Proposed TDS provision in the budget with there effective dates

A] Section 194-I

Existing provisions :

TDS on rental payments is prescribed at the rate of

(a) 10% for the use of any machinery or plant or equipment,

(b) 15% for the use of any land or building or furniture or fittings, if the payee is an individual or HUF

and

(c) 20% if the payee is other than an individual or HUF.

Proposed Provision :

(a) 2% for the use of any machinery or plant or equipment,

(b) 10% for the use of any land or building or furniture or fittings for all persons.

* The rate of TDS will be 20 per cent in all cases, if PAN is not quoted by the deductee w.e.f. 1.04.2010.

B] Section 194-C

Existing provisions :

2% on payment for a contract.

1% in the case of a sub-contract

1% in the case of payment for an advertising contract

Proposed Provision :

On payment for a contract & even for sub-contract and advertising contracts :

(a) 1% where payment for a contract are to individuals/HUF

(b) 2% where payment for a contract are to any other entity.

* The nil rate will be applicable if the transporter quotes his PAN. If PAN is not quoted the rate will be 1% for an individual/ HUF transporter and 2% for other transporters upto 31.3.2010.

** The rate of TDS will be 20 per cent in all cases, if PAN is not quoted by the deductee w.e.f. 1.04.2010.

C] Other TDS Provisions (w.e.f. 01.10.2009)

Some of the rates of TDS specified for resident taxpayers have been reduced and converged to 10 per cent.

No surcharge and cess on tax deducted on non-salary payments made to resident taxpayers.

D] Provisions for payments and TDS to transporters (w.e.f. 01.10.2009)

Existing provisions :

U/s. 194C, TDS is required to be deducted on payments to transport contractors engaged in the
business of plying, hiring or leasing goods carriages. However, if they furnish a statement that they do not own more than two goods carriages, tax is not to be deducted at source.

Proposed Provision :

It is proposed to exempt payments to transport operators (as defined in section 44AE) from the
purview of TDS.
However, this would only apply in cases where the operator furnishes his Permanent Account
Number (PAN) to the deductor. Deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income Tax Department in the prescribed format.

Note : The format is awaited and the time by which this information needs to be submitted will be notified.

It is proposed to raise the limit of cash payment to such transport operators to Rs 35,000/-
from the existing limit of Rs 20,000/- u/s. 40A(3).

E] Clarification regarding "work" under section 194C (w.e.f. 01.10.2009)

There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing
contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is
proposed to provide that "work" shall not include manufacturing or supplying a product
according to the requirement or specification of a customer by using raw material purchased
from a person other than such customer as such a contract is a contract for ‘sale’.

This will however not apply to a contract which does not entail manufacture or supply of an
article or thing (e.g. a construction contract). It is also proposed to include manufacturing or
supplying a product according to the requirement or specification of a customer by using
material purchased from such customer, within the definition of ‘work’.

It is further proposed to provide that in such a case TDS shall be deducted on the invoice
value excluding the value of material purchased from such customer if such value is
mentioned separately in the invoice. Where the material component has not been separately
mentioned in the invoice, TDS shall be deducted on the whole of the invoice value.

F] Compliance with provisions of quoting PAN(w.e.f. 01.04.2010)

It is proposed that any person whose receipts are subject to deduction of tax at source i.e. the
deductee, shall mandatorily furnish his PAN to the deductor failing which the deductor shall
deduct tax at source at higher of the following rates
(i) the rate prescribed in the Act;

(ii) at the rate in force i.e., the rate mentioned in the Finance Act; or

(iii) at the rate of 20 per cent.

TDS would be deductible at the above-mentioned rates will also apply in cases where the
taxpayer files a declaration in form 15G or 15H (under section 197A) but does not provide his
PAN.

Further, no certificate under section 197 will be granted by the Assessing Officer unless the
application contains the PAN of the applicant.

These provisions
will also apply to non-residents where TDS is deductible on payments or credits made to them.

To ensure that the deductor knows about the correct PAN of the deductee it is also proposed to
provide for mandatory quoting of PAN of the deductee by both the deductor and the deductee
in all correspondence, bills and vouchers exchanged between them.

G] Processing of statements of tax deducted at source(w.e.f. 01.04.2010)

It is proposed to provide for electronic processing of TDS statements on the same lines as
processing of Income-tax returns.

Following adjustments can be made during the computerized processing of statements of tax
deducted at source:

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in thestatement, for example, in respect of rate of deduction of tax at source where such rate is notin accordance with the provisions of the Act.

It is proposed to provide that after making adjustments, tax and interest [e.g. u/s 201(1A)]
would be calculated and sum payable by the deductor or refund due to the deductor will be
determined.

An intimation will be sent to the deductor informing him of his tax liability or
granting him the refund due within one year from the end of the financial year in which the statement is filed
. It is also proposed that the processing of these statements can be undertaken in a centralized processing centre.

H] Filing of TDS and TCS statements(w.e.f. 01.10.2009)

It is proposed to modify the existing provisions so as to allow the Government to prescribe
periodicity of TDS statements besides prescribing their form and manner.

Under current provisions, TDS statements are filed on quarterly basis.

I] Providing time limits for passing of orders u/s 201(1) holding aperson to be an assessee in default(w.e.f. 01.04.2010)

Currently, the Income Tax Act does not provide for any limitation of time for passing an order
u/s 201(1)
It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of the tax as
required under this Act, if the deductee is a resident taxpayer shall be passed within two
years from the end of the financial year in which the statement of tax deduction at source is
filed by the deductor.

Where no such statement is filed, such order can be passed up till four years from the end of
the financial year in which the payment is made or credit is given.

It is proposed to provide that such proceedings for a financial year beginning from 1st April,
2007 and earlier years can be completed by the 31st March, 2011.

However, no time-limits have been prescribed for order under section 201(1) where—

(a) the deductor has deducted but not deposited the tax deducted at source, as this would be
a case of defalcation of government dues,

(b) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section
192, as the employee would not have paid tax on such perquisites,

(c) the deductee is a non-resident as it may not be administratively possible to recover the tax
from the non-resident.