10th Virtual CPE Meeting (VCM)

on

Latest Developments in TDS and TCS

Dt. :14-05-2022

- By CA Zalak Parikh
FCA, DISA, CISA, FAFD, CCCAB
 CONTENTS
SECTION COVERAGE
194R TDS on Benefit or perquisite arising from business or profession of recipient
194S TDS on Transfer of Virtual Digital Asset (VDA)
194-IA TDS on Purchase of Immovable Property – Amendment
206AB & Higher deduction of TDS for non filers - Amendment &
206CCA Higher collection of TCS for non filers – Amendment
201(1A) & Interest on late deposit of TDS – Amendment &
206 C(7) Interest on late deposit of TCS – Amendment
194R : TDS on Benefit or perquisite arising from business or profession of
recipient

Any person responsible for providing 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 ten per cent of
the value or aggregate of value of such benefit or perquisite:
Provided that in a case where the benefit or perquisite, as the case may be, 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 has been paid in respect of the benefit or perquisite:
Provided further that the provisions of 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 twenty thousand rupees: Provided also that the provisions of
this section shall not apply to a person being an individual or a Hindu
undivided, family, whose total sales, gross receipts or turnover does not exceed
One Crore rupees in case of business or Fifty Lakh rupees 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.
Points of Analysis of Section 194R :
 Section if applicable, when Payee is
o Resident and
o Having such benefit or perquisite as part of his business or profession
having nature of income falling under section 28(iv) of the Income Tax
Act, 1961.
 When Benefit or perquisite in aggregate during the year exceeds Rs.20,000/-
 Rate of TDS @10%
 Applicable where whole benefit is in kind or Partly in cash and partly in kind.
Not applicable for Fully in cash.
 Introduced by Finance Act, 2022 and applicable with effect from 01.07.2022.
 Payer’s responsibility to deduct and pay TDS even if cash portion is not
sufficient to cover TDS.
 TDS is not applicable where payer being individual or HUF having Gross
Turnover from business upto Rs.1 Crore or Gross receipt from profession
upto Rs.50 Lakhs.
 This does not include benefits or perquisites given by employer to employee,
as this Income is covered U/s 17(2) under the head salary and there is a
separate Section 192 of deduction of Tax for such Income.
 Does not include gifts, perks or benefits provided on special occasions like
Marriage, Festivals etc. as it only covers benefits arising out of business
transactions.
Practical Example Sec. 194R :

Mr. A of Ahmedabad, for procurement of Raw material at lower price for his
manufacturing Business, visits Mr. B in Bangalore. Mr. B to build long term
relations with Mr. A, instead of offering him Goods at Discounted price, offers
him five star Hotel accommodation and an I-phone in lieu of giving discount.
Now, Mr. A and Mr. B being non relatives and there was no other occasion to
gift Mr. A such benefits except in relation to his business and so Mr. B will be
liable to deduct TDS on such Hotel Accommodation and I-phone at the rate of
10% of value, out of his own pocket.

Moreover, if Mr.B is having business turnover in Previous Year less than Rs.1
Crore than he is not liable for TDS.
Issues with Sec. 194R :
 Valuation guidelines with respect to Perquisites has not been defined.
 Threshold Limit for applicability of Section is very low, difficult to comply
for small perquisites.
 When Perquisites received in kind are resold, how to calculate cost of
benefit. No mention of the same
 For coupons or points, when to consider it as income. When given or
redeemed?
 When amount disallowable U/s 37(1), whether still TDS is applicable?
 When for promotion goods are given for sample by Franchiser to
Franchisee operator and are sold by them, that increases sales of
franchiser. In such case whose benefit it is in actual?
 Partly in cash and partly in kind is covered here. But there is Supreme
court judgement in case of Mahindra and Mahindra [2018], which clearly
says that benefit or perquisites cannot be in cash.
 Memorandum says, provisions are applicable from 1st July, 2022, but
Finance Bill, 2022 has not specified the same in it.
 Huge number of Genuine Commercial transactions will be impacted, like
training to sales persons, distributors, support services, free workshops,
referral bonuses, early payment discounts, sample distributions, free
health insurance to dealers, Covid care incentives etc. which were
previously not perceived to be taxable in the hands of receiver.
194S : TDS on Purchase consideration of Virtual Digital Asset
Any person responsible for paying to a 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 one per cent of such sum as income-tax thereon;
Definition of Virtual Digital Asset :
As per the proposed new clause 47A , a Virtual Digital Asset is proposed to mean

 any information or code or number or token (not being Indian currency or any
foreign currency), generated through cryptographic means or otherwise, by
whatever name called,
 providing a digital representation of value which is exchanged with or without
consideration, with the promise or representation of having inherent value, or
 functions as a store of value or a unit of account and includes its use in any financial
transaction or investment, but not limited to, investment schemes and
 can be transferred, stored or traded electronically. Non fungible token and; any
other token of similar nature are included in the definition.
Points of Analysis of Section 194S :

