�Critical Issues in TDS Under Income Tax Act 1961 & Analysis of Section 43 B(h) With MSMED Act 2006��

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CA. PANKAJ KUMAR MISHRA

(FCA, FAFD, M-Com, B-Com (CS) )

(CCGST(ICAI), CCIAS(ICAI), CCCAB(ICAI))

Email: Fcapankajkumarmishra@gmail.ocm

Mobile.No :-9899407778/9988076095

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CA PANKAJ KUMAR MISHRA 9899407778

Some Critical Issues in TDS:-

• Issue No1:- Inoperative PAN, later on became Operative
• CBDT Circular No. 6/2024: Relief for TDS Deductors on PAN-Aadhar Linkage:
• The CBDT, aiming to address grievances of deductors/collectors who collected TDS/TCS at the normal rate but were required to deduct/collect at higher rate due to the deductee’s PAN being inoperative (unlinked with Aadhar) since April 1, 2023, issued Circular No. 6 on April 23, 2024.
• This circular prevents treating such TDS deductors/ TCS Collector as in default (for short deduction) if, by May 31, 2024, the deductee’s PAN is linked to Aadhar, rendering it operative for transactions until March 31, 2024.
• Consequently, no liability arises for deductors/collectors to deduct/collect tax under sections 206AA/206CC at higher the rate due to PAN inoperability, and they need not pay the difference.
• Recently, many notices have been issued to deductors for shortfalls in tax deduction because the deductee’s PAN was found inoperative.����

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CBDT Circular No. 6/2024:

• With a view to redressing the grievances faced by such deductors/collectors, the Board,
• in partial modification and in continuation of the Circular No. 03 of 2023,
• hereby specifies that for the transactions entered into upto 31.03.2024 and
• in cases where the PAN becomes operative (as a result of linkage with Aadhaar) on or before 31.05.2024,
• there shall be no liability on the deductor/collector to deduct/collect the tax under section 206AA/206CC, as the case maybe, and
• the deduction/collection as mandated in other provisions of Chapter XVII-B or Chapter XVII-BB of the Act, shall be applicable.��

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Rectification of mistake.�

• Resolutions:- Rectification of mistake.
• 154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,—
•  (a) amend any order passed by it under the provisions of this Act ;
•  (b) amend any intimation or deemed intimation under sub-section (1) of section 143;
•  (c) amend any intimation under sub-section (1) of section 200A;
•  (d) amend any intimation under sub-section (1) of section 206CB.

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CA PANKAJ KUMAR MISHRA 9899407778

Issue No2:-Delhi High Court: Employee Accepted Salary After TDS Deduction, Employer Responsible For Non-Deposit�

• The Delhi High Court in the case Harshdip Singh Dhillon Versus Union Of India observed and has held
• that the employee accepted salary after TDS deduction and the employer is responsible for non-deposit of TDS.
• The bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia in the case observed and has stated that the petitioner or assessee, having accepted the salary after the deduction of income tax at source,
• had no further control over it in the sense that thereafter it was the duty of his employer, while acting as a tax collecting agent of the revenue, to pay the deducted tax amount to the Central Government in accordance with law.

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Brief Fact of the case

• In the present case, the petitioner or assessee was employed with Tulip Telecom Ltd. as Associate Vice President during the period from November 2011 to May 2013 and has resigned from service on May 7, 2013, with effect from May 9, 2013.
• The court observed that for assessment year 2011–12 and 2012–13, the employer of the petitioner deducted tax at source, TAS on the salaries paid to the petitioner, but the deducted tax which pertains to the assessment year 2012–2013 was not deposited by the employer with the Income Tax authorities.
• The court stated that the employer of the petitioner also failed to issue the requisite TDS certificate, so the petitioner informed the concerned income tax officials about the default, but no such action was taken.
• The petitioner moved the plea seeking the winding up of the employer company by way of a company petition under Section 433(e) and (f), read with Section 434 of the Companies Act, in which a liquidator was appointed.

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CA PANKAJ KUMAR MISHRA 9899407778

• Further, the court stated that instead of granting credit to the TDS pertaining to the assessment year 2012–2013, the respondent or department issued an intimation by raising a demand for an amount of Rs. 15,77,240 against the petitioner for outstanding tax liabilities.
• The petitioner in the plea made various representations to the department, informing them about the defaults on the part of his employer.�The department in the case issued the demand notice by again raising a tax demand for an amount of Rs. 15,36,220 against the petitioner.
• On the other hand, it has been contended by the department that the petitioner cannot be allowed credit for tax because the credit has to be given in view of Section 199 only when the tax deducted at source is paid to the Central Government, which was not so paid.
• The court in the case observed and has held that
• since the petitioner accepted his salary after deduction of income tax at source,
• it is his employer who is liable to deposit the same with the revenue authorities, and
• on this count, thus, the petitioner cannot be burdened.�The court while considering the facts and circumstances of the case observed and has allowed the petition and set aside the demand notice.
• Further, the court directed to allow the petitioner credit for TDS deducted by his employer for the assessment year 2013–14.

