Detailed Analysis of Amendments Proposed in the Finance (No. 2) Bill, 2024 on TDS and TCS

The Finance (No. 2) Bill 2024 introduces several significant amendments aimed at rationalizing and simplifying the provisions related to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). These changes are intended to enhance ease of doing business, ensure better compliance, and address various issues faced by taxpayers. This article provides a comprehensive overview of these proposed amendments.

1. Rationalisation of TDS Rates

The Finance Bill 2024 proposes a reduction in the TDS rates for various sections to streamline compliance and ease the tax burden on taxpayers. Key changes include:

• Section 194D (Insurance Commission): TDS rate reduced from 5% to 2%, effective from April 1, 2025.

• Section 194DA (Life Insurance Policy Payments): TDS rate reduced from 5% to 2%, effective from October 1, 2024. 

• Section 194G (Commission on Lottery Tickets): TDS rate reduced from 5% to 2%, effective from October 1, 2024. 

• Section 194H (Commission or Brokerage): TDS rate reduced from 5% to 2%, effective from October 1, 2024. 

• Section 194-IB (Rent Payments by Individuals or HUF): TDS rate reduced from 5% to 2%, effective from October 1, 2024. 

• Section 194M (Payments by Individuals or HUF): TDS rate reduced from 5% to 2%, effective from October 1, 2024. 

• Section 194-O (Payments by E-commerce Operators): TDS rate reduced from 1% to 0.1%, effective from October 1, 2024. 

• Section 194F (Repurchase of Units by Mutual Funds or UTI): This section is proposed to be omitted effective from October 1, 2024. 

2. Ease in Claiming Credit for TCS Collected/TDS Deducted by Salaried Employees

To alleviate cash flow issues for employees, the Bill proposes amendments to allow credit for TCS paid and all TDS deducted to be considered when computing the tax deduction on salary income. This aims to reduce the need for employees to claim refunds and simplify compliance. The amendment will take effect from October 1, 2024.

3. Alignment of Interest Rates for Late Payment to Government Account of TCS

The interest rate for late payment of TCS to the government account is proposed to be increased from 1% to 1.5% per month or part thereof. This amendment aligns the interest rate with the provisions for TDS and will take effect from April 1, 2025.

4. Claiming Credit for TCS of Minor in the Hands of Parent

To address issues related to TCS for example on funds remitted in the name of minors, the Bill introduces a provision allowing credit for TCS to be claimed by the parent if the minor`s income is clubbed with the parent`s income. This amendment ensures proper tax credit allocation and will take effect from January 1, 2025.

5. TCS on Notified Luxury Goods

Sub-section (1F) of Section 206C is amended to extend TCS to luxury goods exceeding a value of ten lakh rupees, as notified by the Central Government. This measure aims to track high-value transactions and broaden the tax base. The amendment will take effect from January 1, 2025.

6. Amendment of Provisions for TDS on Sale of Immovable Property

Section 194-IA is amended to ensure that TDS applies based on the aggregate amount paid by all transferees in cases where there are multiple buyers. This amendment addresses misinterpretations and ensures that the intended tax is collected. The amendment will take effect from October 1, 2024.

In Section 194-IA of the Income-tax Act, in sub-section (2), the following proviso shall be inserted with effect from the 1st day of October, 2024, namely:––

“Provided that where there is more than one transferor or transferee in respect of any immovable property, then the consideration shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for transfer of such immovable property.”.

7. TDS on Floating Rate Savings (Taxable) Bonds 2020

The Bill proposes amendments to Section 193 to include TDS on interest payments exceeding ten thousand rupees on Floating Rate Savings Bonds 2020 (Taxable) and specified government securities. This amendment will take effect from October 1, 2024.

8. Inclusion of Taxes Withheld Outside India for Calculating Total Income

Section 198 is amended to include taxes withheld outside India for calculating the total income of an assessee. This ensures that income is not underreported and prevents double deductions. Section 198 of the Act provides that all sums deducted (tax deducted), in accordance with the provisions of Chapter XVII-B shall, for the purpose of computing the income of an assessee, be deemed to be income received.

It was seen that some assessees are not including taxes withheld outside India for the purposes of calculating their total income which was leading to under reporting of total income as only their net income was being offered for taxation. However they were claiming credit for the taxes withheld abroad resulting in double deduction on account of income not being included in total income but credit for foreign taxes withheld was being taken.

In order to address this issue, it is proposed to amend section 198, to provide that all sums deducted in accordance with the provisions of Chapter XVII-B and income tax paid outside India by way of deduction, in respect of which an assessee is allowed a credit against the tax payable under the Act, are for the purpose of computing the income of the assessee, deemed to be income received.

The amendment will take effect from April 1, 2025.

9. Excluding Payments under Section 194J from Section 194C

To avoid confusion, the Bill explicitly excludes payments covered under Section 194J from the definition of "work" in Section 194C. This ensures that the correct TDS rates are applied and will take effect from October 1, 2024.

10. Amendments in Section 276B for Rationalisation

The Bill provides for exemption from prosecution under Section 276B if the deducted tax is paid before the due date for filing the quarterly statement. This aims to reduce undue hardship and encourage timely compliance. The amendment will take effect from October 1, 2024.

11. Reducing Time Limitation for Orders Deeming Assessee in Default

The time limit for deeming an assessee in default for not deducting or collecting tax is reduced to six years from the end of the financial year in which payment is made or credit is given or tax was collectible or two years from the end of the financial year in which the correction statement is delivered, whichever is later.

This amendment provides certainty and will take effect from April 1, 2025.

12. Extending Scope for Lower Deduction/Collection Certificate

Sections 197 and 206C are amended to include provisions for lower deduction/collection certificates for sections 194Q and 206C(1H). This aims to reduce compliance burdens and provide flexibility to taxpayers incurring losses. The amendment will take effect from October 1, 2024.

13. Exemption from TCS for Certain Entities

A new provision allows the Central Government to notify exemptions from TCS for specified persons or institutions whose income is exempt from taxation. This addresses difficulties faced by such entities and will take effect from October 1, 2024.

14. Time Limit for Filing Correction Statements

To ensure finality in the filing process, the Bill introduces a six-year time limit for filing correction statements for TDS/TCS. This amendment aims to prevent indefinite revisions and misuse of the provisions. The amendment will take effect from April 1, 2025.

15. Penalty for Failure to Furnish Statements

The time limit for filing TDS/TCS statements without penalty is reduced to one month from the due date. This amendment ensures timely compliance and reduces discrepancies in tax returns. The amendment will take effect from April 1, 2025.

Conclusion

The amendments proposed in the Finance (No. 2) Bill 2024 reflect a significant effort to simplify the tax deduction and collection process, improve compliance, and address issues faced by taxpayers. By rationalizing TDS and TCS rates, providing clarity on various provisions, and introducing measures to ensure timely compliance, the government aims to create a more efficient and taxpayer-friendly environment. These changes are expected to have a positive impact on both taxpayers and the overall tax administration in India.