 Where the consideration is–

o wholly in kind; or
o in exchange of another virtual digital asset; or
o partly in cash and partly in kind and 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, born TDS out of
his own pocket.
 No tax shall be deducted in a case, where–
o the consideration is payable by a Individual or HUF,
 whose Turnover from business does not exceed Rs.1 Crore or Gross
receipt from profession does not exceed Rs.50 Lakhs specified
person or
 does not have Income from business or profession.
than value or aggregate value of such consideration does not exceed
Rs.50,000/- during the financial year; or
o the consideration is payable by any person other than above specified
persons and the value or aggregate value of such consideration does not
exceed Rs.10,000/- during the financial year.
 The provisions of sections 203A (TAN mandatory) and 206AB (Higher rate of
TDS for non filing of return) shall not apply to such specified persons.

 If tax has been deducted under this section, than same consideration shall not
be liable to deduction or collection of tax at source under any other
provisions of this Chapter.

 Where any sum referred to in this section 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, 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 this Section.
 Income on transfer of VDA is taxable under Section 115BBH @ 30% .
Issues with Sec. 194S :

 Definition of Term VDA is wide enough to cover E-way bills, credit card
points etc.
 Responsibility to deduct is that of payer. In many of the cases, in Crypto
currency transactions, it is the Intermediary or exchanges who makes
payment.
 Identity of buyer is not known in many cases, as transactions are not peer
to peer.
 Valuation of transactions, when it has already been settled.
 Legality of crypto transactions is still questioned. Though it is taxable @
30% under Section 115BBH
 Controversy surrounding this provision is that, motive behind introducing
this section was to get Bitcoin and similar crypto currency transaction
under tax radar. But, definition of Virtual Digital asset specifically excludes
foreign currency from its ambit. Where as in Last September, 21, El
Salvador, country of Central America adopted Bitcoin as Legal Tender in
their Country. Moreover, recently CAR (Central African Republic) also
passed bill in parliament to allow Bitcoin as legal tender. Thus, it makes
bitcoin Foregin currency and making it out of ambit of section 194S.
Amendment Section 194-IA : TDS on Purchase of Immovable Property

Before amendment of this section by Finance Bill, 2022, TDS was required to be
deducted on Sales consideration value of immovable property where Total Sales
Consideration exceeds Rs.50 Lakhs.

Whereas U/s 43CA and 50CA, Income is Chargeable to tax as Higher of

 Actual Sales consideration or
 Stamp Duty Value

In order to remove inconsistency, Section 194-IA has been amended to provide

that “In case of transfer of an Immovable property other than agriculture land,
TDS is to be deducted at the rate of one percent of such sum paid or credited to
the resident or the stamp duty value, whichever is higher.”
Amendment Section 206AB & 206CCA : Higher deduction of TDS/TCS for
non filers

 Previously, if payee has not filed his return of Income for both of the previous
Financial Year for which time limit for filing return of Income has expired U/s
139(1) of the Income Tax Act and aggregate of TDS and TCS is more than
Rs.50,000/- in each of the Financial Years, than TDS (Sec.206AB) / TCS
(Sec.206CCA) is required to be deducted at twice the applicable rate of 5%,
whichever is higher.
As per Amendment proposed in Finance Bill, 2022, effective from 01.04.2022,
instead on two previous Financial years, words Previous Financial Year has been
replaces.
Thus, in case deductee has not filed Return of Income for Previous Financial Year
and time Limit for Filing return U/s 139(1) has expired than provisions of Higher
deduction of TDS/TCS U/s 206AB/206CCA would be applicable to him.
 Moreover, to reduce burden of compliance to those deductors, who are not liable to
apply for TAN, under section 194-IA, 194-IB and 194M, applicability of 206AB has
been omitted from the same sections. So, now provisions of Section 206AB would
not apply to 194-IA, 194-IB, 194LBC, 194M and 194N.
Amendment Section 201(1A) & 206C (7) : Interest on Late deposit of
TDS/TCS

Amendments proposed in sections 201(1A) and 206C(7) of the Income Tax to

provide clarity and to avoid litigation caused by misinterpretation, which
provides to abide by the computation of interest for TDS/ TCS defaults under
respective provisions, as made in the order passed by AO, vide Clauses 60 and
62 of the Finance Bill 2022 (budget 2022-23).

Section 201(1A) and 206C(7) deals with Interest on Late Payment or Late
Deduction/collection of TDS/TCS. It is observed that computation of Interest
under these sections is subject matter of frequent litigation. In order to make it
free from misinterpretation or litigation, proviso has been added to both the
section 201(1A) and 206C(7), whereas it is proposed that –
“To provide that where any order is made by the Assessing officer for the
defaults under the said section, the interest shall be paid by the person in
accordance with the order made by the assessing officer in this regard.”

These amendments will be effective from 01.04.2022.