An overview of Recent Amendment in the TDS /TCS provision

The Lok Sabha has passed the Finance Bill 2022 on March 25^th, 2022 with more than 35 changes in the Finance Bill as was introduced with Union Budget-2022 on February 1^st, 2022. There are various changes & new proposals with regard to Tax Deduction at Source (TDS) & Tax Collection at Source (TCS). Let us review some of the key changes in the TDS & TCS provision in the Finance Bill -2022 as passed by the Loksabha on 25^th March 2022:

1. Stamp Duty Valuation to be relevant for TDS on property:

Section 194-IA provides for deduction of tax at source on purchase of immovable property (other than rural agricultural land) in case the amount is Rs. 50 Lakhs or more. At present, TDS has to be done on the actual sale consideration of the property and not on the basis of the stamp duty value of the property. However, the seller may be liable to pay the tax on the basis of stamp duty valuation U/s 43CA or U/s 50C subject to a tolerance limit of 10%.
To bring consistency in the provisions of Income Tax Act- 1961, Finance Act 2022 (Loksabha) has made the stamp duty value of the property also relevant for calculation of threshold limit of Rs. 50 Lakhs. It is now provided that TDS shall be required @ 1% of actual ale consideration or the stamp duty value of the property, whichever is higher.

2. Rent Payment to the Landlord who is Non filer of Income Tax Return:
At present, Section 194-IB provides for TDS @5% on rent payment by an individual or HUF to a resident landlord in excess of Rs. 50,000 per month. Section 206AB which was inserted by the Finance Act, 2021 provides for a higher rate of TDS in case of non-filers on income-tax return. The provision of section 206AB was applicable to section 194-IB also. It means the individual or HUF is required to check whether the landlord i.e., recipient of rent is a income tax return filer or non-filer. It has resulted in additional compliance burden on the payer. In order to reduce this additional burden, the reference to section 206AB is omitted from section 194-IB. As a result, individual and HUF taxpayers shall not be required to check whether their landlord is a filer of income tax return or not. They shall continue to deduct TDS @ 5%. [TDS rate shall be 20% if no PAN of landlord is available].

3. Higher Rate of TDS for Non-Filers of Income Tax Return- Scope Widened further:
Finance Act, 2021 inserted sections 206AB and 206CCA so as to provide higher rate of TDS / TCS in case of persons who are non-filers of income tax returns. Non filers was defined as a person who has not filed the returns of income for the two preceding financial year for which the time limit for filing return of income u/s 139(1) has expired and the aggregate of tax deducted at source and tax collected at source in his case is Rs. 50,000 or more in each of these two years. To ensure compliance, the income tax department has provided an online utility to taxpayers to check whether the person is a income tax return filers or not.

This period of 2 years has now been reduced to 1 year so as to further widen the category of “Non filers”. In short, a person who has not filed its return of income for one preceding year & if the amount of tax collected and deducted at source is Rs. 50,000 or more in the said previous year then such person would be subject to higher rate of TDS/TCS. In short, the person would be required to ensure the filing of income tax return within the due date u/s 139(1) so as to avoid higher rate of TDS/TCS.

Further, the provisions of section 206AB are presently not applicable in relation to transactions on which TDS is to be done u/s 192, 192A, 194B, 194BB, 194LBC, or 194N. In order to reduce the compliance burden on individuals or HUF liable to do TDS without TAN, an amendment has been done in section 206AB. It is now provided that the provisions of TDS at higher rates u/s 206AB shall not be applicable in the case of section 194-IA (TDS on property), 194-IB (TDS on Rent), and 194M (TDS on payment to contractor/professional for personal expenses) also.

4. TDS on benefit or perquisite of a business or profession:
Section 28(iv) provides for taxation of benefit or perquisite received by businessmen during the course of business. To keep a track & ensure taxation of this benefit/perquisite, Finance Act, 2022 has inserted new section 194R which provides for TDS @ 10% if the value of such benefit / perquisite exceeds Rs. 20,000/- p.a. This provision will be applicable from 1^st July, 2022. While passing the bill in the parliament, sub-section (2) is inserted to empower the CBDT to  issue guidelines for removal of difficulties if any difficulty arises in giving effect to the provisions of the section. Further, Sub-section (3) is also inserted to provide that guidelines issued by the CBDT under section 119 for removal of difficulties shall be binding on the assessee and the assessing authority.

5. TDS on Crypto-Currency / Virtual digital asset:
Finance Act, 2022 has introduced the provision for taxation of crypto-Currency / virtual digital assets. In order to capture the transaction details, section 194S is proposed to be inserted so as to provide for deduction of tax on transfer of Crypto Currency / virtual digital asset (VDA).

Section 194S provides for deduction of tax on payment for transfer of virtual digital assets to a resident @ 1% of Rs. 50,000/- or Rs. 10,000/- depending upon category of the payer.

Conclusion:
TDS & TCS have been one of the biggest sources of collecting revenue by the income tax department. The widening of the scope of TDS section by the Finance Act-2022 is definitely going to ensure the higher collection of taxes in the Government Treasury.

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