Introduction to Income Tax Section 194I and TDS

SECTION 194I, SECTION 194I,194IA AND OF THE OF THE 194IA AND 194IB, 194IB, INCOME TAX ACT,1961 INCOME TAX ACT,1961 WITH PROCEDURES THEREON WITH PROCEDURES THEREON

Index Introduction Definition Features and Brief overview Sections and Rules Transaction with applicable rate Procedure and Proceedings Duties & Responsibilities Examples Relevant Case Laws Conclusion

TDS: TAX DEDUCTED AT SOURCE :- In order to safeguard the government revenue and also to receive Tax in regular manner the Central Government has fixed a mechanism as suggested and implemented inspite of payment of tax after self assessment or after fixation of estimated income by the assesse to deduct tax by the payer at the time of generation of Income or credit of Income in favour of the beneficiary. Definition :- Income : Section 2(24): Chapter XVII

194I Rent At the time of credit or payment, whichever is earlier, when the amount exceeds Rs. 2,40,000/- 10% If rent is for land, building or furniture(20% if no Valid PAN) 2% If the rent is for Machinery, Plant or Equipment(20% if no Valid PAN) 194IA Payment on transfer of certain immovable property other than agriculture land. At the time of credit or payment, whichever is earlier, when the land is situated in specified area when amount equal to or exceeds Rs. 50 lacs 1% (20% if no Valid PAN) 194IB Rent payable by an individual or HUF not covered u/s. 194I (W.E.F. from 01.06.2017) Tax shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a chequeor draft or by any other mode, whichever is earlier. Threshold limit Rs. 50,000/- per month. TDS to be deducted @ 5% TDS on rent made applicable to Individual / HUF even if no Tax Audit is applicable thereon. W.E.F. 01.10.2024 RATE IS REPLACED BY 2%

194L Payment of Compensation on acquisition of Capital Asset Omitted w.e.f 01.06.2016 as Section was non-operational 194LA Payment on transfer of certain immovable property other than agricultural land (Read Note-8) At the time of credit or payment whichever is earlier if amount exceeds Rs. 250000 10% (20% if no Valid PAN) 194LB Payment of interest on infrastructure debt fund to non-resident or foreign company At the time of credit or payment whichever is earlier 5%# (20% if no Valid PAN) Sec 194LBC Income in respect of investment in securitisationtrust. (From 01.06.2016) 25% For Residents individual or HUFs and 30% For other Residents 40% For Non Residents Companies and 30% For Non Residents other than Company 194LBA Certain income from units of a business trust(applicable from 01.10.2014 At the time of credit or payment whichever is earlier 10% # (20% if no Valid PAN) 194LBA 194LBA Certain income from units of a business trust to non-resident (applicable from 01.10.2014) At the time of credit or payment whichever is earlier 5%# (20% if no Valid PAN) 194LBB (See note-10) Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)] shall deduct tax therefrom At the time of credit or payment whichever is earlier 10% (20% or Rate Applicable whichever is higher if no Valid PAN)

194LC Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond) At the time of credit or payment whichever is earlier 5%# Concessional rate of five per cent TDS on interest payment under this section will now be available in respect of borrowings made beforethe 1st July, 2020. Read- Extension of period of concessional tax rate on intereston ECB 194LD (See note- 9) Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor At the time of credit or payment whichever is earlier 5%# 195 Other Sums At the time of credit or payment whichever is earlier Average rates as applicable (See Note 17 & 18) 196A Foreign comp unit holder of MF At the time of credit or payment whichever is earlier 10 % In case of a Company 20% In the case of a person other than a company 196B Income from units (including long-term capital gain on transfer of such units) to an offshore fund At the time of credit or payment whichever is earlier 10% (20% if no Valid PAN) 196C Income from foreign currency bonds or GDR (including long- term capital gains tax on transfer of such bonds) (not being dividend) At the time of credit or payment whichever is earlier 10% (20% if no Valid PAN) 196D Income of FIIs from securities At the time of credit or payment whichever is earlier 20% (20% if no Valid PAN)

Section :194I Section :194I- - Payment of Rent Payment of Rent Rule 28,28AA,28AB,30,31,31A,37BA Deductor: Any person except Individual and HUF and under certain conditions Individual and HUF whose Turnover during the immediate preceding Year exceed Rs.1 crore and in case of Profession exceed Rs.75 lac. Deductee : Any Resident

Rent means any payment, by whatever named called under any Lease, Sub Lease, Tenancy or any other Agreement for Arrangement for the use of (either separately or together) any- Land; or Building (including Factory or Building) Land appurtenant thereto a Building (including Factory or Building) or Machinery or Plant or Equipment or Furniture or Fittings Rate of Deduction: 10%,2% & 20%

194IA 194IA Who Is liable to deduct tax: Who Is liable to deduct tax: Any Transferee Person as defined U/s 2(31) of the Act liable to pay the consideration to the Resident Transferor and not covered U/s 194LA. Subject matter: Subject matter: Transfer of Immovable property other than Agricultural land A Agricultural Land: gricultural Land: means Agricultural land in India not being a land situated in area referred to item (a) and (b) of Section 2(14)(iii) which implies Agricultural land situate other than in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand;

or not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Threshold limit: Transaction price or circle value Rs.50 Threshold limit: Transaction price or circle value Rs.50 lacs Here provision U/s 203A is not applicable i.e. no need to obtain TAN. lacsand above and above Who is called as Deductee

