even if the above benefits are enjoyed by
director/employee/relatives of the customers who themselves
are not carrying on business
7. In the case of consultant doctors working with a hospital, the
original benefit/perq provider can deduct tax u/s.194R director
from consultant doctor, rather than routing through hospital
8. Valuation at FMV, except (1) purchased items –purchase prices &
(2) manufactured by provider, price at which it is sold to customers
➢ Not to include GST on value

46
 9. Products given to social media influencer (like car/phone/outfit):
➢ If product is returned, no TDS; if retained by that person, TDS
applicable
10. Reimbursement of expenses

CBDT ✓ If included in the bill, other TDS provisions applies

✓ If reimbursed to consultant, 194 R applies
guidelines dt ✓ If expenses bill is in the name of the service recipient and paid
directly by him or reimbursed by him (business man) - no TDS
16.06.2022 on 11. No TDS on Dealer/business conference expenses to educate
194R about the products
➢ Such expenses should not relate to achieving sales targets
(Continued….) ➢ Leisure trip/expenses of family members/stay and related
expenses on previous/subseqent days of conference are
subject to TDS
12. If no sufficient balance to deduct tax, gross up and pay (treating
as TDS is also perq); alternatively, recipient pay advance tax and
produce challan to assessee (26Q amended for this purpose)
13. Though w.e.f 01.07.2022, threshold limit of Rs.20000/-should be
reckoned from 01.04.2022
➢ TDS applicable on the portion of benefit/perq. given after
01.07.2022

47
 1. TDS @ 1% for transfer of VDA
2. No TAN required to deduct tax under 194S

194S – TDS on 3.
4.
206AB also does not apply
For Individuals/HUF with turnover below 1

Virtual Digital crores/50 lakhs (business/profession),

threshold is Rs. 50,000,

Assets (VDA) 5. For others, 10,000 rupees for a financial

year

(inserted by Fin 6. No TDS u/s.194Q, if 194S applied

"virtual digital asset" means—
Act 2022, w.e.f (a) any information or code or number or token
(not being Indian currency or foreign currency),
01.07.2022) generated through cryptographic means or
otherwise, by whatever name called, providing a
digital representation of value exchanged with or
without consideration, with the promise or
representation of having inherent value, or
functions as a store of value or a unit of account
including its use in any financial transaction or
investment, but not limited to investment scheme;
and can be transferred, stored or traded
electronically;
(b) a non-fungible token or any other token of
similar nature, by whatever name called;
(c) any other digital asset, as the Central
Government may, by notification in the Official
Gazette specify:

48
206AB – w.e.f 1.7.21
Higher rate of TDS on non-filers of ITR
Non filers –amendment in Fin act 2022
Who is responsible Deductor of tax at source
to ensure higher
rate of TDS
On which amount On any sum or income or amount paid or payable or credited

When higher rate If the payee (‘specified person’) :

is applicable ▪ has not filed ITR for the immediate previous year, for which time limit of filing ITR u/s.139(1) has
expired and;
▪ the aggregate of TDS and TCS in his case is Rs.50,000/- or more in the year

What is the rate Higher of:

▪ twice the rate specified in the relevant provision of the Act.
▪ twice the rate or rates in force.
▪ 5%
➢ If no PAN, higher of the above three (as per this section) or rate as per sec.206AA, whichever is higher,
i.e., 20%
Exceptions Not applicable to:
▪ Non-resident, not having a PE* in India,
▪ TDS u/s. 192, 192A, 194B, 194BB, 194LBC or 194N, 194-IA, 194-IB, 194M & 194S
*PE includes a fixed place of business through which the business of the enterprise is wholly or partly carried on. 49
206CCA – (w.e.f 01.07.21)
Higher rate of TCS on non-filers of ITR
Non filers –amendment in Fin act 2022
Who is Collector of tax at source
responsible to
ensure higher
rate of TCS
On which amount On any sum or amount received
When higher rate If the payer (‘specified person’) :
is applicable ▪ has not filed ITR for the immediate previous year, for which time limit of filing ITR u/s.139(1)
has expired and;
▪ the aggregate of TDS and TCS in his case is Rs.50,000/- or more in the year

What is the rate Higher of:

