wht under dtc bill 2010

1

Withholding of Tax under Direct Tax Code Bill 2010

Presented by

Paras K SavlaKPB & AssociatesChartered Accountants

Organised byQuest India

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Background

Income-tax Act 1961 (the Act) has been subject to numerous amendments in last 50 years -

34 times by amendment acts andvarious yearly finance bills

These amendments -has overburdened the basic structure of the Income-tax Act and its language has become complexhas rendered the Act difficult to decipher by the average tax payer

The government therefore decided to revise, consolidate and simplify the language and structure of the direct tax laws.

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Background

New law to take into account established and time test practiceswhich have withstood judicial scrutiny, leading to taxation regime which is simple and broad-based leading to lowering of tax rates, better tax compliance and reduced litigation. It is proposed to replace the Income-tax Act, 1961 and Wealth-tax Act 1957 by a single Act, ie Direct Taxes Code (the Code).

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Basic Provisions

Clause 193 provides that tax on the income shall be payable by deduction / collection of tax at source or by advance tax, irrespective of the fact that such income is assessed in later financial year.Chapter XIII of the Code deals with collection & recovery of taxes and part A of the chapter deals with deduction of tax at source / withholding of taxes where as part B deals with collection of tax at sourceThe assessee is required to pay tax direct (Clause 194) if -

No provision for deduction or collection of income-tax orNo tax has been deducted or collected as per provisions

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General Applicability

Resident payeeApplies to

All payers for payments in nature or salary All payers except individual & HUF who are not subject to tax audit during earlier financial year for payments other than Salary

No specific exemption for personal payment by individual & HUF subject to audit in previous year

Non-Resident payeeApplies to all payers irrespective of there residential status

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Rates of TDS

Any person responsible for specified payment is required to deduct income-tax at appropriate rate at the time of payment*Specified payment & appropriate rate are as referred in

Third Schedule - applicable to resident deductee and Fourth Schedule - applicable to non-resident deductee

WHT tax rate for NR deductee would be lower of the rate specified in Fourth Schedule or respective DTAA

In case default in furnishing PAN to the deductor, applicable rate would be higher of

20 per cent or Rate specified in respective 3rd / 4th schedules

* Payment includes deemed payment

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Point of time for deduction

Specified payment shall be deemed to have been made if the payment has been made

In cashBy issue of cheque or draftBy credit to any account, whether called suspense account or by any other nameBy any other mode as may be prescribed

Whichever is earlierCommon point of time for deduction across all specified payments Deemed payments may give rise to practical difficulties

Eg in case of salariesUp till now TDS on salaries is governed by actual paymentsProfit-based commission paid to directors

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Specified payments and rates of TDS applicable to Residents

2%

1% (where deductee is individual/HUF) 2% (where deductee is person other than individual/HUF)

Payment in respect of broadcasting and telecasting or advertising4.

2%__Payment in respect of any service contract3.

2%


Payment in respect of works contract2.

Average rate of tax on salary paid during the financial year

Rates as per the slabs and rates prescribed by the Finance Act

Income from employment 1.

Proposed rates under DTCCurrent Rates

Rates of TDS where deductee is a residentNature of PaymentSr. No.

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2%


Supply of labour for carrying out any works, or service contract5.

10%10%Commission, brokerage, remuneration or prize (by whatever name called) for rendering any services

9.

10%10%Dividend other than dividend on which DDT is payable8.

10%10%Interest7.

2% (No deduction of TDS in case of carriage of goods by road if deducteefurnishes PAN)


Payment in respect of carriage of goods and passengers by any mode of transport other than railways6.



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10%10%Fees for professional or technical services10.

10%10%Payment for royalty or non-compete fees11.

10%10%Compensation on compulsory acquisition of immovable property other than agricultural land

12.

30%30%Winnings from any horse race16.

30%30%Winning from any lottery or crossword puzzle or card game or other game of any sort15.

10%10%

Rent for use of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings

14.

2%2%Rent for the use of machinery or plant or equipment13.



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10% (where deducteeis individual/HUF)20% (Other deductee)

__

Payment by a life-insurer where payment under life policy is not tax-exempt (Threshold for not deducting TDS-where payment to policyholder does not exceed Rs. 10,000 in any financial year. TDS proposed to be introduced under DTC)

18.

10% (where deducteeis individual/HUF) 20% (other deductee)

__

Income distributed by mutual fund on which income distribution tax is not paid (Threshold for not deducting TDS-where payment to unit holder does not exceed Rs. 10,000 in any financial year. TDS proposed to be introduced under)

17.



