Recently, Sections 194M and 194N governing tax deduction at source (TDS) were been inserted in the Income Tax (IT) Act, 1961. I am in charge of the accounts department of a big charitable organization. I also have to take care of the personal interest of the director general. Can you throw light on these provisions? —By Sunil dated 02/12/2019 A new Section 194M was inserted in the IT Act from 1 September 2019. At present, an individual or Hindu undivided family (HUF) not liable for tax audit is not required to deduct tax from payment made to contractor, commission agent or a professional, under Section 194C, 194H or 194J of the IT Act. It is now provided in Section 194M that commission, brokerage or fees paid by any Individual or HUF to a professional or a contractor exceeds Rs 50 lakh in aggregate in any financial year, tax at the rate of 5% has to be deducted at source. If the permanent account number (Pan) of the person making payment and deducting tax at source is not available, then TDS at the rate of 20% will be deducted. This provision will apply even if the payment is for personal work. The Individual or HUF governed by Section 194M will not be required to obtain tax deduction and collection account number (Tan). The individual or HUF can use his Pan. The TDS amount will be deducted on any payment made after this date even if the contract existed before, provided the payment exceeds Rs 50 lakh. Section 194N was inserted from 1 September 2019. It provides for a bank, co-operative bank or a post office to deduct tax at source at the rate of 2% for cash withdrawn by any account holder from one or more accounts with the bank or post office in excess of Rs 1crore in a financial year. The section does not apply to withdrawal by any government, bank, co-operative bank, post office, banking correspondent, white-label ATM operators and any other persons as may be notified by the Central government. The limit of Rs 1 crore applies to all accounts of the person per bank, co-operative bank or post office. Hence, if a person has accounts in different branches of the same bank, the total cash withdrawals from all these accounts will be considered for this purpose. The TDS provision will apply to all persons, i.e., individuals, HUF, firms and companies in business or profession as also to all persons maintaining bank accounts for personal purposes. Thus, there will be no TDS up to Rs 1 crore. TDS is not treated as income of the tax payer. So credit for the TDS amount may not be available to the tax payer. If credit is not given, it is an additional tax burden on the tax payer. The Central Board of Direct Taxes clarified on 30 August 2019 that if the total cash withdrawals from one or more accounts with a bank or post office is more than Rs 1 crore up to 31 August 2019, TDS will be deducted from cash withdrawn on or after 01 September 2019 only.   Of late, the Tata trusts are in news. Please throw light on the controversy. — Wagle, e-mail In 2013, the Comptroller and Auditor General (Cag) had pointed out that two trusts, Jamsetji Tata Trust and Navajbai Ratan Tata Trust, had invested in prohibited modes of investment. The Cag noted that the income tax (IT) department had given irregular tax exemptions to these trusts. In 2015, six trusts approached the IT department seeking to surrender their registrations and gave up the tax benefits. In July 2019, the IT department served notice to the Tata Trusts for reopening assessment and questioning their decision to surrender registrations in 2015. The Tata trusts decided to contest the reopening of assessment by the IT department, claiming that, as they had already surrendered their registration, the levy of additional tax when a charitable trust converts into or merges with a non-charitable trust or transfers its assets on dissolution to a non-charitable institution cannot be applied to them. An order issued by the principal commissioner of IT on 31 October 2019 cancelled the IT registration of six Tata trusts: Jamsetji Tata Trust, RD Tata Trust, Tata Education Trust, Tata Social Welfare Trust, Sarvajanik Seva Trust and Navajbai Ratan Tata Trust. It was found that in 2001 the trusts had received corpus donation from Tata Sons in the form of shares of Orchid Print India, later known as Tata Consultancy Services. These shares were eventually sold and re-invested by acquisition of redeemable preference shares of Tata Sons. The process amounted to a violation of the provisions of Section 13(1)(d) of the IT Act. The section specifies the circumstances when tax exemption would not be available to a trust. While the IT department's order cancelled their registrations with immediate effect, the Tata trusts believed that, as a matter of law and consistent with the IT department's own decision in the past, the action should take effect from 2015, when the registrations were surrendered and the trusts themselves consented to cancellation. The trusts clarified that the order of cancellation is a culmination of the decision taken by these six trusts in 2015 to surrender, of their own volition, their registrations under the IT Act and not to claim the associated tax exemptions. I have written books. I have received royalty on them. Unfortunately, I could not file my income tax (IT) return for the financial year 2017-18 before the due date. I will be filing the return now. Though I am prepared to give certificate of royalty