▪ twice the rate specified in the relevant provision of the Act.
▪ 5%
➢ If no PAN, higher of rate of the above two (as per this section) or rate as per sec.206CC, whichever
is higher
Exceptions Not applicable to Non-resident, not having a PE* in India
*PE includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.
50
 206AB/ 206CCA • Non filers list for FY 2022-23 is prepared at the beginning of the
FY, based on FY 2021-22. Those who have not filed the ITR for FY
– after 2020-21, then he/she will be on the list of non-tax filers and have
to face higher TDS from this financial year i.e. 1st April 2022.
amendment in
Fin Act 2022 • If TDS/TCS in the previous year is less than Rs.50000/-, his name
will be removed. This will be done on 1st due date u/s.139(1), i.e.,
& CBDT circular 01.07.22 for FY 2022-23

10/2022 • The deductee who is marked as ‘filer’ shall remain a filer for the

(https://report.insi
whole financial year even after the expiry of the due date of
furnishing the return of income for the latest assessment year.
ght.gov.in) • Status of the deductee who is marked as non-filers are subject to
change , including after filing belated/revised return & deductor
may recheck their status in the subsequent deduction

• Deductor/collectors are not required to collect any evidence from

the deductee for applying sec. 206AB/206CCA.

➢ In other words, filer status is marked at the beginning and will

remain unchanged for the year; but non filer status will be amended
constantly

51
 Sec. 9(1)(i) of the Income Tax Act, 1961 provides for
situations when a non-resident is deemed to have a
‘business connection’ in India, in which case, income
‘Significant tax will be payable on its business income in India.
Economic
Presence’ - SEP This will also require TDS u/s.195 of the Act on
payment to such non-residents.
(inserted in sec.9 to
expand the meaning of
the term ‘business
connection’, for non- The Finance Act of 2018, by insertion of Explanation
resident persons) 2A to section 9(1)(i) of the Income Tax Act, widened
the scope of the term ‘business connection’

The said Explanation 2A provides that ‘Significant

Economic Presence (‘SEP’) of a non-resident in India
shall constitute a "business connection" in India.

52
 Explanation 2A - SEP shall mean—
▪ (a) transaction in respect of any goods, services or
property carried out by a non-resident with any
person in India
▪ including provision of download of data or
software in India,
‘Significant if the aggregate of payments arising from such

Economic
transaction or transactions during the previous year
exceeds such amount as may be prescribed; or

Presence’ ▪ (b) systematic and continuous soliciting of business

activities or engaging in interaction with such
number of users in India, as may be prescribed:”
▪ CBDT vide notification no. 41/2021 dt 03.05.2021
prescribed threshold limit for applicability of the SEP.
▪ New rule 11UD has been inserted in the IT Rules.
▪ Effective from 01.04.2022 (FY 2021-22)

53
Rule 11UD

The provisions of explanation 2A to sec. 9(1)(i) of the Act and Rule 11UD summarised as under:

Amount of aggregate of payments arising from transaction or

transactions in respect of any goods, services or property carried
out by a non-resident with any person in India, including
The threshold limit beyond which a provision of download of data or software in India
non-resident is considered to have ▪
Rs.2.00 crores during the PY
an SEP in India, as prescribed
under Rule 11UD of the Income-tax In respect of systematic and continuous soliciting of business
Rules, 1962 (Rules), is: activities or engaging in interaction with users in India,
▪ 3 lakhs users

The above threshold limits are effective from 01.04.2022 (i.e., AY 2022-23)

54
 Impact of SEP

Whether this amendment will affect transactions with all non-residents?

Memorandum to Finance Bill 2018 clarified that unless corresponding modifications to PE rules are made in the DTAAs, the
cross-border business profits will continue to be taxed as per the existing treaty rules. This would mean that the above
amendments are not going to affect non-residents of countries having Tax Treaties with India.
Whether compliance of provisions of sec.90A(4)/(5) and Rule 37BC are to be ensured?

Assessee may ensure compliance of provisions of Sec.90A of the IT ACT/Rule 37BC of the IT Rules to avail the benefit of
DTAA provisions.

What about transactions with non-residents from countries with whom no tax treaty is available?

Non-residents who do not have any treaty protection may have to evaluate the impact of the SEP provisions on their business
transactions, The profits attributable to India on account of SEP can be subjected to TDS (@ 40% or such other rate in force)

55
 Impact of SEP

Whether the above criteria (conditions) are cumulative?

From a plain reading, it appears that the SEP provisions could get attracted if any one of the criteria is fulfilled.

What about transactions already completed in the FY 2021-22 prior to the date on which Rule 11UD is notified?

