Income-tax (Ninth Amendment) Rules, 2024: Key Changes and Implications

Notification No. 114/2024

Notification Date: 16th October 2024

Relevant Act / Rule: Income Tax Act, 196, Income Tax Rules, 1962

Relevant Section/Rule: Section 295, 206C, Rule 31AA, 37-I

The Income-tax (Ninth Amendment) Rules, 2024 introduce significant changes to the Income-tax Rules, 1962, primarily focusing on Tax Collected at Source (TCS) provisions under section 206C of the Income-tax Act, 1961. These changes are aimed at improving the reporting, compliance, and credit mechanisms related to TCS, ensuring more transparency and better alignment with modern tax collection practices. In this blog, we will explore the key amendments, their impact on taxpayers and tax collectors, and how they affect the overall tax administration.

 

What is TCS?

Tax Collected at Source (TCS) is a mechanism where the seller (collector) collects a certain percentage of tax at the time of sale from the buyer (collectee). The collected tax is then deposited with the government, and the buyer can claim credit for this TCS when filing their tax returns. Under section 206C of the Income-tax Act, certain goods and transactions are specified for which TCS is applicable, including transactions involving the sale of alcohol, timber, minerals, and scrap.

However, in certain cases, TCS might not be collected at the standard rate or may not be collected at all due to specific notifications issued by the government. The new amendments aim to better track and manage these exceptions, and streamline the credit transfer process when the income of the collectee is assessable in someone else’s hands.

 

Key Changes in the Ninth Amendment

The Income-tax (Ninth Amendment) Rules, 2024 make changes to two critical rules—Rule 31AA and Rule 37-I, and also update Form 27EQ, which deals with the quarterly statement of TCS. Let’s break down each of these changes.

 

1. Amendments to Rule 31AA (Statement of TCS)

Rule 31AA governs the submission of quarterly statements of tax collected at source, requiring tax collectors to report details of the amount collected, and provide particulars of the collectee. The Ninth Amendment makes the following key updates:

a. Clause Adjustments

  • Clause (vi) of sub-rule (4) has been modified to change references to certain provisos. Specifically, the reference to the “fourth proviso” has been updated to the “fifth proviso,” and the reference to the “fifth proviso” has been updated to the “sixth proviso.” These changes ensure that the rules stay aligned with the latest legal provisions and avoid any misinterpretation by taxpayers or tax collectors.

b. New Clause (viii): Reporting Lower or No TCS

  • A significant addition is Clause (viii), which mandates tax collectors to report specific details when tax is either not collected or is collected at a lower rate. This applies particularly in cases where a notification has been issued under section 206C(12). This new requirement ensures that any deviations from the standard TCS rates are properly reported and tracked by the tax authorities.

This change is particularly relevant for industries and sectors that may benefit from reduced TCS rates due to government incentives or special economic policies. By mandating detailed reporting in such cases, the government aims to ensure that concessions are applied correctly and transparently.

 

2. Changes to Rule 37-I (Credit for TCS)

Rule 37-I governs the credit for TCS in cases where the income of the collectee is assessable in the hands of another person. For instance, in certain trusts or business structures, the income may not be directly attributable to the individual making the payment, but to another legal entity or person. In such cases, it is essential that the tax credit is transferred to the correct person to avoid any complications during tax assessment.

a. Insertion of words in Existing clause

  • In sub-rule (1), after the words “has been collected”, the brackets and words “(hereinafter referred to as the collectee)” is inserted.

b. New Sub-rule (1A): Credit Transfer Mechanism

  • The most important change in Rule 37-I is the introduction of sub-rule (1A), which lays out the procedure for transferring TCS credit when the income of the collectee is assessable in someone else’s hands. This situation arises when the income is attributed to another person (such as a parent, business partner, or a trust).

The new sub-rule specifies the following:

  • The collectee must file a declaration with the tax collector stating that the credit for the TCS should be transferred to another person.
  • The declaration must contain the name, address, and PAN of the person to whom the credit is being transferred, along with the amount of payment and the reasons for this transfer.
  • The collector is required to report this information in their quarterly TCS statement and issue the TCS certificate in the name of the person who will receive the credit.

This ensures that tax credits are correctly transferred and reported, reducing the risk of errors or disputes during the tax assessment process.

 

3. Updates to Form 27EQ (Quarterly TCS Statement)

Form 27EQ is the form used for filing quarterly statements of TCS. The Ninth Amendment makes an important addition to the Notes section of this form:

  • A new Note 8A has been inserted, which requires tax collectors to mark transactions with a “J” if no TCS or lower TCS is collected due to a notification issued under section 206C(12). This addition enhances the clarity of reporting in cases where special exemptions or reduced rates apply, helping the tax authorities easily identify such transactions.
 

Conclusion

The Income-tax (Ninth Amendment) Rules, 2024 mark a significant step towards improving the TCS system in India. By introducing new reporting requirements, clarifying the process for transferring TCS credit, and updating Form 27EQ, the government aims to create a more transparent, efficient, and compliant tax collection system. For taxpayers and tax collectors, these changes mean greater clarity and accountability, ensuring that the right amount of tax is collected and credited to the appropriate individuals.

As businesses and individuals adjust to these changes, it will be essential for all parties involved in TCS transactions to stay informed and ensure that they are fully compliant with the new rules.

Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article. 

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