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New Categories for TDSLife insurance payments

Payments by Life insurance companies to the policy holder other than arising out of following is subject to TDS

Premium paid or payable during the term of policy does not exceed 5% of the capital sumAmount is received upon completion of contract periodAmount on which Income Distribution Tax (IDT) under clause 110 has been paid. IDT is payable on any amount of income distributed or paid to policy holders of approved equity oriented life insurance scheme

Income distributed by Mutual FundsAny income distributed by mutual fund which is not subject to IDT

IDT is payable on any amount of income distributed or paid to unit holders of equity oriented fund

Threshold limit for non deduction of tax Rs 10,000 applicable only for non-company unit holder/policy holderRates of TDS 10% – individual & HUF & 20% others

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SalariesTDS provisions are applicable to all payer who are responsible for payment of salary and where such payments exceeds maximum amount not chargeable to tax Rate of TDS : Average rate of income-tax Salaries paid to non-resident is covered by 4th Schedule Income from employment means income as computed under clause 21 (Clause 314(124))Deductor to consider

tax relief for arrears or advance receipts under clause 206details if any furnished by the payee about salaries received from other employer and tax deducted thereon

Provisions about salary received from another employer were absent in DTC 2009

Whether possible to consider -deduction on losses from self occupied house property?deductions for savings under clause 68?

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Contract chargesTDS is applicable on following payments

works contractservice contract;broadcasting and telecasting;supply of labour for carrying out any works, or service contract;advertising; orcarriage of goods and passengers any mode of transport other than by railways.

‘‘work’’ includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer and not from any other person.

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Contract charges (Cont.)Service contract is the new category added

Service Contract includes job work“Service” for the purposes of non-compete agreement means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, merchant banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging (Clause 314 (232))

‘‘broadcasting and telecasting’’ includes production of programmes for broadcasting or telecasting;‘‘contract’’ and ‘‘contractor’’ include ‘‘sub-contract’’ and ‘‘sub-contractor’’ respectively;

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Contract charges (Cont.)No specific inclusion of catering whether covered under service contract?No separate rate in respect of payments to individual / HUF and othersTDS not applicable in case individual contract is for less than Rs 30,000 and/or aggregate value during financial year is less thanRs 75,000No TDS for carriage of goods by road transport if payee furnishes PAN

Such payment to transporters may be notified to be incorporated in the return of TDS

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InterestNo distinction between interest on securities and other interestLargely exemptions similar to the currently available. TDS on Interest is not deducted in respect of -

Interest on Central/State Government SecuritiesMay be No TDS on 8% Saving (Taxable) Bonds, 2003

Securities issued by company and such securities are listed and in dematerialised formInterest on debentures issued by widely held companies up to Rs 5,000 paid to individual and such debentures listed on recognised stock exchange Interest on time deposits (excluding recurring deposits) payable by banking company, co-operative bank or housing finance company, up to Rs 10,000 Interest on any deposits other than time deposits with banking company / co-operative bankInterest under income/wealth tax Act & DTC

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Interest (Cont) Compensation awarded by motor accident tribunal if not exceeding Rs 100,000 during financial yearInterest payable to any banking company, any co-operative bank, financial corporation set up under Central/State Act, insurer, mutual fund, notified entities Interest on Zero Coupon Bonds Interest on deposits under any notified scheme framed by CentralGovernment Other Interest paid up to Rs 5,000

No exemption provided in respect of interest on time deposits exceeding Rs 10,000 paid by Co-operative banks to its members

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Commission/Brokerage

TDS is deductible on any payments made as Commission, brokerage, remuneration, or prize (by whatever name called) for rendering any servicesCombined rate for insurance commission, sale of lottery tickets as well as other commission Commission, brokerage not defined

Recent controversies continues For rendering of services may over lap with service contract No specific exemption for brokerage on securities No TDS in case aggregate amount does not exceeds Rs 5,000 during the year

Current threshold limits of Rs 2,500

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Professional/Technical Services, Royalty non-compete fees

‘Professional or technical services’ means services rendered by a person in the course of carrying on legal, medical, engineering, architectural or accountancy profession, technical consultancy, interior decoration or any other profession as notified by the Board.Royalty is as defined under clause 314(220)

Wide definition No threshold limit for non-deduction of TDS

Currently TDS not applicable for aggregate payments up to Rs 30,000 during the year

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Specified payments & TDS applicable to Non-Residents

30%30%Winning from any lottery or crossword puzzle or card game or other games or gambling or betting

4.

