With TDS and TCS in hand, taxman is closely watching a bunch of transactions

Of the 13 new provisions meant to check tax avoidance, five deal with taxes deducted or collected at source (TDS or TCS), expanding the range of transactions tracked by the Income Tax department. Although TDS rate has been lowered in the case of seven transactions and omitted in the case of one, this tool will now be deployed more widely for greater oversight of transactions.

Revenue secretary Sanjay Malhotra told Mint in an interview that 13 specific steps aim to prevent tax avoidance and widen the tax base. The measures seek to bring greater clarity on provisions, expand oversight of transactions and plug loopholes.

No longer work

Fees paid to an Indian for professional or technical services which are covered under section 194J of the Income Tax Act, will no longer constitute ‘work’ which is covered under a separate section-194C. The TDS rate in the former section ranges from 2-10% under different classes of payments, while it is 1-2% in the case of the latter. The change means more types of work will come under the higher-tax category.

Again, TDS will be now levied on interest earned above ₹10,000 on floating rate savings bonds issued by the government or any other security to be notified.

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Property transactions have historically been a source of tax evasion and black money. Many property transactions attempted to stay below the TDS radar by splitting up buyers. The Finance Bill sought to check this evasion by proposing that while selling non-agricultural land valued at ₹50 lakh or more, the total amount paid by all buyers to the seller will be considered while calculating TDS liability.

The Finance Bill says income from house property can no longer be shown as business income. Also, henceforth, only individuals or Hindu Undivided Families (HUFs) will get to enjoy the capital gain tax exemption on transfer of capital assets under a gift or will or an irrevocable trust.

“Tax on the share buyback amount in the hands of the shareholder as dividend will generate some revenue. Certain people were classifying rental income from residential houses as business income. That has been clarified to be income from house property, because if it is shown as business income, the net profit available for taxation gets lower," the revenue secretary explained, quoting provisions in the Bill. Payments to partners in partnership firms will also attract TDS, said Malhotra.

Scope for simplification

Experts said that there is scope for simplification and reduction of compliance burden with respect to TCS and TDS.

“Where the same information is already available in the public domain, or with another regulatory agency—for example, GST creates a trail of transactions—then there should not be any need for deducting or collecting tax at source," said Ved Jain, tax expert and former president of Institute of Chartered Accountants of India (ICAI).

Among anti-avoidance measures, the Finance Bill also proposed a valuation method for unlisted equity shares being offered to the public, clarified that non-business expenditure of life insurers that is not allowed as a deduction have to be added back to their profits and gains and that claim settlement amounts for any contravention of law as notified by government will not be allowed as a business expenditure.