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CA PANKAJ KUMAR MISHRA 9899407778

Issue No 3:- Taxpayer Must Substantiate Form 26AS Or Form 16 So As To Claim Credit Over TDS: Mumbai ITAT�

• While remanding the case back for re-adjudication, the Mumbai ITAT held that the prima facie onus would be upon the Assessee to substantiate its claim of non-granting of TDS credit, by providing relevant documents, such as an appointment letter, salary slips or Form No.16 or bank statements, or any other corroborative evidence/ documents.
• The Bench of the ITAT comprising of Narender Kumar Choudhry (Judicial Member) and S. Rifaur Rahman (Accountant Member) noted that “the Assessee by filing TDS working which is though initiated by somebody but the same is neither on proper letterhead nor there is a name of the person who signed such document and even otherwise, the Assessee has also failed to file any document, wherefrom it can be reflected that the Assessee has received any particular amount of salary on which TDS has been deducted and therefore, in absence of relevant documents, the Commissioner correctly held that the AO has not made any mistake in non-granting of credit of TDS, since, the Assessee did not furnish any salary slip or Form No.16.” (Para 6.1)

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• The CIT also confirmed the addition made by the AO by expressing that “the TDS amount of Rs.10,45,439/- has not deposited by the employer to the Government Treasury, though the amount was deducted from the Assessee’s salary income, the Assessee also did not furnish any salary slips or Form No.16 and the amount has not been deposited in the Government Treasury.”
• The Bench remarked that the taxpayer claimed that the employer of the taxpayer did not provide Form No.16.
• The Bench witnessed that the taxpayer’s employer is a regular defaulter and, in another incidence, another employee has also not deposited the TDS amount deducted under section 192, which consequence in filing a matter which went up to the Hon’ble Bench of the Tribunal at Pune.
• The Bench witnessed that at the time of referring to the case of Chandrashekhar Sadashiv Potphode v. DCIT in ITA No.508 & 509/Pun/2022, the Tribunal gave the relief by permitting the TDS credit because the only option to the Revenue is to recover the TDS amount not deposited via the employer who has deducted TDS and not from the taxpayer under Section 205.
• As per the Bench, the taxpayer needs to release its main onus via producing the pertinent documents then only could avail the right in its correct perspective.

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CA PANKAJ KUMAR MISHRA 9899407778

Section 205 :-

• Bar against direct demand on assessee.
• 205. Where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.

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Issue no:4 TDS Prosecution Can't Be Initiated Against Any Office Holder In Corporate Without Establishing Administrative Connection: Delhi High Court

• Varun Sood Vs ACIT ( Delhi High Court)��In a landmark judgment, the Delhi High Court has set a significant precedent by ruling that prosecution for Tax Deducted at Source (TDS) violations under Section 276B of the Income Tax Act, 1961, cannot be initiated against corporate officers without establishing their administrative connection to the company’s management. The case, Varun Sood Vs ACIT, highlights the critical need for due process and specific criteria in identifying responsible officers for corporate tax obligations�Brief Fact:-�The petitioner, Varun Sood, challenged the designation as the “Principal Officer” of the company by the first respondent, which was intended to hold him accountable for initiating prosecution under Section 276B of the Act. The High Court noted several procedural lapses and lack of evidence in establishing Sood’s connection with the company’s management or administration, thereby questioning the basis of the prosecution.��

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Section 2(35)

Key points from the judgment include the High Court’s observation

• that merely holding an office in a corporate entity is insufficient to classify an individual under clause (b) of Section 2(35) of the Act.
• The court emphasized that a notice of intent to treat an individual as a “Principal Officer” must be justified with evidence of the individual’s involvement in management or administration.
• 2(35) "principal officer", used with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means—
•  (a) the secretary, treasurer, manager or agent of the authority, company, association or body, or  (b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof ;

In our considered opinion merely because a person holds an office in a corporate entity would not be sufficient to place that individual in clause (b). The intention of the respondent to treat an individual as the “Principal Officer” must be based on it being satisfied that the person was connected with the management or administration of the company.����

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Issues No5:-Intimation of Outstanding Demand of previous Years

• Resolutions:- Following Steps should be followed:
• 1) Request for Justification Report
• 2) Request for conso. file
• 3) request for Unconsumend challan available with the department on TAN
• 4) After receiving the the details of uncosument challan , Add that challan in respective year through online traces portal and map the liability.
• 5) Repatatively check for all the F.years in subject and do the same process.

CA PANKAJ KUMAR MISHRA 9899407778

Issue no 6:-Deposit of TDS in Wrong TAN

• Request to Jurisdictional officer with the request that the TDS have been deposited in wrong TAN,
• After Satisfying with the request Jurisdictional officer may transfer the tax in correct TAN.

CA PANKAJ KUMAR MISHRA 9899407778

Issue No 4:Summary of some common Error that generally occur

CA PANKAJ KUMAR MISHRA 9899407778

CA PANKAJ KUMAR MISHRA 9899407778

43B(h) of Income Tax Act 1961

• Section 43B:Certain deductions to be only on actual payment.

“ Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of—

• Following clause (h) shall be inserted after clause (g) of section 43B by the Finance Act, 2023, w.e.f. 1-4-2024:
• (h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006),
• shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :
• Provided that nothing contained in this section [except the provisions of clause(h)] shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.

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• Following clause (e) shall be substituted for the existing clause (e) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024:
• (e) "micro enterprise" shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006);
• As per MSME act 2006 (h) "micro enterprise" means an enterprise classified as such under sub-clause (i) of clause (a) or sub-clause (I) of clause (b) of sub-section (1) of section 7.

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• Following clause (g) shall be substituted for the existing clause (g) of Explanation 4 to section 43B by the Finance Act, 2023, w.e.f. 1-4-2024:
• (g) "small enterprise" shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).

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As per THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT 2006

• 2(e) "enterprise" means
• an industrial undertaking or a business concern or any other establishment,
• by whatever name called,
• engaged in the manufacture or production of goods, in any manner, pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 or
• engaged in providing or rendering of any service or services;

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Section 15 of MSME ACT:-Liability of buyer to make payment.

• Where any supplier supplies any goods or renders any services to any buyer,
• the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or,
• where there is no agreement in this behalf, before the appointed day: .
• Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days
• from the day of acceptance or the day of deemed acceptance.