20%10%Payment for Royaties Fees for technical services in respect of any service contract3.

20%-

Payment by way of –• Interest • Dividends on which DDT has not been paid• Income distributed by mutual fund on which

income distribution tax is not paid

2.

Average rate of tax on salary paid during the financial year

Rates as per the slabs and rates prescribed by the Finance Act

Income from employment 1.


Rates of TDS where deductee is a non-residentNature of PaymentSr. No.

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Specified payments and TDS applicable to Non-Residents

30%30%Any other sum chargeable to tax 8

10%10%

Payment by way of guarantee money to a non-resident sports association or institution in relation to any game or sports played in India

7

10%10%

Payment to non-resident sportsman –• Participation in India in any game or sport

(other 4&5)• Advertisement or • Contribution in any article relating to any

game or sport in any newspaper/magazine/ journal in India

6

30%30%Winnings from any horse race (not relating to activity of owning and maintaining horse races

5


Rates of TDS where deductee is a non-residentNature of PaymentSr. No.

Payments made to FII for sale of securities on recognised stock exchange is not subject to TDS

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Tax Collected SourceTCS is required to collected at the uniform rate of 3% in respect of following payments

Sale of alcoholic liquor for human consumption Sale of tendu leaves Sale of timber obtained under a forest lease or otherwise Sale of any other forest produce not being timber or tendu leaves Sale of scrap Grant of lease or licence or contract or transfer of any right orinterest, either in whole or in part, for a parking lot Grant of lease or licence or contract or transfer of any right or interest, either in whole or in part, for a toll plaza Grant of lease or licence or contract or transfer of any right or interest, either in whole or in part, for mining or quarrying

Currently varied rates on different items ranging 1% to 5%

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Other provision

Payment in kindIn case of payments made in kind (wholly or partly) deductor to ensure that tax has been paid prior to paymentCurrently similar provisions exists only for the payments winning from lottery or cross puzzle S. 194B

Payments in kind has been judicially considered for TDS purposes

Adjustment of deficiency or excess arising out of previous deduction or non deduction

In case payments arising on account of income from employment or in the nature of interest, deductor is allowed to increase or reduce the amount of TDS on account excess or short previous deduction.No such adjustment is allowed for other specified payments.Ideally this should have considered for all specified payment

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Application for deduction at lower rate

Tax can be deducted at lower or NIL rate, in case, such certificate is issued by Assessing Officer (Clause 197)Application for deduction of tax at lower rate can be made by resident deductee orIn respect of payments made to non-resident application be made either by payer or by such non-resident deductee.Board has been empowered for necessary rules to be made in this regards.However no provision to submit declaration for NIL by the assessee to the payer

Current assessee could submit declaration in form 15H/15G

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Disallowances of expenses

While computing total income no deduction of expenses shall allowed in case

Where tax was deductible under chapter XIII and such tax has not been deducted or After deduction tax has not been paid before the due date of filing of return of income

A deduction would be allowed in subsequent financial year

In case tax has been deducted during the financial year but was been paid after due date of filing return of income orTax has been deducted and paid in subsequent financial year

Single provisions governs allowance of expenditure under all heads and payment to resident & non-resident

(clause 19)

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Assesee in default

Deductor / collector is treated as Assesee In Default (AID) in case he fails to

Deduct / collect whole or part of the tax or After deduction/collect fails to pay whole or part of the tax andAssessee (payee) has also failed to pay such tax directly

Currently similar provisions overlap under S. 191 & S. 201

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Interest

If the Person fails to deduct or collect whole or part of the tax or after such deduction fails to pay whole or part of tax, he is liable to pay interest as under

At the rate of 1% per month from the date of tax deductible / collectible to the date on which tax deducted or collected At the rate of 1.5% per month from the date of tax deducted or

collected till the date of payment

(Clause 214)

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Assessment

TDS / TCS returns filed by the deductor / collector shall be assessed by the assessing officer as if such return is a return of tax bases. (Clause 177)

All the provisions of the code as far as applicable shall apply

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Penalty

Deductor / collector of tax, without reasonable cause fails to deduct or collect whole or part of the tax, is liable to penalty as under

minimum penalty not less than 25% maximum penalty not more than 100%

of the tax deductible or collectible to furnish in time a return of tax deductible/collectible to issue certificate of tax deducted or collected at sourceto furnish return of interest or other specified payment where no tax has been deducted is liable to penalty as under

minimum penalty not less than Rs 5,000 and maximum penalty not more than Rs 1,00,000

(Clause 232)

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Thank you

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wht under dtc bill 2010

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