If the remittance of money has not occurred, then it would be advisable to ensure compliance before remittance of money.
If money already remitted, then required information /documents may be obtained from foreign party to ascertain requirement
of TDS. If deductible, the same be considered for compliance along with subsequent transaction

TDS is applicable to transactions beyond the threshold limit of Rs.2.00 cr?

Since this aspect is not specified, TDS would be applicable on for all payment, once threshold limit is crossed

Overlap between SEP & EL – Exemption u/s.10(50) for EL

56
 • 239A. (1) Where under an agreement or other arrangement, in
Sec.239A writing, the tax deductible on any income, other than interest,
under section 195 is to be borne by the person by whom the income
Refund for is payable, and such person having paid such tax to the credit of the
Central Government claims that no tax was required to be deducted
denying liability on such income, may, within a period of thirty days from the date of
payment of such tax, file an application before the Assessing Officer
to deduct tax in for refund of such tax in such form and such manner as may be
certain cases prescribed.
• (2) The Assessing Officer shall, by an order in writing, allow or reject
(inserted in Fin Act the application:
2022, w.e.f 01.04 Provided that no application under sub-section (1) shall be rejected
22) unless an opportunity of being heard has been given to the applicant.
• (3) The Assessing Officer may, before passing an order under sub-
section (2), make such inquiry as he considers necessary.
• (4) The order under sub-section (2) shall be passed within six
months from the end of the month in which application under sub-
section (1) is received.
Rule 40 G inserted in IT Rules and Form 29D prescribed for
application

57
Sec.40(a)(i) –
immunity –
TDS on Non • In the case of non deduction/non remittance after
deduction,
residents • if the assessee is not treated as ‘assessee in default’
in terms of sec.201(1) (as per conditions stated
(w.e.f therein),

01.04.2020) • then it is deemed that the assessee has deducted and

paid TDS on the date of furnishing of return by the
payee, referred to in sec.201(1)
[earlier this benefit was available only to resident payee
(40(a)(ia)]

58
 Charitable
Trusts - • Explanation 3 added sec.11(1)(d)
• For the purposes of determining the amount of application,
Applicability of provisions of section 40(a)(ia) of the Act shall apply as they
TDS provisions apply in computing the income chargeable under the head
"Profits and gains of business or profession
• Finance Act, 2018, w.e.f. 1-4-2019.

59
 Common
issues - ▪ TDS applicable at the time of credit to payee’s
account or at the time of payment in cash or by issue
Year end of a cheque or draft or by any other mode, whichever
is earlier
provision ▪ Explanation: “amount credited to any account, whether
and TDS called "suspense account" or by any other name, in
the books of account”
applicability ▪ Whether TDS applicable to year end provision in
books, before relevant invoice is received?
▪ Judicial Decisions
▪ “TDS mechanism cannot be put into practice until
payee is identified in whose hands, it is includible
as Income can be ascertained.”

60
 Non allowance of expenditure u/s 40(a)(i) / 40(a)(ia).

Being treated as an assessee in default u/s 201

Consequences
Simple interest payable u/s 201(1A) on account of failure
of TDS to deduct or pay tax - 1%/1.5%
defaults Assessee liable to pay fee u/s 234E for delay in furnishing
statement – Rs.200/day
Penalty u/s 221 when assessee is in default in payment of
tax (subject to max of tax in arrears)
Penalty u/s 271C for failure to deduct tax at source
(amount equal to TDS)

61
 ▪ Penalty u/s 271CA for failure to collect tax at source (amount equal to
TCS)
▪ Penalty u/s 271H for failure to furnish the statements of tax deducted at
source
(Rs.10000/- to Rs.1 lakh)
▪ Penalty u/s. 272A(2)(g) for failure to furnish a certificate as required by
section 203 or 206C –
▪ Prosecution u/s 276B on failure to pay tax to the credit of Central
Government under Chapter XII-D or XVII-B
Consequences ▪ Rigorous imprisonment – 3 mnths to 7 years with fine
of TDS defaults ▪ Prosecution u/s 276BB on failure to pay the tax collected at source.
▪ 273B – reasonable cause – Not available for except 276B (TDS)276BB
(TCS)
➢ Issue-
➢ ‘delay’ v. ‘default’
➢ 221 v. 271C ?
➢ Way Forward
➢ Handling IT notices carefully & professionally

62
63
LFAR Questionnaire on Advances
Thank you

CA Radhesh L. Bhat
Partner
Varma & Varma
Chartered Accountants
Kochi

+ 91 - 9 8 4 6 1- 9 2 8 1 7
radhesh@varmaandvarma.com

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