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“Appointed Day“, "the Day of Acceptance“and "the Day of Deemed Acceptance"

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(b) "appointed day" means

• the day following immediately after the expiry of the period of fifteen days from the day of acceptance or
• the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Explanation.-For the purposes of this clause,

(i) "the day of acceptance" means,-

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;

(ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen-days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;

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Q1:What if the amount outstanding at year-end (i.e., 31-03-2024) is paid in the next financial year 2024-25 but beyond the time allowed by Section 15 of the MSMED Act?�

Ans:-Where the amount outstanding at year-end is paid next year beyond the time allowed in Section 15 of the MSMED Act, such amount shall be disallowed while computing the business income for the current financial year 2023-24. However, this disallowance is not permanent or irreversible. Where the amount outstanding at year-end is paid next year but beyond the limitation period of Section 15 of the MSMED Act, such amount shall be allowed while computing the business income in the next FY 2024-25 on an actual payment basis.

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Q2:If goods were purchased from MSEs on 01-04-2023 and payment was made on 31-03-2024, will it be disallowed under Section 43B(h) for the assessment year 2024-25?�

Ans:-There will be no disallowance.

• Even though payment is made beyond the time specified in Section 15 of the MSMED Act, it is made during the same year and is not outstanding as at the year-end.
• Therefore, the amount will be allowed on an actual basis and not disallowed.
• However, interest under Section 16 of the MSMED Act, 2006 will be payable by the assessee to the supplier at three times the bank rate compounded at monthly rests.

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Q.3:Is interest payable to Micro/Small enterprises for delayed payments allowable as a deduction under the Income-tax Act?�

• Ans:-Section 23 of the MSMED Act states that interest paid by a buyer for delayed payments is not deductible under the IT Act.
• Section 23:-Notwithstanding anything contained in the Income-tax Act, 1961,
• the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act, shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.

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Q4:-Does Section 43B(h) apply with respect to the amounts due towards the purchase of Capital Goods?�

• Ans:-Section 43B applies to sums payable in respect of which a deduction is otherwise allowable under this Act.
• Therefore, Section 43B(h) would apply to amounts payable to micro or small enterprises with respect to the purchase of capital goods for which a 100% deduction is admissible under Sections 30 to 36. For example, the deduction of 100% of capital expenditure under Section 35AD and the deduction of 100% of capital expenditure on scientific research under Section.
• If a 100% deduction of capital expenditure is not allowable, there would be no disallowance with respect to depreciation on capital goods purchased if the MSME supplier of capital goods is not paid in time. This is because depreciation is not a “sum payable in respect of which deduction is otherwise allowable”. What can be disallowed under Section 43B(h) must have the character of a sum payable in respect of which deduction is otherwise allowable.

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Q5:Whether disallowance attracts if the assessee opts for a presumptive taxation scheme under Section44AD, Section 44ADA, Section 44AE, etc.�

• Ans:-Section 43B(h) begins with a non-obstante clause “notwithstanding anything contained in any other provision of this Act”. Therefore, apparently, Section 43B overrides all provisions of the Act including provisions of presumptive taxation under Section 44AD, Section 44ADA, Section 44AE, Section 44BBB and Section 115VA (Tonnage Tax)
• However, Sections 44AD, 44ADA, 44AE, 44BBB and 115VA also begin with non-obstante clauses as ‘Notwithstanding anything to the contrary contained in Sections 28 to 43C,…….’
• Therefore, Section 43B(h) overrides all other provisions of the Act except Sections 44AD, 44AE, 44ADA, 44BBB and 115VA. Therefore, Section 43B(h) will not apply to eligible assessee-buyers who opt for presumptive taxation under Sections 44AD, 44AE, 44ADA, 44BBB or 115VA.

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Q:-6What if cheque paid to supplier remains unpaid ?

Answer:

• There may be a situation that an assessee issues a cheque to the MSME supplier and due to some reason MSME supplier don’t encash it within the due date. In light of the judgment of Hon’ble High Court of Punjab and Haryana in case of CIT v. Hindustan Wire Products Ltd. [2002] 120 Taxman 744 (Punjab &Haryana), disallowance u/s. 43B of the Act should not be attracted.
• However, the company will be required to prove that default of supplier in encasing the cheque through following documents–
• a) Copy of cheque with date of payment
• b) Copy of delivery of cheque to supplier. Needless to say that delivery should be within stipulated time frame.

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Q7:-What if the buyer makes payment to the supplier after 15/45 days, but before filing the return of income for that financial year?

• Answer: As per the amendment made in the first proviso to section 43B, the benefit of the first proviso will not be available for due to micro and small enterprises, Hence, though payment is made before filing a return of income, the deduction can only be claimed in the year in which actual payment is made and not in the year of accrual.
• Provisio of Section 43B
• “Provided that nothing contained in this section [except the provisions of clause(h)] shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return.”

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Section 16 :-Date from which and rate at which interest is payable.

• Where any buyer fails to make payment of the amount to the supplier, as required under section 15,
• the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force,
• be liable to pay compound interest with monthly rests to the supplier on that amount
• from the appointed day or, 'as the case may be; from the date immediately following the date agreed upon,
• at three times of the bank rate notified by the Reserve Bank.

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Section:-22 Requirement to specify unpaid amount with interest in the annual statement of accounts.

• 22. Where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:-
• (i) the principal amount and the interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year;
• (ii) the amount of interest paid by the buyer in terms of section 16, along with the amount of the payment made to the supplier beyond the appointed day during each accounting year;
• (iii) the amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act;
• (iv) the amount of interest accrued and remaining unpaid at the end of each accounting year; and
• (v) . the amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23.

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Section 23:-Interest not to be allowed as deduction from income.

