Section 115A recent amendment, the logic & reasoning behind it vague?
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The Financial Budget 2013bringing in many changes that are proposed to be implemented from 1st April, 2013 has bought in serious issues to be looked for and analysed by the tax regulators and experts.
Section 195 of the Income Tax Act, 1961 states that: The income earned by non-residents in the form of royalties, technical fees etc. is subjected to TDS by the person who is responsible to make such payment to the non-resident Assessee. The section doesn’t mention any rate at which the TDS is to be done by the person liable to make the payment. Thus for the rate we refer to the section prescribed for the same i.e. Section 115A. Section 195 states that such a income is to be taxed at the higher of the following rates:
a. The Rate in Force.
b. The rate given under Section 115A.
c. Section 206AA- 20% for non-PAN card holders.
Previously the rate prescribed in this section was 10% which was similar to the rate given in thetreaty between India and the foreign nations (most of the treaties give the rate of 10%). This rate was reasonable for the following reasons:
1. This rate wasn’t contradicting the rate as given by the treaty.
2. In case of a non-resident not holding a PAN he was covered under Section 206AA by which the rate applicable to the income earned by the assessee was 20%.
Thus incase of a assesse not having his PAN, which is considered to be a mandatory requirement for all assessed under the Act a higher rate of 20% is prescribed. This is a penalising provision for non-compliance with the mandatory requirement.
The abvove explanation stands redundant and loses its basis due to the recent amendment which raiss the rate given under Section 115A from 10% to a hike of 25%. This unruly hike has bought in various criticisms of which the most important are listed above.
This amendment would have been appreciated if there would be a simultaneous rise in the corresponding section i.e. Section 206AA. But as there has been no such amendment the penalty which was enforced to penalize the non-PAN card holders which is a mandatory requirement for being assessed has now become a easier way than the actual rate in case the assessee is covered by the rate under Section 115A. Thus, there is a need to revise or relook at the amendment proposed through the Finance Budget 2013. So that this doesn’t become a source for the non-residents to be discouraged to hold a PAN.
The government must penalize the people not holding a PAN so that the tax evasion can be checked by way of the PAN which has an account of all the income earned by the assessee.
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