Background

Finance Minister Arun Jaitley, presented the Budget for the year 2016-17 on 29^th February, 2016. We have come up with a detailed analysis of the changes proposed by the Finance Minister in a series of articles. This is Part-III of the “Major Amendments in Income Tax, 1961 through the Finance Bill, 2016” series. It will highlight the existing provisions, proposed provisions and the date from which the proposed provisions will be effective on the above mentioned topics.

Tax Deduction a Source (TDS)

Under Chapter XVII of the Income Tax Act, 1961, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limit. In Budget, 2016, certain changes have been proposed in the threshold limits and rates at which TDS is to be deducted if the payment exceeds the threshold limits, with effect from 1st June, 2016.

1. Changes in TDS Thresholds

2. Changes in TDS Rates

3. Non-applicability of TDS for certain payments

With effect from 1st June, 2016, sections 194K and 194L have been proposed to be deleted from the Income Tax Act, 1961. Hence, no tax needs to be deducted at source for the following payments:

• Income payable to resident in respect of units of Mutual Fund specified u/s 10(23D) or of Unit Trust of India, and
• Payment to a resident of compensation on compulsory acquisition of capital asset.

4. Applicability of TDS on certain payments: With effect from 1st June, 2016, a new Section 194LBC has been proposed to be introduced, whereby on any income payable in respect of an investment in a securitization trust, TDS shall be deductible at source at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, at the following rates:
   • Where the payee is a Non-resident (not being a company) or a foreign company – at the rates in force.
   • Where the payee is a resident
     1. Individual/ HUF – 25%
     2. Any other person – 30%
5. Enabling of Filing of Form 15G/15H for rental payments

• TDS for payments of Rent:
  1. Section 194-I provides for TDS for payments in the nature of rent beyond a threshold limit. The existing provisions provide threshold of Rs. 1,80,000 per financial year for deduction of tax under this section.
  2. In spite of providing higher threshold for deduction tax under this section, there may be cases where the tax payable on recipient’s total income, including rental payments, will be nil.
• Current Provision: The existing provisions of section 197A provide that tax shall not be deducted, if the recipient of certain payments on which tax is deductible furnishes to the payer a self- declaration in prescribed Form.No. 15G/15H declaring that the tax on his estimated total income of the relevant previous year would be nil.
• Proposed Provision: In order to reduce compliance burden in such cases, it is proposed to amend the provisions of section 197A for making the recipients of payments referred to in section 194-I also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A.
• Effective From: 1st June, 2016.

6. Exemption from requirement of furnishing PAN to non-residents

• Current Provision:
  1. The existing provision of section 206AA provides that any person who is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVIIB of the Act shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax shall be deducted at the rate mentioned in the relevant provisions of the Act or at the rate in force or at the rate of 20%, whichever is higher.
  2. The provisions of section 206AA also apply to non-residents with an exception in respect of payment of interest on long-term bonds as referred to in section 194LC.
• Proposed Provision:
  1. Foreign investors were facing undue hardship of obtaining PAN to avoid highest tax withholding on income sourced from India under section 206AA.
  2. In order to promote ease of doing business in India and bring simplicity to the compliance requirement, the budget has provided that instead of PAN, foreign tax registration would be sufficient.
  3. Hence, it is proposed to amend that the provisions of this section 206AA shall also not apply to a non-resident, not being a company, or to a foreign company, in respect of any payments.
• Effective From: 1st June, 2016.

Tax Collection at Source (TCS)

1. Addition of Motor car for TCS
   • Current Provision: The existing provision of section 206C(1) provides that the seller shall collect tax at source at specified rate from the buyer at the time of sale of specified items such as alcoholic liquor for human consumption, tendu leaves, scrap, mineral being coal or lignite or iron ore, etc.
   • Proposed Provision: It is proposed to provide for the seller to collect tax @ 1% from the purchaser on sale of motor vehicle of the value > Rs. 10 lakhs.
   • Effective Date: 1st June, 2016
2. Payments in cash exceeding Rs. 2 lakhs covered under TCS
   • Current Provision: The existing provisions of Section 206(1D) provides that tax is collected at source @ 1% on cash payments received for purchase of bullion or jewellery > Rs. 2 lakhs.
   • Proposed Provision:
     1. In order to reduce the quantum of cash transaction in sale of any goods and services and for curbing the flow of unaccounted money in the trading system, it is proposed to extend the aforesaid section for collection tax at source @ 1% on sale of any goods (other than bullion and jewellery), or providing of any services, for cash > Rs. 2 lakhs.
     2. However, this amended section shall not apply to payments on which tax is deducted by the payer under Chapter XVII-B.
     3. It is also proposed that the sub-section (1D) relating to TCS in relation to sale of any goods (other than bullion and jewellery) or services shall not apply to certain class of buyers who fulfill such conditions as may be prescribed.
   • Effective From: 1st June, 2016

Advance Tax Payments

1. Current Provision: As per the existing provisions of section 211(1),
   • Advance tax payment schedule for a company is
     1. 15% of tax payable to be paid by 15th June,
     2. 45% of tax payable to be paid by 15th September,
     3. 75% of tax payable to be paid by 15th December and
     4. 100% of tax payable to be paid by 15th March.
   • Advance tax payment schedule for other assesses is
     1. 30% of tax payable to be paid by 15th September,
     2. 60% of tax payable to be paid by 15th December and
     3. 100% of tax payable to be paid by 15th March.

2. Proposed Provision:
   • It is proposed to rationalize the advance tax payment schedule and prescribe the same advance tax schedule for all assessees other than an eligible assessee in respect of eligible business as referred to in section 44AD. This same advance payment schedule shall be
     1. 15% of tax payable to be paid by 15th June,
     2. 45% of tax payable to be paid by 15th September,
     3. 75% of tax payable to be paid by 15th December and
     4. 100% of tax payable to be paid by 15th March.
   • It is further proposed that an assessee opting for computation of profits or gains of business on presumptive basis u/s 44AD, shall be required to pay advance tax of the whole amount in one installment on or before the 15th March of the financial year.
   • Consequential amendments are also proposed to be made to section 234C which provides for chargeability of interest for deferment of advance tax to bring it in sync with the above amendments proposed in section 211.
   • It is also proposed that interest under section 234C shall not be chargeable in case of an assessee having income under the head “Profits and gains of business or profession” for the first time, subject to fulfillment of conditions specified therein.

3. Effective From: 1st June, 2016