income, my chartered accountant (CA) says he will not give me the benefit in the tax audit report. Why is he saying so? — Anand dated 27/11/2019 In computing the total income, deductions as specified in Sections 80C to 80U of the IT Act, 1961, are allowed from the gross total income. The aggregate deductions should not exceed the gross total income of the tax payer. Deduction of certain income under Sections 80-IA, 80IAB, 80IAC, 80IB, 80IBA, 80IC, 80IE, 80JJA, 80JJAA, 80LA, 80P, 80PA, 80QQB and 80RRB of the IT Act is allowed only to the extent to which such income is included in the gross total income of the tax payer. The claim should have been made in the return of income, under Section 80AB. Certain deductions are linked to the claim of deduction in the return and filing of the return of income. While tax is levied on the royalty income, deduction can also be claimed under Section 80QQB of the IT Act by authors to save tax. To avail of Section 80QQB deduction, the individual claiming the deduction must be a resident in India or resident but not ordinarily resident in India. The individual must have authored or co-authored a book that falls under the category of literary, artistic or scientific work. The individual must file his return to claim the deduction. If an individual has not received a lump-sum amount, 15% of the value of the books sold during the year before allowing any expenses should be ignored. The individual must obtain Form 10CCD from the person responsible for making the payment. Though you have given certificate of royalty (Form 10CCD), you have failed to file your return of income within the due date. From assessment year 2018-19 (financial year 2017-18), an additional condition has been added: the return of income must be filed within due date. Therefore, your CA has rightly disallowed you the benefit in the tax audit report. Deduction under No deduction allowed unless Sections 80IA to 80RRB (deductions for certain incomes) Return of income is filed on or before the due date under Section 139 (1) along with the relevant audit report, as per  Section 80AC. Sections 10AA and 80IA to 80RRB covering deductions of certain incomes No deduction is allowed unless the claim is made in the return of income, under  Section 80A(5). I am a reasonably successful practicing homeopath. But I have not deducted tax at source for certain payments. Briefly explain the disallowance provisions applicable for tax deduction at source (TDS). —By Merchant dated 26/11/2019 Any sum payable to a resident on which tax is deductible at source is disallowed to the extent of 30% of such sum, according to Section 40(a)(ia) of the Income Tax (IT) Act, 1961, if the tax payer fails to deduct tax at source or deducts tax at source but has not paid the amount before the due date for filing the return of income, as under Section 139(1) of the IT Act. When tax is deducted in any subsequent year or when the tax deducted in the previous year is paid after the due date for filing the return of income, 30% of such sum, earlier disallowed, is allowed as a deduction in computing the income of the previous year in which such tax has been paid. Interest is payable if the person responsible for deducting tax at source does not deduct tax at source or, after deducting tax, he fails to pay the amount, as required by the IT Act. Interest is levied at 1% from the date on which tax was deductible to the date on which tax is actually deducted or 1.5% from the date on which tax was actually deducted to the date on which tax is actually paid. The Finance Act, 2012, has provided relief for default in tax deduction with effect from 1 July 2012. When a tax payer fails to deduct tax at source wholly or partly, disallowance of expenditure under Section 40(a) (ia) is not attracted if the resident payee has furnished his return of income under Section 139 of the IT Act, has taken into account such sum for computing his total income and has paid tax due on the income declared by him in such return of income. The person who failed to deduct tax at source has to furnish to the assessing officer a certificate of a chartered accountant in Form 26A that the recipient has fulfilled these conditions. In such cases, interest is payable at the rate of 1% from the date on which tax was deductible to the date of furnishing of return of income by the resident recipient. The relief has been extended to non resident recipient from the financial year 2019-20. The Central Board of Direct Taxes clarified on 16 December 2013 that it cannot be held that the word ‘payable' occurring in Section 40(a) (ia) refers to only those cases where the amount is yet to be paid as at the end of the financial year and does not cover the cases where the amount is actually paid. Irrespective of whether the sum is payable or already paid, disallowance under Section 40(a) (ia) applies. Provisions of Section 40(a) (ia) do not apply when there is shortfall in deduction of tax at source. Deduction of tax at a lower rate instead of at a higher rate will be considered as a mere difference of opinion. Hence, there will be no disallowance under Section 40(a) (ia) on this account. The replies are only in the nature of guidelines. The tax counsellors and the publication are not responsible for any decision taken by readers on the basis of the same.
Readers may e-mail their queries on direct taxation to: tax-matters@capitalmarket.com