Amendment of section 40
14. In section 40 of the Income-tax Act, .in clause (a), with effect from the 1st day of April, 2015,—
(a) in sub-clause (i),—
(I) for the portion beginning with the words “during the previous year” and ending with the words, brackets and figures “sub-section (1) of section 200”, the words, brackets and figures “on or before the due date specified in sub-section (1) of section 139” shall be substituted;
(II) for the proviso, the following proviso shall be substituted, namely:—
“Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”;
(b) in sub-clause (ia),—
(I) for the portion beginning with the words “any interest, commission or brokerage” and ending with the words and brackets “for carrying out any work (including supply of labour for carrying out any work)”, the words “thirty per cent. of any sum payable to a resident” shall be substituted;
(II) in the first proviso, after the words, brackets and figures “sub-section (1) of section 139,”, the words “thirty per cent. of” shall be inserted.
Notes on Clauses:
Clause 14 of the Bill seeks to amend section 40 of the Income-tax Act relating to amounts not deductible.
The provisions of section 40 specify the amounts which shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”.
The existing provisions contained in sub-clause (i) of clause (a) of aforesaid section provide that payment of any sum by way of interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act which are payable outside India or in India to a non-resident, not being a company or a foreign company on which tax is deductible under Chapter XVII-B, shall be disallowed in case of non- deduction of tax or non-payment of tax after deduction during the previous year, or in the subsequent year before the expiry of time prescribed under sub-section (1) of section 200.
It is proposed to amend sub-clause (i) of clause (a) of aforesaid section to provide that disallowance under the said sub-clause will be attracted, if, after deduction of tax during the previous year, the same has not been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.
The existing proviso to the aforesaid sub-clause provides that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
It is proposed to substitute the said proviso so as to provide that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
The existing provisions contained in sub-clause (ia) of clause (a) of the aforesaid section provide that payment of any sum by way of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident on which tax is deductible under Chapter XVII-B, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work) on which tax is deductible under Chapter XVII-B, shall be disallowed in case of non-deduction of tax or after deduction if the same is not paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.
It is further proposed to amend sub-clause (ia) of clause (a) of aforesaid section to provide that disallowance under the said sub-clause shall be restricted to thirty per cent. and the provisions of this section shall be applicable to all expenditure, which is payable to a resident, on which tax is deductible under the sub- heading “B.-Deduction at source” of Chapter XVII.
The existing provisions contained in first proviso of sub-clause (ia) of clause (a) of aforesaid section provide that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
It is also proposed to amend first proviso of sub-clause (ia) of clause (a) of aforesaid section to provide that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent. of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.
