The finance minister in her 2023 budget announced, that the intention of government is to maintain continuity as well as simplify taxation and reduce the burden of compliance for the taxpayers. Listed below are some of the key proposed amendments related to TDS and TCS:
I. TDS Amendments
- Section 194BA –Tax provisions for income derived from online gaming
With effect from 1 April 2023, the Indian government proposes to introduce specific sections for TDS. The payer must deduct TDS at 30% of the net winnings at the end of the financial year or at the time of user withdraws the same.
It is clarified that TDS would be deducted on every rupee earned after deduction of any charges paid as entry fees. Hence, the threshold of INR 10,000 would not be applicable while deducting TDS on income derived from online gaming.
Further, it is clarified that the TDS will apply at the time when there is a withdrawal of such net winnings from the account of the individual on the ‘withdrawn amount’. In case of any unwithdrawn amount in the individual’s account, TDS will be deducted on this unwithdrawn amount at the end of the Financial Year.
- Section 196A – Benefit related to tax treaty rate
In the case of income earned by a non-resident in India from units of mutual funds, TDS needs to be deducted at 20%. However, from 1 April 2023, a non-resident could avail the lower tax rate available in the tax treaty by providing such a tax residency certificate.
- Section 192A – Relaxation provided for employees not having a PAN
From 1 April 2023, employees will receive the accumulated balance of their provident fund after tax deduction @ 20% as opposed to the current MMR (Maximum Marginal Rate) where such employee has not furnished PAN.
- Section 193 – Deduction of tax on interest on specified securities
Earlier individuals unintentionally missed reporting the interest income earned from specified securities in their income tax returns due to the non-deduction of TDS.
From 1 April 2023, tax is to be deducted from the interest payable on listed securities in dematerialized form. This amendment would ensure accurate disclosures in the income tax returns and allow the Indian government in collecting the due taxes.
- Section 194N – Limit enhanced for Cooperative Society
From 1 April 2023, in case of cash withdrawals by the co-operative societies, the threshold for TDS is now increased to Rs. 3.00 Crore from Rs. 1.00 Crore as earlier.
- Section 194R – Clarification for deductibility of TDS on benefits or perquisites
In the Budget 2023, it was clarified that the TDS is to be deducted whether the perquisite or benefit is in cash or in kind or whether it’s partly in cash and partly in kind. The alike amendment has also been proposed under Section 28(iv).
- New Section 155(20) – Credit of TDS in the year when income is offered to tax
Where an assessee reports the income on an accrual basis in a year but the tax on such income is deducted in the subsequent financial year, it causes tax credit mismatches. Such an assessee from 1st October 2023 could make an application for claiming the credit in the financial year in which such income is offered to tax. Such an application needs to be raised within two years of the financial year in which the tax credit is reflected.
II. TCS Amendments
- Section 206C(1G) – TCS rate enhanced on some remittances abroad
Tax is now to be collected at 20% as opposed to 5% in cases under Liberalized Remittance Scheme and Overseas Tour Packages. Though, the TCS on remittances related to medical and education of more than Rs. 7.00 lakh will continue to attract 5%. Additionally, in case remittance of more than Rs. 7.00 lakh is done for the educational purpose from loans obtained from the financial institution, the rate of 0.5% stays unchanged. These amendments would be applicable from 1st July 2023.
TDS on Hotel Accommodation – Section 194I of the Income Tax Act