FAQ on applicability of TDS on interest payment by Large Credit co-operative societies: CA Naresh Jakhotia

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FAQ on applicability of TDS on interest payment by Large Credit co-operative societies: – CA Naresh Jakhotia

With every passing year, the net of TDS is getting widening. This year, is  no more an exception. Before I cover the Frequently Asked Question (FAQ) about the applicability of TDS U/s 194A on large credit co-operative societies, let me first cover the basic & background of the provisions:

 

  1. Section 194A of the Income Tax Act – 1961 provides for TDS on interest other than interest on securities.
  2. It provides that any person not being individual or HUF who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall deduct income-tax at the rates in force. It also provides the circumstances in which the provisions of sub-section 194A shall not be applicable. It also provides that the TDS provision will be applicable only if the interest amount exceed a certain threshold.
  3. It may be noted that presently, section 194A(3)(v) provides immunity on interest credited or paid by a co-operative society (other than a co-operative bank) to a member or to income credited or paid by a co-operative society to any other co-operative society.Also, 194A(3)(viia) provides immunity on interest credited or paid 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 and 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.
  4. By the Finance Act – 2020, the scope of section 194A has been widened so as to cover large co-operative society for the purpose of section 194A. It means that the large credit co-op societies will be required to do the TDS on interest payment.
  5. In sub-section (3), a proviso has been inserted to provide that a co-operative society referred to in clause (v) or clause (viia) of said sub-section (3) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if-
    (a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and
    (b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees, in any other case.
  6. This amendment will take effect from 1st April, 2020.
  7. Let us have a look at the extract of Relevant Clauses as is there in the Finance Bill – 2020 as Clause 75 which reads as under: 

    “Clause 75 of the Bill seeks to amend section 194A of the Income-tax Act relating to interest other than “Interest on securities”.
    Sub-section (1) of the said section provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, 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, deduct income-tax thereon at the rates in force.
    The proviso to the said sub-section provides that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of 
    section 44AB during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under this section.It is proposed to amend the said proviso so as to provide that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such interest is credited or paid, shall be liable to deduct income-tax under the said section.

    Sub-section (3) of the said section provides for circumstances in which the provisions of sub-section (1) shall not apply.Clause (i) of sub-section (3) provides that sub-section (1) shall not apply where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the person referred to in sub-section (1) to the account of, or to, the payee, does not exceed certain threshold.

    Sub-clause (b) of the said clause provides that threshold to be forty thousand rupees, where the payer is a co-­operative society engaged in carrying on the business of banking. This threshold is fifty thousand rupees, in case the payee is a senior citizen.

    Clause (v) of sub-section (3) provides that sub-section (1) shall not apply to such income credited or paid by a co­operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co­operative society to any other co-operative society.

    Clause (viia) of sub-section (3) provides that sub-section (1) shall not apply to such income credited or paid 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; and deposits (other than time deposits made on or after the 1st day of July, 1995) with a co-operative society, other than a co­operative society or bank referred to in sub-clause (a), engaged in carrying on the business of banking.

    It is proposed to amend sub-section (3) so as to insert a proviso to provide that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if––

    (a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

    (b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupee in any other case.

    It is further proposed to provide that the Explanation which provides for the meaning of the expression “senior citizen” will be for the purposes of the said sub-section, instead of clause (i) of the said sub-section.

    These amendments will take effect from 1st April, 2020.”

 

 

  1. Above was the part of logic behind amendment of section 194N. The Relevant part of Amendment as done by the Finance Act – 2020 while passing the bill in the parliament is as under: 

    75. Amendment of section 194A.

    In section 194A of the Income-tax Act,––(I) in sub-section (1), in the proviso, for the words, brackets, letters and figures “the monetary limits specified under clause (a) or clause (b) of section 44AB”, the words “one crore rupees in case of business or fifty Lakh rupees in case of profession” has been substituted;

    (II) in sub-section (3),––

    (A) in clause (i), the Explanation shall be omitted;

    (B) after clause (xi) and before Explanation 1, the following proviso shall be inserted, namely:––

    “Provided that a co-operative society referred to in clause (v) or clause (viia) shall be liable to deduct income-tax in accordance with the provisions of sub-section (1), if–

    (a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid; and

    (b) the amount of interest, or the aggregate of the amounts of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees in any other case.”;

    (C) After Explanation 1, the following Explanation shall be inserted, namely:–

    ‘Explanation 2.–– For the purposes of this sub-section, “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant previous year

