Page 26 - Union Budget_2019

Union Budget 2019

5.4 Relaxing the provisions of Section 201 and Section 40 in case of payments to non-residents

• Section 201 provides that where any person liable to deduct TDS, on payments to residents, fails to do
deduct or fails to pay such tax after making deduction, then such person shall be deemed to be an
assessee in default.

However, the person shall not be deemed to be an assessee in default if such resident has furnished his
return, disclosed such payment as his income, paid legitimate tax on such income and furnished an

accountant's certificate to this effect. It is now proposed to extend this benefit, even in respect of failure
to deduct tax on payment to non-residents.

Consequent to the above proposed amendment, it is also proposed to amend Section 201(1A) to provide
for levy of interest from the date on which such tax was deductible till the date of filing of return by such
non-resident payee.

Further it is proposed to amend Section 201(3) to provide that no order shall be made deeming a person
to be an assessee in default under Section 201(1),

• after the expiry of period of 7 years from the end of the financial year in which payment is made
or

• credit is given or
• 2 years from the end of the financial year in which the correction statement is delivered under

the proviso to sub-section (3) of section 200,
whichever is later.

These amendments will take effect from 1st September, 2019.

• Apropos to the above proposed amendment, it is proposed to amend Section 40(a) to provide that
where an assessee fails to deduct tax on any sum paid to a non-resident, but is not deemed to be an

assessee in default as per the proposed amendments in Section 201 supra, then it shall be deemed that
the payer has deducted and paid the tax on such sum on the date of furnishing of return of income by
such non-resident. This will, thus, result in no disallowance under Section 40(a) in respect of such

payments to non-residents.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the

assessment year 2020-21and subsequent assessment years.

The above proposed amendments shall rationalise the provisions of TDS on payments to non-residents
and shall provide relief to resident payers when TDS is not deducted by them.

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