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Recent Amendment in Rule 31A, Form 26Q & Form 27Q: A short Overview
Finance Act, 2020 has made several changes in the TDS provision and this is now followed by consequential changes in the Rule 31A, Form 26Q & Form 27Q. Here is a short overview of the few important changes proposed in Rule 31A, Form 26Q & Form 27Q by the Income-tax (16th Amendment Rule), 2020.
1. Changes Reporting of nil or lower deduction of tax in cases notified under Section 194A(5) or Section 197A(1F):
194A applies to TDS on interest, Dividend, etc. Section 194A(3) contains clauses (i) to (xi) to provide an exemption from deduction of tax in certain cases. As per clause (iii), no TDS is required on payment to Bank, Financial Corporation, Insurance Company or other notified institutions. An amendment has been done by FA-2020 to provide that no notification shall be issued on or after 01-04-2020. At the same time, new sub-section (5) was inserted to empower the Government to notify the cases where no TDS shall be done or TDS shall be done at lower rate. Similar amendment was done in Section 197A. To give effect, Rule 31A and Form 26Q has been changed requiring deductor to furnish the particulars of the amount paid or credited on which tax was not deducted or deducted at a lower rate in view of the notification issued u/s 194A(5) or u/s 197A. Now, payer shall be required to provide the details of such payment in the TDS return.
2. Reporting of tax deducted under Section 194J at concessional rate of 2%.
TDS u/s 194J was required @ 10%. FA-2020 has added TDS @ 2% for payment in the nature of fees for professional services, fees for technical services, director’s fee, on-compete fees or royalty. Suitable amendment has been done in Form 26Q to provide for this. Now, Fees for technical services (not being professional services), royalty for sale, distribution or exhibition of cinematography films and call centre @ 2% is required to be reported u/s 194J(a) under section cod 94J-A whereas other payment is is required to be reported u/s 194J(b) under section cod 94J-B.
3. Reporting of tax deducted by an e-Commerce operator under Section 194-O :
New Section 194-O was introduced by FA-2020 to provide for TDS on e-commerce operator @ 1%. Form 26Q is amended to provide for the same,
4. Reporting of payment made to the entities whose income is exempt from tax:
CBDT vide Circular No. 3, dated 28-06-2002 and Circular No. 11, dated 22-11-2002 has clarified that no tax is required to be deducted from interest, mutual fund income etc paid to Ramakrishna Math and Ramakrishna Mission as they are exempt under section 10(23C)(iv). It is now clarified that no tax is required to be deducted if the income is unconditionally exempt u/s 10. Now amended Rule 31A (4) requires payer to furnish particulars of such amount paid or credited and required amendment is done in Form 26Q.
5. Reporting of tax deducted on cash withdrawal:
Section 194N has been totally replaced with new section 194N whereby the
a) person not filing ITR will be liable for TDS above threshold limit of Rs. 20 Lakh @ 2% from the amount withdrawn in cash up to Rs. 1 crore rupees & @ 5% from the amount withdrawn in cash if the aggregate of the amount of cash withdrawal exceeds Rs. 1 crore during the previous year, whereas
b) person filing ITR will be liable for TDS above threshold limit of Rs. 1 Cr and TDS rate is 2% on amount exceeding Rs. 1 Cr.
Forms 26Q and 27Q have now been amended to add above additional information required pursuant to new section 194N.
There are few changes as to the reporting of TDS compliances on
a) TDS from the income distributed by a Business Trust,
b) TDS from income in respect of units of mutual fund, and
c) On interest paid by Offshore banking unit without TDS.
This is just a short overview of all the changes proposed in Rule 31A, Form 26Q & Form 27Q.