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TDS on Rent of Plant & Machinery, Furniture and Royalty effective from 13th July, 2006
July, 17th 2006

The Taxation Laws Amendment Act, 2006 has received the assent of the President on 13th July, 2006 and as such the following amendments made by this Act have become operational:

1)         TDS is to be deducted with effect from 13th July, 2006 on following payments:

a)         Payment of rent for machinery, plant, equipment, furniture or fittings under Section 194-I of the Act. The rate of TDS shall be 15% if the payee is an individual or HUF, otherwise the rate of TDS shall be  20% in case the total amount of rent paid exceeds Rs.1,20,000 during the Financial Year.  It is hereby confirmed that payments made before 13th July, 2006 on account of rent of machinery, furniture shall itself be not liable for TDS     However, for the sake of computing the threshold limit of Rs.1,20,000/- during the Financial Year, all payments made on account of rent even before 13th July, 2006, are to be taken into account.  The amendment is to Section 194-I.  Accordingly payment of rent of land or buildings is also to be included for computing the threshold limit of Rs.1,20,000/-.

b)         Payment of royalty to a resident in case where such payment exceeds Rs.20,000 during the Financial Year.  The rate of deduction shall be 5% under Section 194-J of the Act.

c)         Payment of non-compete fee in case where payment of such sum exceeds Rs.20,000 during the Financial Year.  The rate of deduction shall be 5% under Section 194-J of the Act.

d)         Payment for expenditure to be made by account payee cheque only.  Provision of Section 40A(3) has been amended to provide that any expenditure made otherwise than by account payee cheque or draft (as against crossed cheque or draft) shall not be allowed.

e)         All educational and medical institutions claiming exemption under Section 10(23C) would be required to file income tax return in case their total income exceeds Rs.1 lakh before claiming exemption under Section 10(23C).  This provision shall be effective from the current Asstt. Year, i.e., Asstt. Year 2006-07.  Accordingly all schools and hospitals who are claiming exemption under Section 10(23C) clauses (iiiac) or (iiiae) even if their receipts are less than Rs.1 Cr. shall be required to file the return of income provided income before exemption exceeds expenditure by Rs.1 lakh or more.

f)          All educational and medical institutions who are claiming exemption under Section 10(23C) and whose annual receipts are Rs.1 Cr. or more shall be required to get their accounts audited and submit the audit report in the prescribed proforma.  The new audit format for these institutions is being notified separately.

g)         Approval under Section 10(23C), Section 35 to be a one time affair.   Presently approval under Section 10(23C) and Section 35 is for a limited period which is required to be renewed.   Any approval granted after this enactment shall not be required to be renewed.   However, approval granted before this enactment shall be valid till the date the same has been given and will be required to be renewed once thereafter.   After such renewal there will be no requirement to get the same further renewed.

h)         Provision of Section 56(a)(v) treating gift as income from other sources has been amended.  As per the amendment any sum of money received without consideration by an individual or HUF will be considered as income from other sources where the aggregate value of the money received without consideration from any person/persons exceeds Rs.50,000.  By this amendment a cap has been put on the total amount of gift one can receive during the year.  This amendment  is effective in respect of the gift received on or after 1st April, 2006.  However, donation or grant received from any charitable institution shall be exempt.   There is no change in the definition of a relative, gift from whom in the case of individual is also exempt. 

i)          Income tax to be paid now can be rounded off to Rs.10 as against the present provision of rounding off to the nearest rupee one.   In case the amount is Rs.5 or more the same is to be rounded off to Rs.10.  Amount less than Rs.5 is to be ignored. 

 
 
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