By TIOL News Service

NEW DELHI, JULY 10, 2014: THE Budget 2014 provides relief to assessees caught in the whirlwind of tax litigation involving failure to deduct and pay tax on specified payments to residents before the prescribed due date. Currently tax officers disallow deduction of 100 per cent of such payments, which resulted in tax disputes causing undeserved hardship to tax payers, especially when the rate of tax was only between 1 per cent and 10 per cent of the payment.

The Finance Minister has provided relief to such assessees proposing that instead of 100 per cent, only 30 per cent of such payments would be disallowed. The Finance Bill states that disallowance under section 40(a)(ia) shall be restricted to 30 per cent. However, under the amended proviso to section 40(a)(ia), when the assessee has deducted tax in a subsequent year or during the previous year but paid after the prescribed due date, only 30 per cent of the amount shall be allowed as a deduction in computing the income of the previous year in which such tax was paid.

This applies to any payment by way of interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident on which tax is deductible under Chapter XVII-B, including payments to a resident contractor or sub-contractor for carrying out any work including that of supply of labour.

The amendment is effective from April 1, 2015 and will apply in relation to the assessment year 2015- 16 and subsequent years.