India: Budget 2012: Highlights - Tax Deductable At Source (TDS)

Last Updated: 20 December 2012
Article by Anil Harish

Tax Rate And TDS On Payment Of Interest On ECB

Sec. 115A(1)(a)(iiaa) and Sec. 194LC:

By insertion of this sub-clause, the payment of interest as specified in new Sec. 194LC has been made taxable at the rate of 5% with effect from 1st July, 2012.

The new Sec. 194LC provides that on payment by specified companies to non-resident of interest on External Commercial Borrowing (ECB), tax shall be deducted at source at the rate of 5%.

Specified company includes Indian Companies engaged in:

(i) generation or distribution or transmission of power; or

(ii) operation of aircraft; or

(iii) manufacture or production of fertilizers; or

(iv) construction of road including toll road or bridge; or

(v) construction of port including inland port; or

(vi) construction of ships in a shipyard; or

(vii) construction of dam; or

(viii) developing and building a housing project Earlier the rate of tax on such interest payment was 20%. However, this relief has been provided for a limited period of three years, where monies are borrowed between 1st July, 2012 and 1st July, 2015.

Tax rate on income of non-resident sportsman and entertainer and TDS thereon Sec.

115BBA and Sec. 194E:

This Sec. provides for the rate of income tax payable on income received by any non- resident sportsman or sports association, not being a citizen of India, by way of participation in any game or sport in India, advertisement etc. The Finance Bill, 2012 has with effect from 1st July, 2012 proposed to include within the scope of this Sec., income received by an entertainer, not being a citizen of India and being a non-resident, from his performance in India.

Rate of Tax (w.e.f 1st July, 2012)

  • On non-resident sportspersons or sports associations has been increased from 10% to 20%.
  • On non-resident entertainers fixed at 20%

Consequently Sec. 194E has been proposed to be amended to provide for deduction of tax @ 20%, at the time of making such payment.

Sec. 115BBD: This Sec. provides the rate of income tax payable on the dividend income received by an Indian Company from a specified foreign company in the previous year relating to Assessment Year 2012-2013 i.e. financial year 2011-2012. The Finance Bill, 2012 has proposed to amend this Sec. w.e.f.1st April, 2013 to provide that the year in consideration shall now be Financial Year 2012-2013 and such income shall be assessed in Assessment Year 2013-2014.

Income from cash credits, unexplained investments, unexplained money, unexplained expenditure etc.

Sec. 115BBE: The Finance Bill, 2012 has proposed to introduce a new Sec. w.e.f.1st April, 2013 being Sec. 115BBE, which provides for the manner of taxation of the income of an assessee which relates to Sec.s 68, 69, 69A, 69B, 69C and 69D. These sections relate to cash credits, unexplained investments, unexplained money, unexplained expenditure etc.

This Sec. provides that if the total income of an assessee includes income relating to the abovementioned sections then, income tax shall be charged @ 30%. However, any income other than the income mentioned above shall be taxed in accordance with the other provisions of the Act.

TDS on interest paid on securities

Sec. 193:

This Sec. provides for deduction of tax on interest paid on securities. The proposed amendment shall replace clause (v) of the proviso to the section stating that no tax shall be deducted on any interest payable to an individual or HUF, who is resident, on any debenture issued by a public listed Company, provided such amount paid in the financial year does not exceed Rs. 5,000/- instead of Rs. 2,500/- and such amount shall be paid by an account payee cheque. This amendment shall come into effect from 1st July, 2012.

TDS on fees for professional and technical services

Sec. 194J: This Sec. provides for deduction of tax on any amount paid to any person by way of professional fees, fees for technical services, royalty etc. A new sub-Sec. (ba) is proposed to be inserted to extend the scope of the said section to include, payment of remuneration, fees or commission, by whatever name called, other than income paid as salary to a Director of a Company. This amendment shall come into effect from 1st July, 2012.

TDS on payment of compensation for compulsory acquisition of immovable property

Sec. 194LA:

This Sec. provides for deduction of tax at source on payment of compensation by any person to a resident on account of compulsory acquisition of any immovable property. However, there is an exception from deduction of tax at source where compensation paid is less than Rs. 1 Lakh.

By way of a proposed amendment the threshold for TDS shall be increased to payment of compensation up to Rs. 2 Lakhs from Rs. 1 Lakh. This amendment shall come into effect from 1st July, 2012.

Sec. 194LAA: The Finance Bill, 2012 proposes to insert a new Sec. being Sec. 194LAA which provides that tax shall be deducted @ 1% at source on the consideration paid by any person on purchase of immovable property. Therefore, on sale of immovable property, other than on compulsory acquisition, tax shall be deducted at source on amount of sale consideration.

Furthermore, the tax shall be deducted on higher of actual consideration and stamp duty ready reckoner value. Also, this Sec. provides that the sale agreement in respect of the sale shall not be registered unless the transferee furnishes proof of deduction of income tax in accordance with the provisions of this section and payment of such sum to the credit of the Central Government.

Fortunately, section 203A shall not apply to this provision and there will be no requirement for the buyer to get a TAN number or file TDS return accordingly.

TDS on payment of other sums

Sec. 195: This Sec. provides for deduction of tax on any interest or other sums paid to a non-resident. An amendment in sub-Sec. (1) proposes to exclude interest referred to in Sec. 194LB or 194LC from the ambit of this section. This amendment shall come into effect from 1st July, 2012.

A new Explanation 2‟ coming into effect retrospectively from 1st April, 1962 has been proposed to be inserted whereby obligation to deduct tax at source under the said Sec. applies and extends to all persons, resident or non-resident, whether or not the non-resident person has:

a. a residence or place of business or business connection in India or

b. any other presence in any manner whatsoever in India.

Therefore, by this retrospective amendment it is clarified that every person has a liability to deduct tax at source even if the person has no presence in India. This amendment is also contrary to the recent judgment of Supreme Court in the case of Vodafone.

A new sub-Sec. (7) has also been proposed to be inserted whereby the Board may notify in the Official Gazette, a class of persons or cases, where any person who is responsible for making payment to a non-resident, shall make an application to the Assessing Officer to determine the appropriate amount of such sum which shall be chargeable to tax, whether or not such payment to be made is chargeable under the provisions of the Act. This amendment shall come into effect from 1st July, 2012.

No deduction at source in certain cases

Sec. 197A: This Sec. provides for certain cases in which the deduction of tax at source is not required. Sub-Sec. (1C) provides that if a person of the age of Sixty Five years, has furnished a declaration in writing to say that the tax on his total income is nil then, no deduction of tax shall be required to be made on the income receivable by him u/s 193, 194, 194A, 194EE or 194K. An amendment has been proposed to be made to this sub-Sec. thereby reducing the prescribed age from Sixty Five to Sixty years. This amendment shall come into effect from 1st July, 2012.

Failure to deduct tax at source

Sec. 201: This Sec. provides for the consequences for failure to deduct tax at source or to pay the same. A new proviso has been inserted before the proviso to sub-Sec. (1) to say that any person who is responsible of deducting tax at source on the payment made to a resident and who fails to do so, shall not be penalised if the resident to whom such payment was made has furnished his return of income, taken into account such payment, paid the tax due on the same and has furnished a certificate from an accountant in this behalf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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