Budget Analysis - TDS

Tax Deduction at Source : Budget 2022 Proposals

With a view to deepen and widen the tax base, and facilitate transparency & compliance in the tax administration, several amendments are being made to the TDS regime from time to time. Either, new provisions are being inserted in the Income Tax Act or amendments are being made to the already existing provisions.

The Budget 2022 proposes to rationalize the provisions of s. 206AB & s. 206CCA that provides for special provision for deduction & collection of tax at sources in respect of specified persons, rationalizes provisions of TDS on sale of immovable property & introduces TDS provisions in respect of a prerequisite or benefit in a business or profession.

a) Rationalization of s. 206AB & s. 206CCA to widen and deepen tax-base

Existing Provision : The Finance Act 2021 had inserted s. 206AB & s. 206CCA. These sections provided for deduction of tax at source in case of specified persons at higher rates. Specified persons were defined to mean persons who have not filed their return of income for two consecutive assessment years immediately preceding the assessment year in question wherein the total amount of TDS & TCS exceeds INR 50,000/- in each of the years.

Amendment: The Budget 2022 has now tightened the said income tax provisions to define specified persons who have not filed their income tax returns for one year instead of two years.

This initiative is undertaken with the intent & view to increasing the number of people filing their income tax returns every year. The Government has provided an online utility wherein one can check who has not filed their income tax returns in the previous years.
Applicability: The said provision becomes effective from 1st April 2022.

b) Rationalization of s. 194 – IA i.e provisions of TDS on sale of immovable property

Existing Provision :- s. 194 – IA of the Income Tax Act 1961 provides for deduction of TDS on the sale of immovable property other than agricultural land. As per the existing provisions, TDS at 1% is required to be deducted by any person who is responsible to pay to a resident any sum by way of consideration for transfer of immovable property in excess of INR lakhs, thus TDS is required to be deducted on the consideration paid.

Amendment: The Budget 2022 has proposed to amend s. 194-IA to provide that in case of transfer of immovable property (other than agricultural land) TDS of 1% shall be deducted on the consideration paid or stamp duty value of such property whichever is higher. Suppose, the consideration & stamp duty value of the property are less than INR 50 lakhs, with no tax under s. 194-IA is required to be deducted.
Applicability: The said provisions becomes effective from 1st April 2022.

c) Introduction of s. 194R i.e TDS on benefit or perquisite of business or profession

s. 28(iv) of the Income Tax Act 1961 states that the value of any benefit or perquisite whether convertible into money arising from a business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite. However, several times the recipient does not report such benefits thereby furnishing incorrect particulars of income.

Therefore, it is proposed to insert s. 194R to provide that any person providing a benefit to any resident whether convertible to money or not arising from carrying on of such business or exercising of such profession by a resident shall before providing such benefit or perquisite ensure that tax has been deducted in respect of such benefit at 10%. In case when such benefit is partly in cash and partly in kind & the cash is not sufficient to meet such tax liability, the person responsible for providing such benefit before releasing such benefit ensures that tax has been paid in respect of such benefit or perquisite.

No tax is required to be paid if the aggregate value of such benefit or perquisite does not exceed INR 20,000/- in a financial year. Also, the said provisions apply to an individual or a HUF whose total sale or gross receipts exceeds INR 1 crores or INR 50 lakhs in the case of a profession.
Applicability: The said provisions becomes effective  from 1st July 2022.

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