FINANCE ACT, 2022 – CHANGES IN TDS PROVISIONS

[Mr. M. GOVINDARAJAN]

Deduction at source

Chapter XVII of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure collection and recovery of tax.  Part B of the said Chapter deals with tax deducted at source.  The following are the sections providing to deduct tax at source on various events-

• Section 192 – Salary;
• Section 192A – Payment of accumulated balance due to an employee;
• Section 193 – Interest on securities;
• Section 194 – Dividends;
• Section 194A- Interest other than interest on securities;
• Section 194 B – Winnings from lottery or crossword  buzzle;
• Section 194 BB – Winnings from horse race;
• Section 194C – Payments made to contractors and sub-contractors;
• Section 194D – Insurance Commission;
• Section 194DA – Payment in respect of Insurance Policy;
• Section 194E – Payments to nonresident sportsmen or sports association;
• Section 194EE – Payments in respect of deposits under National Savings Scheme etc.
• Section 194F – Payments on account of repurchase of units by Mutual Fund or Unit Trust of India;
• Section 194G – Commission, etc. on the sale of lottery tickets;
• Section 194H – Commission or brokerage;
• Section 194I – Rents;
• Section 194IA – Payment on transfer of certain immovable property other than agricultural land;
• Section 194IB – Payment of rent by certain individuals or Hindu Undivided Family;
• Section 194IC – Payment under specified agreement;
• Section 194J – Fees for professional or technical services;
• Section 194K – Income in respect of units;
• Section194LA – Payment of compensation on acquisition of certain immovable property;
• Section  194LB – Income by way of interest from infrastructure debt fund;
• Section 194LBA – Certain income from Units of a business trust;
• Section 194LBB – Income in respect of units of investment fund;
• Section 194LBC – Income in respect of certain Securitization trust;
• Section 194LC – Income by way of interest from India Company;
• Section 194LD – Income by way of interest on certain bonds and Government securities;
• Section 194M – Payment of certain sums by certain individuals or Hindu Undivided Family;
• Section 194N – Payment of certain amounts in cash;
• Section 194O – Payment of certain sums by e-commerce operator to e-commerce participant;
• Section 194P – Deduction of tax in case of specified senior citizen;
• Section 194Q – Deduction of tax at source on payment of certain sum for purchase of goods.

Finance Act, 2022

The Finance Minister submitted the budget for the financial year 2022-23 in Parliament on 01.02.2022 along with the Finance Bill, 2022.  The Financial Bill underwent changes and finally the Finance Act, 2022 has been passed by both the Houses and also got the assent of the Hon’ble President of India on 30.03.2022 and published in the Official Gazette on the same day.  Section 3 to Section 85 of the Finance Act, 2022 provides the changes that will take effect in the Income Tax Act matters.  These sections came into effect from 01.04.2022.

Changes in TDS provisions

The Finance Act, 2022 brings amendments to Section 194-IA and section 194-IB and further inserts two new sections – 194R and 194S.

Amendments

Section 194-IA requires deducting tax at 1% at source on the value of transfer of immovable property.  The amendment brings to this section provides that the tax is to be deducted at 1% on the value of the immovable property, other than agricultural land, or the stamp duty value of such property whichever is higher.   No deduction shall be made where the consideration for the transfer of an immovable property and the stamp duty value of such property, are both, less than ₹ 50 lakhs.

section 194-IB provides for deduction of tax at source on payment of rent by certain individuals or Hindu Undivided Family.   Section 194-IB (4) provides that In a case where the tax is required to be deducted as per the provisions of section 206AA  or Section 206AB such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

New sections

The Finance Act, 2022 inserted a new section 194R which will come into effect from 01.07.2022.   This new section provides for deduction of tax on benefit or perquisite in respect of business or profession.

Section 194R

Section 194R(1) provides that any person responsible for providing (the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof) to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at the rate of 10% of the value or aggregate of value of such benefit or perquisite.

If the benefit or perquisite is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite.

Non applicability of this section

This section shall not apply-

• in case of a resident where the value or aggregate of value of the benefit or perquisite provided or likely to be provided to such resident during the financial year does not exceed ₹ 20,000/-;
• to a person being an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed ₹ 1 crore  in case of business or ₹ 50 lakhs  in case of profession, during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided by such person.

Guidelines by Board

If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.  Every guideline issued by the Board shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite.

Section 194S

The Finance Act, 2022 inserted a new section 194S which will come into effect from 01.07.2022.   This new section provides for deduction of tax on payment on transfer of virtual digital asset.

Section 194S (1) provides that any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to 1% of such sum as income-tax thereon. 

In a case where the consideration for transfer of virtual digital asset is-

• wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or
• partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer,

the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset.

Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense Account" or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.

Notwithstanding anything contained in section 194-O (Payment of certain sums by e-commerce operator to e-commerce participant) in case of a transaction to which the provisions of the said section are also applicable along with the provisions of this section, then, tax shall be deducted under sub-section (1).

Non applicability of this section

No tax shall be deducted under this section-

• if the consideration is payable by a specified person and the value or aggregate value of such consideration does not exceed ₹ 50,000/-  during the financial year; or
• if  the consideration is payable by any person other than a specified person and the value or aggregate value of such consideration does not exceed ₹ 10,000/- during the financial year.

Specified person

The explanation to this section defines the expression ‘specified person’ as-

• an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed ₹ 1 crore in case of business or ₹ 50 lakhs  in case of profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred;
• an individual or a Hindu undivided family, not having any income under the head "Profits and gains of business or profession.

The provisions of sections 203A (Tax deduction and collection account number) and 206AB (Special provisions for deduction of tax at source for non filers of income tax return) shall not apply to a specified person.

Guidelines

If any difficulty arises in giving effect to the provisions of this section, the Board may, with the prior approval of the Central Government, issue guidelines for the purposes of removing the difficulty.  Every guideline issued by the Board shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital asset.