Union Budget 2023-24 + FINANCE Bill, 2023

Amendments in consequence to new provisions of TDS

Section 271C of the Act has provisions for penalty for failure to deduct tax at source. Under this section, a person who has failed to deduct whole or part of tax as required under provisions of Chapter XVII-B (Tax Deduction at Source - TDS) or pay the whole or part of tax as required under section 115-O (Tax on distributed profits) or under proviso to section 194B (tax on winnings from crossword, lottery, puzzles etc) is liable to pay penalty of sum equal to the amount of tax he failed to deduct or pay. Section 276B of the Act makes provisions for prosecution for failure to pay tax to the credit of Central Government under Chapter XII-D (as required under section 115-O) or under XVII-B (deduction at source).

2. Two new provisions – section 194R and section 194S were introduced in the Act vide Finance Act, 2022. Section 194R makes provisions for deduction of tax on benefit or perquisite in respect of business or profession. In addition, section 194BA is proposed to be inserted in the Act vide the Bill to provide for TDS on net winnings from online games.

3. Section 194S makes provisions for deduction of tax on payment on transfer of virtual digital asset (VDA) owing to their very nature, payments related to benefit or perquisite or VDA may also be wholly in kind or partly in cash and partly in kind. Accordingly, the first proviso to section 194R provides that in case the benefit or perquisite or VDA has a “in kind” component, then the person responsible shall ensure that required amount of tax has been paid, before releasing the benefit or perquisite.

4. In the case of VDA, since the consideration for transfer could be in exchange of another VDA (fully “in kind”) or partly in kind, the first proviso to section 194S provides that the person responsible for paying the consideration shall ensure that the required amount of tax has been paid, before releasing the consideration.

5. Similarly, in the case of winnings from online games, sub-section (2) of the proposed section provides that where the net winnings are wholly in kind or partly in cash and partly in kind, the person responsible for paying the net winnings shall ensure that tax has been paid in respect of the net winnings, before releasing the winnings.

6. Presently, the provisions for penalty and prosecution do not clearly mandate a penalty or prosecution for a person who does not pay or fails to ensure that tax has been paid in a situation where the benefit or perquisite is passed in kind. Therefore, to enable such penalty and prosecution, it is proposed to amend section 271C inserting two new sub- clauses under clause (b) in sub-section (1) providing reference to the first proviso to section 194R and the first proviso to section 194S. Similar amendments are also proposed in section 276B. Drafting changes are also proposed in the section to align the language with the parent provisions.

7. These amendments will take effect from the lst day of April, 2023.

8. Further, in consequence to the proposal to insert section 194BA in the Act, it is proposed to insert a new sub-clause under section 271C and section 276B providing reference to sub- section (2) of section 194BA.

9. This amendment will take effect from the 1st day of July, 2023.

[Clauses 113 & 119]

 

---

Full Text:

Union Budget 2023-24 + FINANCE Bill, 2023

TDS compliance: failing to ensure tax on in kind benefits, VDAs and online winnings invites penalty and prosecution. Amendments add references to the first provisos of Section 194R and Section 194S and to subsection (2) of proposed Section 194BA into Section 271C (penalty) and Section 276B (prosecution), thereby making failure to deduct or to ensure payment of tax where benefits, virtual digital assets or online-game winnings are wholly or partly in kind subject to penalty equal to the tax not deducted or paid and to prosecution; drafting changes align language with parent TDS provisions and the amendments have staged commencements.