• 23. Notwithstanding anything contained in the Income-tax Act, 1961,
• the amount of interest payable or paid by any buyer, under or in accordance with the provisions of this Act,
• shall not, for the purposes of computation of income under the Income-tax Act, 1961, be allowed as deduction.

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• 24. The provisions of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

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���Deduction of tax on benefit or perquisite in respect of business or profession under Section :194R

• Memorandum Explaining the Amendments:-
• As per clause (iv) of section 28 of the Act,
• the value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of profession is to be charged as business income in the hands of the recipient of such benefit or perquisite.
• However, in many cases, such recipient does not report the receipt of benefits in their return of income,
• leading to furnishing of incorrect particulars of income.

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• Accordingly, in order to widen and deepen the tax base, it is proposed to insert a new section 194R to the Act

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Deduction of tax on benefit or perquisite in respect of business or profession: Section 194R-Detailed Analysis

• 194R. (1) 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:

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• 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 required to be deducted 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

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• 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.
• (2) 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.
• (3) Every guideline issued by the Board under sub-section (2) 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.
• Explanation.—For the purposes of this section, the expression "person responsible for providing" means the person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.]

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CA PANKAJ KUMAR MISHRA 9899407778

Few Question arises:- Circular No 12 of 2022 dated 16^th June 2022/ Further Clarified Vide Circular No 18 of 2022 dated 13^th September 2022.

• Question 1. Is it necessary that the person providing benefit or perquisite needs to check if the amount is taxable under clause (iv) of section 28 of the Act, before deducting tax under section 194R of the Act?
• Answer: No. The deductor is not required to check whether the amount of benefit or perquisite that he is providing would be taxable in the hands of the recipient under clause (iv) of section 28 of the Act.
• The amount could be taxable under any other section like section 41(1) etc.
• Section 194R of the Act casts an obligation on the person responsible for providing any benefit or perquisite to a resident, to deduct tax at source @ 10%.
• There is no further requirement to check whether the amount is taxable in the hands of the recipient or under which section it is taxable.

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• In this regard it may be highlighted that in the context of section 195 of the Act
• it is a requirement to know whether the payment made by the deductor is income in the hands of the non-resident recipient as section 195 of the Act requires deduction on any other sum chargeable under the provisions of this Act at the rates in force.
• Thus there is requirement that deductor needs to verify if the "sum is chargeable under the Income-tax Act".
• The term " rate in force" is defined in clause (37A) of section 2 of the Act and
• it allows benefit of agreement under section 90 or section 90A of the Act, if elig ible, in determining the rate of tax at which the tax is to be deducted at source.
• Hence, there is further requirement of checking if the amount is taxable under tax treaty and if yes, at what rate.
• Such a requirement is not there in section 194R of the Act, in the absence of these two terms in this section. Hence, there is no requirement for deductor to verify whether the amount is taxable in the hands of the recipient or section under which it is taxable.

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• Hon' ble Supreme Court in the case of PILCOM vs. CIT West Bengal (Civil Appeal No. 5749 of 20 12),
• It may also be highlighted that these two terms are also not there in section 194E of the Act and Hon' ble Supreme Court in the case of PILCOM vs. CIT West Bengal (Civil Appeal No. 5749 of 20 12),
• held that tax is to be deducted under section 194E of the Act at a specific rate indicated there in and there is no need to see the taxability or the rate of taxability in the hands of the non-resident.
• “Payments to non-resident sportsmen or sports associations.⁸²
• 194E. Where any income referred to in section 115BBA is payable to a non- resident sportsman (including an athlete) or an entertainer who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent.”

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Question 2. Is it necessary that the benefit or perquisite must be in kind for section 194R of the Act to operate?

• Answer: first proviso to sub-section (I) of section 194R of the Act clearly indicates
• the intent of legislature that there could also be situations where benefit or perquisite is in cash or the benefit or perquisite is in kind or partly in cash and partly in kind.
• Thus, section 194R of the Act clearly brings in its scope the situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in kind.

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Question 3. Is there any requirement to deduct tax under section 194R of the Act, when the benefit or perquisite is in the form of capital asset?

• Answer: As has been stated in response to question no I, there is no requirement to check whether the perquisite or benefit is taxable in the hands of the recipient and the section under which it is taxable.
• Further, courts have held many benefits or perquisites to be taxable even though one can argue that they are in the nature of capital asset.
• The following judgments illustrate this point:
• Ramesh Babulal Shah v CIT (20 15) 53 taxmann.com 277 (Bom)
• Assessee entered into an agreement with’ J' for purchase of a plot of land and certain amount was paid as earnest money. However, possession of land was not given to assessee and seller entered into another agreement with a third party to develop the said plot. Assessee filed suit in which a consent decree was passed and in pursuance of same certain amount as paid to assessee. On appeal it was held that such sum received in pursuance of consent decree was liable to tax as business income under section 28(iv).

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CIT v Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad)

• The amount representing principal loan waived by bank under one time settlement scheme would constitute income falling under section 28(iv) relating to value of any benefit or perquisite, arising from business or exercise of profession. CIT v Raman iyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad).
• Value of rent free accommodation, furniture and fixtures given to director was held as taxable under section 28(iv). CIT v Subrata Roy (2016) 3851TR 547 (All).
• Where a car was given to an assessee by his disciple, who had been benefited from his preaching, the value of car was held to be taxable in the hands of the assessee being a receipt from the exercise of the vocation carried on by him. CIT (Addl) v Ram Kripal Tripathi (1980) 125 ITR 408 (All).
• The assessee was a director of a company. In terms of an agreement with the promoters, shares were allotted to the director. On these facts, it was held that the shares received by the director were benefit or perquisite received from a company by the director and it was a benefit assessable to tax. D. M. Neterwala v CIT (1986) 122 ITR 880 (Born)

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• Value of gift of land was held as a receipt by the assessee in carrying on of his vocation and was held as taxable.Amarendra Nath Chakraborty v CIT (1971) 79 ITR 342 (Cal).
• Thus, it can be seen that the asset given as benefit or perquisite may be capital asset in general sense of the term like car, land etc but in the hands of the recipient it is benefit or perquisite and has accordingly been held to be taxable.
• In any case, as stated earlier, the deductor is not required to check if the benefit or perquisite is taxable in the hands of recipient. Thus, the deductor is required to deduct tax under section 194R of the Act in all cases where benefit or perquisite (of whatever nature) is provided

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Question 4: Whether sales discount, cash discount and rebates are benefit or perquisite?