  1. In short,In order to extend the scope of section 194A to interest paid by large co-operative society, it is provided that that a co-operative society shall be liable to deduct income-tax w.e.f. 01.04.2020 under this section if-

    (a) the total sales, gross receipts or turnover of the co-operative society exceeds fifty crore rupees during the financial year immediately preceding the financial year in which the interest referred to in sub-section (1) is credited or paid;

    and

    (b) the amount of interest, or the aggregate of the amount of such interest, credited or paid, or is likely to be credited or paid, during the financial year is more than fifty thousand rupees in case of payee being a senior citizen and forty thousand rupees, in any other case.

Some of the FAQ would be as under:

Query 1]

Whether the TDS will be applicable only if the interest receipt exceeds Rs. 50 Crore or it will also include other income like processing fees, loan form sale, and commission income?

Opinion:

For reckoning the limit of Rs. 50 Cr, other income will also need to be included (and not interest alone). In short, income like processing fees, loan form sale, commission income, etc  will also be required to be considered for reckoning the limit of Rs. 50 Cr.

 Query]

A society has sold a property. Whether the sale price of the property will also be required to be included for considering the limit of Rs. 50 Cr?

Opinion:

The word used is “total sales, gross receipts or turnover” which is referring to the amount of income nature & item of the credit side of profit and loss account. The sale consideration of the property will not be forming the part of credit side of P & L A/c and so it may not be relevant. However, the profit arising on sale of the property will form the part of credit side of P & L A/c and so it would be relevant for reckoning the limit of Rs. 50 Cr.

Query]

The turnover (interest, processing fee, commission etc) of our society in the last year 2019-20 was Rs. 42 Crore. In this FY 2020-21, it is likely to exceed Rs. 50 Cr in Feb-2021. Whether we will be required to do the TDS for the entire year or only after Feb-2021?

Opinion:

  1. The turnover of preceding year is relevant for recognizing the provision related to the TDS.
  2. You will not be required to do TDS in the FY 2020-21 as your turnover in the FY 2019-20 was below Rs. 50 Cr.
  3. If your turnover for FY 2020-21 exceeds Rs. 50 Cr then you will be required to do TDS for FY 2021-21 & not from the month in which turnover exceed Rs. 50 Cr.

 

Query]

If the turnover in FY 2019-20 was more than Rs. 50 Cr. But our turnover in the FY 2020-21 will be less than Rs. 50 Cr. Whether we will be required to do the TDS for this year?

Opinion:

  1. Since your turnover of preceding year is more than Rs. 50 Cr, you will be required do the TDS for FY 2020-21.
  2. If your turnover for FY 2020-21 is below Rs. 50 Cr then you will not be required do TDS in the FY 2021-22.
  3. Even if your turnover in the FY 2020-21 will be below Rs. 50 Cr, still you will be required do the TDS.

Query]

Whether TDS will be applicable even if the interest is paid to the regular member and not nominal member?

Opinion:

The distinction of regular member vis a vis nominal member is now done away in case of large credit co-operative societies. Entire interest payment exceeding Rs. 50,000/- or Rs. 40,000/- will be subject to TDS be it whether it is a regular member or a nominal member.

Query]

Is it not penalIsing the large credit co-operative societies vis a vis small credit co-operative societies.

Opinion:

Yes, it is discrimination. However, I believe it is a beginning. The scope of TDS U/s 194A will be extended to smaller credit societies also in the coming years.

Query]

Whether the depositors can give declaration in Form No. 15G/15H for getting interest without TDS?

Opinion:

Yes, the depositors can give declaration in Form No. 15G/15H for getting interest without TDS.

Query]

Whether the limit of Rs. 50,000/- is branch wise limit or society wise limit.

Opinion:

Yes, the threshold of Rs. 40,000/- or Rs. 50,000/- is a society wise limit. If a person has done FDR in different branches of the society, then the interest of all the branches will be required to be consolidated for considering the limit of Rs.  40,000/- or Rs. 50,000/-.

It means that the credit society would be required to generate the customer id for each customer and so if one person makes deposits in different branches of the society, then society must be able to get complete interest of that “one” person for reckoning the limit of Rs. Rs. 40,000/- or Rs. 50,000/-. All bank have the system like this where the interest payment by all the branches is consolidated for TDS compliances. Societies would also be required to upgrade their software to take care of this provisions.

 

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