TDS on rent payment exceeding Rs. 50k by individuals / HUFs from FY 17-18

TDS on rent payment exceeding Rs. 50k by individuals / HUFs from FY 17-18

 

·         CBDT notifies operating rules and forms with respect to Sec. 194IB (inserted by Finance Act, 2017)  to provide for TDS on rent payment exceeding Rs. 50,000 for a month by individuals or HUF w.e.f June 1, 2017

·         Notifies new challan-cum-statement in Form No. 26QC to be furnished electronically by the deductor

·         Prescribes 30 days period (from the end of the month in which the deduction is made), for depositing TDS with Government and for furnishing Form 26QC

·         Notifies TDS certificate in Form No. 16C to be furnished to the payee within 15 days from the due date of furnishing Form No. 26QC

·         Amends Rules 30, 31 and 31A (relating to time and mode for - TDS deposit, TDS statements / TDS certificate furnishing)

Link to Notification & Format of Form 26QC is as follows:

https://drive.google.com/open?id=0B9NaQTAkeZWsRHJTZGNiSFNDaGs

Sec 194IB is enclosed for your ready reference:

Payment of rent by certain individuals or Hindu undivided family:

194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent of such income as income-tax thereon

(2) The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section

(4) In a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be

Explanation.—For the purposes of this section, "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both

Lump-sum contribution to defined benefit superannuation plan not taxable to employees

The Royal Bank Of Scotland, N.V 

 

Recently, the Authority for Advance Rulings (AAR) in the case of Royal Bank of Scotland (the Applicant) held that lump sum contribution (based on actuarial valuation) by the employer to an employee’s Defined Benefit Superannuation Scheme is not taxable in the hands of each employee. 
 

In its ruling, the AAR has placed reliance on the Supreme Court ruling in the case ofL.W. Russel and the Delhi High Court rulings in the case of Mehar Singh Sampuran Singh Chawla and Yoshio Kubo. 
 

Facts of the case:

 

·         The Applicant is a bank incorporated in the Netherlands and had a branch office in India which qualifies as a permanent establishment.
 

·         The Indian branch had established a Defined Benefit Superannuation Scheme for the purpose of providing pension to its eligible employees.
 

·         The Scheme was approved under the Income-tax Act, 1961 (the Act).
 

·         As per the Accounting Standard 15, under the ‘Defined Benefit Scheme’, benefits to be received upon retirement are clearly defined in the rules of the scheme i.e.,employees are assured of their pensions and the risk of generating enough return lies with the employer.
 

·         The branch office made a lump sum contribution into the Scheme based on actuarial valuation. Given the nature of the defined benefit Scheme, it is not possible to derive the contribution on a per employee basis.
 

 Issue before the AAR:

 

Whether the lump sum contribution is taxable in the hands of the employees and whether the employer is required to withhold tax on the same, under Section 192 of the Act?
 

AAR’s Ruling:

 

·         The AAR observed that the employee does not get a vested right at the time of contribution to the fund by the employer. The amount standing to the credit of funds like the pension fund,medical or health insurance would continue to remain invested till the time the employee becomes entitled to receive it.
 

·         The AAR relied on the Supreme Court ruling in the case of L.W. Russel and held that the employee must have a vested right in the amount, and contingent payments to which the employee has no right till the time contingency occurs,cannot be taxable.In other words, where the amount does not result in direct present benefit, but assures the employee of a future benefit, in event of contingency , the payment made by the employer does not vest in the employee.
 

·         The AAR also relied on the Delhi High Court rulings in the case of Mehar Singh Sampuran Singh Chawla and Yoshio Kubo in this regard.
 

·         Thus, the AAR in the subject ruling, held that the employer’s contribution to the Scheme is not taxable in the hands of the employees. Accordingly, the employer is not obliged to withhold any tax on the lump sum payment to the concerned superannuation fund 
 

Conclusion: 
 

Section 17(2)(vii) of the Act specifies that the amount of any contribution to an approved superannuation fund by the employer in respect of the employe e, to the extent it exceeds INR 1 lakh,is to be considered as a taxable perquisite in the hands of the employee. 
 

However, an issue arises in a Defined Benefit Scheme where any lump sum contribution by the employer to the superannuation fund, cannot be allocated to each employee superannuation fund account.The present decision of the AAR offers some guidance on this issue, whereby the AAR has held that such lump sum contributions (based on actuarial valuation) should not be taxed in the hands of the employees. 
 

Even though the decision of the AAR is legally binding, only on the parties involved in a particular case, the ruling would have a persuasive value in similar matters before the Indian tax authorities and courts.
 

 

Link:http://aarrulings.in/it-rulings/uploads/pdf/1400137046_964-royal-bank-of-scotland.pdf