• Answer: Sales discounts, cash discount or rebates allowed to customers from the listed retail price represent lesser realization of the sale price itself. To that extent purchase price of customer is also reduced.
• Logically these are also benefits though related to sales/purchase. Since TDS under section 194R of the Act is applicable on all forms of benefit/perquisite, tax is required to be deducted. However, it is seen that subjecting these to tax deduction would put seller to difficulty. To remove such difficulty it is clarified that no tax is required to be deducted under section 194R of the Act on sales discount, cash discount and rebates allowed to customers.

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• There could be another situation, where a seller is selling its items from its stock in trade to a buyer.
• The seller offers two items free with purchase of 10 items.
• In substance, the seller is actually selling 12 items at a price of 10 items.
• Let us assume that the price of each item is Rs 12.
• In this case, the selling price for the seller would be Rs 120 for 12 items.
• For buyer, he has purchased 12 items at a price of 10.
• Just like seller, the purchase price for the buyer is Rs 120 for 12 items and he is expected to record so in his books.
• In such a situation, again there could be difficulty in applying section 194R provision.
• Hence, to remove difficulty it is clarified that on the above facts no tax is required to be deducted under section 194R of the Act. It is clarified that situation is different when free samples are given and the above relaxation would not apply to a situation of free samples.

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situation is different “when free samples are given” and the above relaxation would not apply to a situation of free samples.

• Similarly, this relaxation should not be extended to other benefits provided by the seller in connection with its sale. To illustrate, the following are some of the examples of benefits/perquisites on which tax is required to be deducted under section 194R of the Act (the list is not exhaustive):
• When a person gives incentives (other than discount, rebate) in the form of cash or kind such as car, TV, computers, gold coin, mobile phone etc.
• • When a person sponsors a trip for the recipient and his/her relatives upon achieving certain targets
• • When a person provides free ticket for an event
• • When a person gives medicine samples free to medical practitioners.

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When a person gives medicine samples free to medical practitioners.

• To illustrate, the free medicine sample may be provided by a company to a doctor who is an employee of a hospital.
• The TDS under section 194R of the Act is required to be deducted by the company in the hands of hospital as the benefit/perquisite is provided to the doctor on account of him being the employee of the hospital.
• Thus, in substance, the benefit/perquisite is provided to the hospital. The hospital may subsequently treat this benefit/perquisite as the perquisite given to its employees (if the person who used it is his employee) under section 17 of the Act and deduct tax under section 192 of the Act. In such a case it would be first taxable in the hands of the hospital and then allowed as deduction as salary expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and not in the hands of the hospital.
• Hospital can get credit of tax deducted under section 194R of the Act by furnishing its tax return.
• It is further clarified that the threshold of twenty thousand rupees in the second proviso to sub-section (I) of section 194R of the Act is also required to be seen with respect to the recipient entity.

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Benefits/perquisites may be used by owner/director/employee of the recipient entity or their relatives

• It is further clarified that these benefits/perquisites may be used by owner/director/employee of the recipient entity or their relatives
• who in their individual capacity may not be carrying on business or exercising a profession.
• However, the tax is required to be deducted by the person in the name of recipient entity since the usage by owner/director/employee/relative is by virtue of their relation with the recipient entity and in substance the benefit/perquisite has been provided by the person to the recipient entity.

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Benefit or perquisite is provided to a doctor who is working as a consultant:

• Similarly, the tax is required to be deducted under section 194R of the Act
• if the benefit or perquisite is provided to a doctor who is working as a consultant in the hospital.
• In this case the benefit or perquisite provider may deduct tax under section : 194R of the Act with hospital as recipient and
• then hospital may again deduct tax under section 194R of the Act for providing the same benefit or perquisite to the consultant.
• To remove difficulty, as an alternative, the original benefit or perquisite provider may directly deduct tax under section 194R of the Act in the case of the consultant as a recipient.
• “The provision of section 194R of the Act shall not apply if the benefit or perquisite is being provided to a Government entity, like Government hospital, not carrying on business or profession. “

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Question 5. How is the valuation of benefit/perquisite required to be carried out?

• Answer: The valuation would be based on fair market value of the benefit or perquisite except in following cases:-
• (i) The benefit/perquisite provider has purchased the benefit/perquisite before providing it to the recipient. on that case the purchase price shall be the value for such benefit/perquisite.
• (ii) The benefit/perquisite provider manufactures such items given as benefit/perquisite, then the price that it charges to its customers for such items shall be the value for such benefit/perquisite.
• It is further clarified that GST will not be included for the purposes of valuation of benefit/perquisite for TDS under section 194R of the Act

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Question 6: Many a times, a social media influencer is given a product of a manufacturing company so that he can use that product and make audio/video to speak about that product in social media. Is this product given to such influencer a benefit or perquisite?

• Answer: Whether this is benefit or perquisite will depend upon the facts of the case.
• In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics etc and if the product is returned to the manufacturing company after using for the purpose of rendering service, then it will not be treated as a benefit/perquisite for the purposes of section 194R of the Act.
• However, if the product is retained then it will be in the nature of benefit/perquisite and tax is required to be deducted accordingly under section 194R of the Act.

