The Central Board of Direct Taxes (CBDT), on June 17, 2016, vide notification no. 47/2016/ F. No. 275/53/2012 – IT(B), notified that no deduction of tax under Chapter XVII of the Income tax Act, 1961 shall be made on the payments of the nature specified below, in case such payment is made by a person to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, or to any payment systems company authorized by the Reserve Bank of India under Sub-section (2) of Section 4 of the Payment and Settlement Systems Act, 2007 (51 of 2007):
- .Bank guarantee commission;
- .Cash management service charges;
- Depository charges on maintenance of demat accounts;
- Charges for warehousing services for commodities;
- Underwriting service charges;
- Clearing charges (micro charges) including interchange fee or any other similar charges by whatever name called charged at the time of settlement or for clearing activities under the payment and settlement systems act, 2007;
- Credit card or debit card commission for transaction between merchant establishment and acquirer bank.
After the above notification, apart from making payments to the banks, the entities making payments to the Payment System Companies, such as electronic wallet providers, etc., registered under Payment and Settlement Systems Act, 2007, need not deduct tax at source (TDS) in respect of the aforementioned seven transactions.
This would reduce the compliance burden and improve the cash flows of the companies making and also encourage them to use the channel of payment system companies.
Article by Singh & Associates of Singh & Associates