Meaning of Immovable Property: The terms have been defined at various places. Section 194-IA of The Income Tax Act, 1961 Immovable property means any land (other than agricultural land) or any building or part of a building situated in India Section 269UA of The Income tax Act, 1961 Immovable property means i. any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation. For the purposes of this sub-clause, land, building, part of a building, machinery, plant, furniture, fittings and other things include any rights therein ii. any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein) which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a cooperative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building 12) Se

T Therefore, there would be no requirement of deducting Tax at Source under section 194-IA on payments made by a transferee to a Confirming Party Confirming Party , as he is not the transferor of immovable property as defined under section 194-IA. Further ITO v. Yasin Moosa Godil [2012] 20 taxmann.com 424 (Ahd. ITO v. Yasin Moosa Godil [2012] 20 taxmann.com 424 (Ahd. Trib. transfer of booking rights in a flat is not transfer of land or buildings or both . It appears that transfers of interest as above shall not attract TDS Further in Dy. CIT v. Tejinder Singh [2012] 19 taxmann.com [2012] 19 taxmann.com 4/50 SOT 391 (Kol. 4/50 SOT 391 (Kol. Trib.) Trib.), the Tribunal held that the phrase land or buildings or both will not include rights in land or buildings or both such as tenancy rights. In . Trib.), it was held that Dy. CIT v. Tejinder Singh When TDS is not applicable When TDS is not applicable a. The immovable property transferred is a rural agricultural land. b. The immovable property has been compulsory acquired under any law. c. The total amount of consideration for the transfer of immovable property is less than Rs.50,00,001/- d. Where the transferor is a Non-Resident. In this case section 195 will be attracted.

194IB Payment of Rent by certain Individuals or HUF Payment of Rent by certain Individuals or HUF Rule 30,31,31A and 37BA Deductor: Individual and HUF other than person covered U/s 194I Deductee : Any Resident Threshold limit : Rent exceeds Rs.50,000/- P.M. Rate - 5% TILL 30.09.2024,W.E.F. 01.10.2024 RATE IS 2% No need to obtain TAN by the Deductor

194N Payment of certain amount in Cash Relevant Rule 30,31,31A,37BA and 37BB Circular no.14/2020 dt.20.07.2020 Deductor :- A banking Company, Co-Operative Society engaged in carrying on banking business or a Post Office Deductee :- Any person except a banking Company or Co-operative bank or Any White level automated teller machine operator of a Banking Company or Co-operative bank engaged in such Banking business Rate of TDS: 2% Threshold limit: Cash withdrawals from the bank over Rs.1 crore in any F.Y. and Rs.3 Crore for a simple co- operative society If the cash recipient has not filled its return of income for last three consecutive years which is evident from the date where the time period to file the Return of Income as envisaged U/s 139(1) of the Act has already been expired the threshold limit is reduced to Rs.20 lac and the TDS rate is replaced by 5%

Aggregate amount of Cash Withdrawal If the recipient has Filed return has not Filed for ALL of the 3 Return of Income previous years If the recipient for ALL of the 3 previous years Upto Rs. 20 Lakhs More than Rs. 20 Lakhs but upto Rs. 1 Crore More than Rs. 1 Crore NIL NIL 2% NIL 2% 5% Applicable to both Resident and Non Resident

194LA Payment of Compensation on acquisition of certain immovable property other than agricultural land Rule: 28,28AA,28AB,30,31,31A AND 37BA At the time of credit or payment whichever is earlier if amount exceeds Rs.2,50,000/- 10% (20% if no Valid PAN) Act not administered to the person who is covered in respect of any award or agreement which is absolutely exempted from the payment of Income Tax u/s 96 of the Right to Fair compensation and Transparency in Land acquisition, Rehabilitation and Resettlement Act 2013

Agricultural land implies any agricultural land situated in any where in India whether in urban area or not . Enhanced Compensation is also under the head Compensation

Guidelines for handling issues related to applications received u/s 197: In order to streamline the procedure of handling the applications received u/s 197 and disposing the same in a time bound manner in consonance with the Citizens charter, the commissioner of Income tax (TDS) has issued certain guidelines for the Assessing Officers. In a nutshell, these guidelines make it mandatory for the Assessing Officer to dispose of the applications u/s 197 within a time frame of 30 days from the end of the month in which application complete in ALL respect is received. The section 197 strikes a delicate balance between requirement of ensuring cash flow to the taxpayer and realizing government dues at the earliest. Taxpayers are, therefore, advised to file complete details required for processing the application in the first instance itself. This will expedite the issuance of certificate u/s 197.

Section 197 of the Income Tax Act, 1961 provides for the facility of NIL deduction of tax at source or at a deduction at a Lower rate of tax. To avail of this benefit the assessee whose TDS is likely to be deducted on certain receipts should make an application before the TDS Assessing Officer who has a jurisdiction over his/ her/ its case. The assessee/ Deductee concerned may apply for a certificate for Nil or lower deduction of TDS on their receipts in Form No 13. Delays in this matter can be avoided by filing the prescribed form correctly and submitting the required details along with the form itself.

Quarter Due date for Non- Government deductor Due date for Government deductor April to June 30th July 15th August July to September 30th October 15th November October to December 30th January 15th February January to March 30th May 30th May

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