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Question 7: Whether reimbursement of out of pocket expense incurred by service provider in the course of rendering service is benefit/perquisite?

• Answer: Any expenditure which is the liability of a person carrying out business or profession, if met by the other person is in effect benefit/perquisite provided by the second person to the first person in the course of business/profession.
• Let us assume that a consultant is rendering service to a person "X" for which he is receiving consultancy fee. In the course of rendering that service, he has to travel to different city from the place where is regularly carrying on business or profession. For this purpose, he pays for boarding and lodging expense incurred exclusively for the purposes of rendering the service to "X". Ordinarily, the expenditure incurred by the consultant is part of his business expenditure which is deductible from the fee that he receives from company "X". In such a case, the fee received by the consultant is his income and the expenditure incurred on travel is his expenditure deductible from such income in computing his total income. Now if this travel expenditure is met by the company "X", it is benefit or perquisite provided by "X" to the consultant.

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reimbursement of out of pocket expense

• However, sometimes the invoice is obtained in the name of "X" and accordingly, if paid by the consultant, is reimbursed by "X". In this case, since the expense paid by the consultant (for which reimbursement is made) is incurred wholly and exclusively for the purposes of rendering services to "X" and the invoice is in the name of "X", then the reimbursement made by "X" being the service recipient will not be considered as benefit/perquisite for the purposes of section 194R of the Act.
• If the invoice is not in the name of "X" and the payment is made by "X" directly or reimbursed, it is the benefit/perquisite provided by "X" to the consultant for which deduction is required to be made under section 194R of the Act.

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Question 8: If there is a dealer conference to educate the dealers about the products of the company - Is it benefit/perquisite?

• Answer: The expenditure pertaining to dealer/business conference would not be considered as benefit/perquisite for the purposes of section 194R of the Act in a case where dealer/business conference is held with the prime object to educate dealers/customers about any of the following or similar aspects:
• (i) new product being launched
• (ii) discussion as to how the product is better than others
• (iii) obtaining orders from dealers/customers
• (iv) teaching sales techniques to dealers/customers
• (v) addressing queries of the dealers/customers
• (vi) reconciliation of accounts with dealers/customers

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dealer conference:

• However, such conference must not be in the nature of incentives/benefits to select dealers/customers who have achieved particular targets.
• Further, in the following cases the expenditure would be considered as benefit or perquisite for the purposes of section I 94R of the Act:-
• (i) Expense attributable to leisure trip or leisure component, even if it is incidental to the dealer business conference.
• (ii) Expenditure incurred for family members accompanying the person attending dealer business conference
• (iii) Expenditure on participants of dealer/business conference for days which are on account of prior stay or overstay beyond the dates of such conference.

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Question 9: Section 194R provides that if the benefit/perquisite is in kind or partly in kind (and cash is not sufficient to meet TDS) then the person responsible for providing such benefit or perquisite is required to ensure that tax required to be deducted has been paid in respect of the benefit or perquisite, before releasing the benefit or perquisite. How can such person be satisfied that tax has been deposited?

• Answer: The requirement of law is that if a person is providing benefit in kind to a recipient and tax is required to be deducted under section 194R of the Act, the person is required to ensure that tax required to be deducted has been paid by the recipient. Such recipient would pay tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy of the advance tax payment challan provided by the recipient confirming that the tax required to be deducted on the benefit/perquisite has been deposited. This would be then required to be reported in TDS return along with challan number. This year Form 26Q has included provisions for reporting such transactions. In the alternative, as an option to remove difficulty if any, the benefit provider may deduct the tax under section 194R of the Act and pay to the Government. The tax should be deducted after taking into account the fact the tax paid by him as TDS is also a benefit under section 194R of the Act. In the Form 26Q he will need to show it as tax deducted on benefit provided.

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���Scheme of Taxation :- Section 4 of Income Tax Act

• Chapter II
• Charge of income-tax.
• 4. (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person :
• Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly.
• (2) In respect of income chargeable under sub-section (1),
• income-tax shall be deducted at the source or paid in advance,
• where it is so deductible or payable under any provision of this Act.
• * Article 265 of Constitution of India:-
• “No tax shall be levied or collected except by authority of law.”

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CHAPTER XVII - Collection and recovery of tax:-

• Scheme of This Chapter:-
• Deduction of Tax on Specified Payments at Specified rates.
• Deposit Tax Within the time limit prescribed
• File statement of TDS.
• Issue Certificate of Deduction of Tax at Source
• Processing of TDS Statements filed.
• Consequence's of Non- Compliance.

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Collection of Tax “Two Modes”:-

• Mode1:- Deduction or Collection of Tax at Source
• Deduction at source and advance payment.
• 190. (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction or collection at source or by advance payment or by payment under sub-section (1A) of section 192, as the case may be, in accordance with the provisions of this Chapter.
• (2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.

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Mode2:- Direct Payment By the assessee i.e.Advance Tax and Self Assessment tax :�

• Direct payment.
• 191. (1) In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct.
• (2) For the purposes of paying income-tax directly by the assessee under sub-section (1),………………………………….
• Explanation.—For the removal of doubts, it is hereby declared that if any person including the principal officer of a company,—
•  (a) who is required to deduct any sum in accordance with the provisions of this Act; or
•  (b) ………………………………………………………
• does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.

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Consequences of failure to deduct or pay:-

• 201. (1) Where any person, including the principal officer of a company,—
• (a) who is required to deduct any sum in accordance with the provisions of this Act; or
• (b) referred to in sub-section (1A) of section 192, being an employer,…………
• does not deduct, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax.

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Section 199:- Credit for tax deducted.

