Set out below are the amendments proposed in the Finance Bill in
connection with TDS:
1. Disallowance for
non-deduction or non-payment of TDS:
a) The existing provisions of section 40(a)(i) of the I-T
Act provide that certain payments such as interest, royalty and fee for
technical services made to a non-resident shall not be allowed as deduction for
computing business income if tax on such payments was not deducted, or after
deduction, was not paid within the time prescribed under section 200(1) of the
IT Act.
The I-T Act contains similar provisions for disallowance of
business expenditure in respect of certain payments made to the residents.
Under section 40(a)(ia) of the I-T Act, in case of payments made to resident,
the deductor is allowed to claim deduction for payments as expenditure in the
previous year of payment, if tax is deducted during the previous year and the
same is paid on or before the due date specified or filing of return of income
under section 139(1) of the I-T Act. However, in case of disallowance for
non-payment of tax from payments made to non-residents, this extended time
limit of payment up to the date of filing of return of income under section 139(1)
is not available.
In order to provide similar extended time limit for payment of tax
deducted from payments made to non-residents, it is proposed to amend section
40(a)(i) of the I-T Act to provide that the deductor shall be allowed to claim
deduction for payments made to non-residents in the previous year of payment,
if tax is deducted during the previous year and the same is paid on or before
the due date specified for filing of return under section 139(1) of the Act.
b) It is proposed to amend section 40(a)(ia) of the I-T Act
to provide that in case of non-deduction or non-payment of TDS on payments made
to tax residents , the disallowance will be restricted to 30% of the amount of
the expenditure claimed. Currently, 100% of such amount is disallowed.
c) Currently, the non-deduction or non-payment of TDS on
payments made to residents results in disallowance only with respect to certain
specified categories of payments (viz. interest, commission, brokerage, rent,
royalty, fee for technical services or fee for professional services). It is
proposed to amend section 40(a)(ia) of the I-T Act to increase the scope of
disallowance to every category of payment made to a resident on which tax is
required to be deducted at source under Chapter XVII-B of the I-T Act.
2. Correction/
Rectification of TDS Quarterly Statements:
Currently, a deductor is allowed to file correction statement for
rectification/updation of the information furnished in the original quarterly
statement as per the Centralized Processing of Statements of Tax Deducted at
Source Scheme, 2013. However, there is no express provision in the I-T Act for
enabling a deductor to file correction statement. To bring clarity in the law,
Finance Bill proposes to amend section 200 of the I-T Act to expressly provide
that the deductor can deliver a correction statement in the prescribed form. Consequently,
it is also proposed to amend section 200A (1) of the I-T Act for enabling
processing of correction statement filed. This amendment is proposed take
effect from October 1, 2014.
3. Time limit for
deeming a person assessee in default:
Currently, section 201(3)(i) of the I-T Act provides a time limit
for passing of an order for holding a person to be an assesse in default for
non deduction or non payment of TDS. Such time limit is two years from the end
of the financial year in which the quarterly TDS statement was filed. It is
proposed to delete such provision because there is norationale for not treating
the deductor as assessee in default after two years only on the basis that the
deductor has filed TDS statement as TDS defaults are generally in respect of
the transaction not reported in the TDS statement.
Additionally, section 201(3)(ii) of the I-T Act is proposed to be
amended to increase the time limit for passing an order deeming a person to be
an assessee on default for non payment and non deduction of TDS on payment made
to residents to 7 years from 6 years. This is to align section 201(3)(ii) of
the I-T Act with section 148 of IT Act (which relates to time limit for
reassessment proceedings).
These amendments are proposed to take effect from October 1, 2014.
4. Penalty under
Section 271H:
Section 271H of the I-T Act is proposed to be amended to provide
that penalty there under will be levied by the assessing officer. This
amendment is proposed take effect from October 1, 2014.
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