Online TDS/TCS return filling and related compliance – (Analysis of Section 194E)
Introduction: In era where technology as substantially replaced the usage of man-power; our portal provides service where on the basis of raw data our experts will ensure all the TDS and TCS compliance including filling of returns. In this article we will analyze section 194E of Income Tax Act, 1961 along with relevant illustration.
Which are the persons that are required to deduct TDS under section 194E?
According to section 194E of Income Tax Act, 1961; if any person is making payment in respect of income and person referred under section 115BBA of Income Tax Act, 1961; than in that case payer will be liable to deduct TDS on such payment.
What is Section 115BBA?
In case if any person who is
- Sportsman (including an athlete) and
- not a citizen of India and
- non- resident and
he is receiving income by way of participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BBA) or sport; or advertisement; or contribution of articles relating to any game or sport in India in newspapers, magazines or journals; than in that case TDS will be deducted at the rate of 20% on amount paid.
or in case if amount is paid or payable or guaranteed to be paid to any person
- who is non-resident sports association or institution,
- in relation to any game or sport played in India (not being in nature of betting/gambling or lottery);
in this case also TDS will be deducted at the rate of 20% on amount paid.
or in case if person who is an entertainer, and
- who is not an Indian citizen and,
- who is non-resident,
than in this case TDS will be deducted at the rate of 20% of income received or receivable from his performance.
Whether the person whose TDS is deducted under section 194E will be liable to file return?
In case if person whose TDS is deducted under section 194E will not be liable to file return of income in case if both the conditions are simultaneously fulfilled.
- During that relevant previous year, he has only income which is covered under section 115BBA (as described above)
- and relevant TDS has also been deducted from such amount.
Which form is to be furnished as TDS return?
If person has deducted TDS under section 194E, then such person will be liable to furnish Form 27Q. Such form is to be furnished by deductor on quarterly basis.
What is the threshold limit and rate of deduction?
As per section 194E TDS is required to be deducted irrespective of quantum of amount.
Important Points to be Noted:
- In above case where person is receiving income as specified under section 115BBA than he will not be allowed to deduct any expenditure in respect of earning such income, or any deduction allowed under chapter VI-A of Income Tax Act 1961; neither the person will be allowed to set-off losses nor basis exemption limit will be applicable to such person; Flat rate of 20% is to be followed for taxation of such Income.
- It shall be noted that even in case if payment is to non-resident section 195 will not be applicable as section 194E will override that section and other section.
- Further, the TDS rate will be added with applicable cess and surcharge.
Whether person will have option to go for normal taxation scheme?
No. Person will not have option to go for normal taxation for income specified under section 115BBA as such provision is to be mandatorily applicable.
Can assessee reduce the rate of taxation?
Under section 194E it has been provided that applicable rate of tax will be 20%, it shall be noted that assessee cannot apply to assessing officer for no TDS or TDS at lower rate under Section 197 by filling form-13.
What will be time when TDS is required to be deducted?
TDS will be required to be deducted at time of payment or crediting account of payee in books of payer whichever is earlier.
What if such amount is credited to suspense account?
In case even if amount is credited to suspense account or account of any name, then in that case it is considered as credited to account of payee and TDS will be required to be deducted at time of such credit.
Illustrations : Mr. R has is an Indian resident non-citizen; as he is playing in football team; during the year he has received Rs. 2,00,000/- in financial year 2020-21 from one the American agencies in respect of matches played in USA. Whether such American Agency will be liable to deduct TDS? How Income will be taxed in hand of Mr. R.
It shall be noted that provision of deduction of TDS is applicable to any person; but applicability of Income Tax Act, 1961; is restricted to India therefore, such American agency will not be liable to deduct TDS.
Further if the person is resident than in that case his global income is taxable in India; further as per section 115BBA (Special rate of tax) is applicable only to Non-resident being Non-citizen; therefore; Mr. R will be liable to tax in respect of such income at normal rate; where he can avail the basic exemption limit and no tax will be paid in this as the amount is less than basis exemption limit.
What if Mr. R was Non-resident?
- If Income is received in India: In that case only change will be, in taxability of Income of Mr. R. As per section 115BBA (Special rate of tax) it is applicable to Non-resident being Non-citizen; and therefore; Mr. R will be liable to tax in respect of such income at special rate of 20% to be increase by appropriate rate of surcharge and cess. In above case total tax payable will be Rs. 41,600/- (being Rs. 2,00,000/- *20% which will be Rs. 40,000/- to be increased by 4% cess rate, totaling to Rs. 41,600/-). It shall be noted that person will not be eligible for rebate as rebate will be available only to residents.
- If Income is received outside India: As income is received outside India and matches are also played outside India; none of the event (i.e., of accrual and receipt arises in India) income will not be taxable in India.
What if Mr. R is Non-resident and Income is received in India but he wants Income to be taxed at normal rate?
Section 115BBA is mandatorily to be followed; if person is falling under the preview of said section than in that case it is to be mandatorily followed by him; Mr. R will not have option to taxed such income at normal rate.
What if the Mr. R was a referee of the match and not the player?
In said case it is we established position of law that section 115BBA will not be applicable as it applicable only to any person other than sports man. Therefore, such income will be taxed as if it is normal income.
This are all the questions relating to section 194E which may arise to assessee.