• 199. 
• (1) Any deduction made in accordance with the foregoing provisions of this Chapter
• and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or
• of the owner of the security, or of the depositor or of the owner of property or of the unitholder, or of the shareholder, as the case may be.
• (2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.
• (3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.

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Section 200 (Duty of person deducting tax.)

• 200. (1)Any person deducting any sum in accordance with the foregoing provisions of this Chapter shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.
• (2) Any person being an employer, referred to in sub-section (1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.
• (2A) In case of an office of the Government, where the sum deducted in accordance with the foregoing provisions of this Chapter or tax referred to in sub-section (1A) of section 192 has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, by whatever name called, who is responsible for crediting such sum or tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed income-tax authority, or to the person authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed.

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Duty of person deducting tax.

• (3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time,
• prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and
• verified in such manner and setting forth such particulars and within such time as may be prescribed:
• Provided that
• the person may also deliver to the prescribed authority
• a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under this sub-section
• in such form and verified in such manner as may be specified by the authority.

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Section 200A. Processing of statements of tax deducted at source.

•  (1) Where a statement of tax deduction at source or a correction statement has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200,
• such statement shall be processed in the following manner, namely:—

(a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, apparent from any information in the statement;

(b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement;

(c) the fee, if any, shall be computed in accordance with the provisions of section 234E;

(d) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of the amount computed under clause (b) and clause (c) against any amount paid under section 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee;

(e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and

(f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor:

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Section 200A. Processing of statements of tax deducted at source.

• Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed.
• Explanation.—For the purposes of this sub-section, "an incorrect claim apparent from any information in the statement" shall mean a claim, on the basis of an entry, in the statement—
• (i) of an item, which is inconsistent with another entry of the same or some other item in such statement;
• (ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act.
• (2) For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said sub-section.

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Section 203 - Certificate for tax deducted.

• Certificate for tax deducted.
• 203. 
• (1) Every person deducting tax in accordance with the foregoing provisions of this Chapter shall,
• within such period as may be prescribed from the time of credit or payment of the sum,
• furnish to the person to whose account such credit is given or to whom such payment is made
• a certificate to the effect that tax has been deducted, and
• specifying the amount so deducted,
• the rate at which the tax has been deducted and such other particulars as may be prescribed.

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Section 203 (2)

• (2) Every person, being an employer,
• referred to in sub-section (1A) of section 192 shall, within such period, as may be prescribed,
• furnish to the person in respect of whose income such payment of tax has been made,
• a certificate to the effect that tax has been paid to the Central Government, and
• specify the amount so paid,
• the rate at which the tax has been paid and such other particulars as may be prescribed.

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Rule 31 Certificate of tax deducted at source to be furnished under section 203.

• Due Dates for issuance of certificate :-

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Section 197 Certificate for deduction at lower rate.

• 1)  where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA, 194LBA, 194LBB, 194LBC, 194M, 194-O and 195,
• the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.
• (2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.

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Section 197A:-No deduction to be made in certain cases.

• (1) Notwithstanding anything contained in section 194 or section 194EE,
• no deduction of tax shall be made under any of the said sections in the case of an individual,
• who is resident in India,
• if such individual furnishes to the person responsible for paying any income of the nature referred to in section 194 or, as the case may be, section 194EE,
• a declaration in writing in duplicate in the prescribed form and
• verified in the prescribed manner to
• the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.

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• (1B) The provisions of this section shall not apply where the amount of any income of the nature referred to in sub-section (1) or sub-section (1A), as the case may be, or the aggregate of the amounts of such incomes credited or paid or likely to be credited or paid during the previous year in which such income is to be included exceeds the maximum amount which is not chargeable to income-tax.

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Section 197A:-No deduction to be made in certain cases

• (1A) Notwithstanding anything contained in section 192A or section 193 or section 194A or section 194D or section 194DA or section 194-I or section 194K,
• no deduction of tax shall be made under any of the said sections in the case of a person (not being a company or a firm),
• if such person furnishes to the person responsible for paying any income of the nature referred to in section 192A or section 193 or section 194A or section 194D or section 194DA or section 194-I or section 194K, as the case may be,
• a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.

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Section 197A(1C) For Resident Senior Citizen : New Form 15H

• (1C) Notwithstanding anything contained in section 192A or section 193 or section 194 or section 194A or section 194D or section 194DA or section 194EE or section 194-I or section 194K or sub-section (1B) of this section,
• no deduction of tax shall be made in the case of an individual resident in India,
• who is of the age of sixty years or more at any time during the previous year,
• if such individual furnishes to the person responsible for paying any income of the nature referred to in section 192A or section 193 or section 194 or section 194A or section 194D or section 194DA or section 194EE or section 194-I or section 194K, as the case may be,
• a declaration in writing in duplicate in the prescribed form (New Form 15 H) and
• verified in the prescribed manner to the effect that the tax on his estimated total income of the previous year in which such income is to be included in computing his total income will be nil.
• Note:-As per section 206AA TDS shall be deducted at higher if No PAN furnished even declaration filed in form 15G and form 15H

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Section 194IA:-

• Payment on transfer of certain immovable property other than agricultural land²⁵.
• 194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum or the stamp duty value of such property, whichever is higher,] as income-tax thereon.
• (2) No deduction under sub-section (1) 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 fifty lakh rupees.

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• (3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
• Explanation.—For the purposes of this section,—
•  (a) "agricultural land" means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
• (aa) "consideration for transfer of any immovable property" shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;
•  (b) "immovable property" means any land (other than agricultural land) or any building or part of a building;
• ²⁷[(c) "stamp duty value" shall have the same meaning as assigned to it in clause (f) of the Explanation to clause (vii) of sub-section (2) of section 56.]

