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Alerts:

Tax Alert: Extension in validity of certificates issued for lower/nil withholding

01 April 2020

Covid-19 has created mayhem everywhere and India is no exception. The Indian Government has started implementing various measures to protect the lives of its citizens from this outbreak. With the country being under lockdown from 24 March 2020 to implement social distancing, the businesses have been impacted. Even the functioning of Revenue Authority has been impacted. As a result, the Hon’ble Finance Minister has recently announced an extension of due dates falling between 20 March 2020 and 29 June 2020 to 30 June 2020 followed by stimulus package to deal this outbreak.

Since there is no specific deadline for making an application for lower / nil tax withholding / Tax Collected at Source (TCS), concerns were raised on the applications which were filed by the taxpayers. Hence, as the press release was silent on this, representations were made by various stakeholders with respect to lower / nil tax withholding / TCS certificates which were expiring on 31 March 2020 and either the application is not made or have been made.

In view of the hardship faced by the Tax Officers and taxpayers alike, the Central Board of Direct Taxes (CBDT) has passed an order[1] clarifying on the lower / nil tax withholding / TCS certificate. We, at BDO in India, have analysed and summarised this order hereunder:

1. Where either application for the lower / nil tax withholding / TCS is filed or not filed

Sr. No.

Status of application for FY 2020-21 as on 31 March 2020

Whether lower/ nil tax withholding / TCS certificate issued for FY 2019-20

Way forward

1

Application have been filed on TRACES portal and is pending for disposal

Yes

Certificate issued for FY 2019-20 to be applicable

  • till 30 June 2020; or
  • disposal of application by Tax Officer,

whichever is earlier

2

Application is not filed

Yes

  • Certificate issued for FY 2019-20 to be applicable till 30 June 2020; and
  • Taxpayers to file the application giving requisite details to the tax officer as soon as normalcy is restored or till 30 June 2020, whichever is earlier

3

Application is not filed

No

Send an e-mail to the concerned Tax Officer containing filled up Form 13 along with all documents / information

 

2. Where payments are to non-residents (including foreign companies) having Permanent Establishment in India and not covered by point 1 and 2 of above chart

Tax on such payments to be withheld at the rate of 10% including surcharge and cess, till 30 June 2020 of fiscal year 2020-21, or till disposal of their applications, whichever is earlier.

As per the annexure attached to the order, in respect of applications to be made under section 197 or 206C(9) of the IT Act, the taxpayer is required to email the data/documents as listed in annexure to the tax officer and in respect of applications to be made under section 195(2) or 195(3) of the IT Act the process of furnishing of applications will continue to be same with the modification that the applications will be required to be filed via email to the tax officer and certificates will also be issued via email. The annexure can be accessed by clicking here.

BDO Comments

This is a welcome move and should be helpful to businesses in these trying times when the cash flow could be severely impacted. The lower / nil tax withholding / TCS order contains partywise amount and the rate for which the lower / nil rate would be applicable. In the event the threshold stated in the certificate is exceeded, on such excess amount, tax at normal rate is withheld / collected at source. Hence, generally, where post obtaining the lower / nil rate certificate, the amount is going to exceed, taxpayer requests for revising the certificate. This order is silent about the validity of existing certificate to the cases where either the threshold has exceeded (and no application for extension was made in light of no transaction in remainder period of FY 2019-20) or threshold would exceed if the payment for first quarter of FY 2020-21 is considered. It should be clarified that the threshold amount mentioned in the earlier certificate (now extended) should not be considered while making payment for the period up to 30 June 2020. Another point to consider is whether the extension would be available to such cases where the validity of certificate has expired before March 2020. Even the deductor would face this challenge at the time of booking / making payment. Hence, it is advisable that the taxpayer consult their tax advisor on way forward in light of this order.


 

[1] Order F.No. 275/25/2020-IT(B) dated 31 March 2020