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Section 194N: Payment of certain amounts in cash.

• 194N. Every person, being,—
• (i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
• (ii) a co-operative society engaged in carrying on the business of banking; or
• (iii) a post office,
• who is responsible for paying any sum,
• being the amount or the aggregate of amounts, as the case may be,
• in cash exceeding one crore rupees during the previous year,
• to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum,
• deduct an amount equal to two per cent of such sum, as income-tax:

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CA PANKAJ KUMAR MISHRA 9899407778

Section 194N: Payment of certain amounts in cash.

• Provided that in case of a recipient who has not filed the returns of income
• for all of the three assessment years relevant to the three previous years,
• for which the time limit of file return of income under sub-section (1) of section 139 has expired,
• immediately preceding the previous year in which the payment of the sum is made to him,
• the provision of this section shall apply with the modification that—
• (i) the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and
• (ii) the deduction shall be—
• (a) an amount equal to two per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or
• (b) an amount equal to five per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

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CA PANKAJ KUMAR MISHRA 9899407778

Section 194N When Not Applicable

• Provided also that nothing contained in this section shall apply to any payment made to—
• (i) the Government;
• (ii) any banking company or co-operative society engaged in carrying on the business of banking or a post office;
• (iii) any business correspondent of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the guidelines issued in this regard by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934);
• (iv) any white label automated teller machine operator of a banking company or co-operative society engaged in carrying on the business of banking, in accordance with the authorisation issued by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007 (51 of 2007)
• [Provided also that where the recipient is a co-operative society, the provisions of this section shall have effect, as if for the words "one crore rupees", the words "three crore rupees" had been substituted:]

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CA PANKAJ KUMAR MISHRA 9899407778

Deduction of tax at source on payment of certain sum for purchase of goods. Section 194Q

• 194Q. (1) Any person,
• being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller)
• for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall,
• at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier,
• deduct an amount equal to 0.1 per cent of such sum exceeding fifty lakh rupees as income-tax.
• Explanation.—For the purposes of this sub-section,
• "buyer" means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.

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CA PANKAJ KUMAR MISHRA 9899407778

• (2) 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 income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.
• (3) 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.
• (4) Every guideline issued by the Board under sub-section (3) 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 the person liable to deduct tax.
• (5) The provisions of this section shall not apply to a transaction on which—
• (a) tax is deductible under any of the provisions of this Act; and
• (b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.]

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CA PANKAJ KUMAR MISHRA 9899407778

Sub.: Guidelines under section 194Q of the Income-tax Act, 1961 – Circular No:Circular No. 13 of 2021

• 4.4:Whether non-resident can be buyer under section 194Q of the Act?
• it is clarified that the provisions of section 194Q of the Act shall not apply to a non-resident
• whose purchase of goods from seller resident in India is not effectively connected with the permanent establishment of such nonresident in India.
• For this purpose, "permanent establishment" shall mean to include a fixed place of business through which the business of the enterprise is wholly or partly carries on.

CA PANKAJ KUMAR MISHRA 9899407778

• 4.5 Whether tax is to be deducted when the seller is a person whose income is exempt:
• 4.5.1 it is clarified that the provisions of Section 194Q of the Act shall not apply on purchase of goods from a person, being a seller, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).
• 4.5.2 Similarly, with respect to sub-section (1 H) of section 206C of the Act, it is clarified that the provisions of this sub-section shall not apply to sale of goods to a person, being a buyer, who as a person is exempt from income tax under the Act (like person exempt under section 10) or under any other Act passed by the Parliament (Like RBI Act, ADB Act etc.).
• 4.5.3 The above clarifications would not apply if only part of the income of the person (being a seller or being a buyer, as the case may be) is exempt.

CA PANKAJ KUMAR MISHRA 9899407778

• 4.6 Whether tax is to be deducted on advance payment?
• 4.6.1 It is requested to clarify if the provisions of section 194Q of the Act shall apply to advance payment made by the buyer. It is clarified that since the provisions apply on payment or credit whichever is earlier, the provisions of section 194Q of the Act shall apply to advance payment made by the buyer to the seller.
• 4.7 Whether provisions of section 194Q of the Act shall apply to buyer in the year of incorporation?
• 4.7.1 It is requested to clarifY if the provisions of section 194Q of the Act shall apply to a buyer in the year of its incorporation. It is clarified that under section 194Q of the Act a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Since this condition would not be satisfied in the year of incorporation, the provisions of section 194Q of the Act shall not apply in the year of incorporation.

CA PANKAJ KUMAR MISHRA 9899407778

• 4.8 Whether provIsIons of section 194Q of the Act shall apply to buyer if the turnover from business is 10 crore or less?
• 4.8. I It is requested to clarify if the provisions of section 194Q of the Act shall apply to a buyer who has turnover or gross receipt exceeding Rs 10 crore but total sales or gross receipts or turnover from business is Rs 10 crore or less. It is clarified that for the purposes of section I94Q of the Act, a buyer is required to have total sales or gross receipts or turnover from the business carried on by him exceeding ten crore rupees during the financial year immediately preceding the financial year in which the purchase of good is carried out. Hence, the sales or gross receipts or turnover from business carried on by him must exceed Rs 10 crore. His turnover or receipts from non-business activity is not to be counted for this purpose.

CA PANKAJ KUMAR MISHRA 9899407778

� Thanks �

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CA. PANKAJ KUMAR MISHRA

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• (FCA, FAFD, M-Com, B-Com (CS)

(CCGST(ICAI), CCIAS(ICAI), CCCAB(ICAI))

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Email: Fcapankajkumarmishra@gmail.ocm

Mobile.No :-9899407778/9988076095

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CA PANKAJ KUMAR MISHRA 9899407778