Section 135A of the Income Tax Act: An Overview
Section 135A of the Income Tax Act is a relatively new provision introduced in the Finance Act of 2021. It pertains to taxpayers who are required to get their accounts audited under section 44AB of the Income Tax Act. In this blog, we will discuss the provisions of section 135A and their implications for taxpayers.
Scope of Section 135A
Section 135A requires certain taxpayers to furnish additional information in their tax audit report. Specifically, taxpayers who have undertaken a transaction with a person located outside India, and whose income is chargeable to tax in India, are required to disclose additional information in their tax audit report.
The additional information that needs to be furnished includes the name, address, and country of the person located outside India with whom the transaction has been undertaken. Additionally, the taxpayer must also furnish the amount of transaction undertaken with such a person.
Applicability of Section 135A
Section 135A applies to all taxpayers who are required to get their accounts audited under section 44AB of the Income Tax Act. This includes companies, firms, LLPs, and individuals who meet the prescribed turnover or income thresholds.
Non-applicability of Section 135A
Section 135A does not apply to taxpayers who have not undertaken any transaction with a person located outside India. Additionally, it does not apply to taxpayers who have undertaken a transaction with a person located outside India, but where the income arising from such transaction is not chargeable to tax in India.
Penalty for Non-Compliance
Failure to comply with the provisions of section 135A can result in penalty under section 271B of the Income Tax Act. Section 271B provides for a penalty of 0.5% of the total sales, turnover or gross receipts, or Rs. 1,50,000, whichever is lower, for failure to get accounts audited or for furnishing an incorrect audit report.
Impact of Section 135A
Section 135A is a step towards greater transparency and accountability in transactions with persons located outside India. By mandating the disclosure of additional information in tax audit reports, the provision aims to prevent tax evasion and curb illicit flows of funds. This provision will help tax authorities to track transactions with persons located outside India and ensure that the income arising from such transactions is properly disclosed and taxed in India.
Challenges in Compliance
Complying with the provisions of section 135A can be challenging for taxpayers, especially those who have a large number of transactions with persons located outside India. Gathering the necessary information and ensuring its accuracy can be time-consuming and require significant resources. Moreover, there may be practical difficulties in identifying the country of residence of the counterparty in a transaction. Taxpayers may also face challenges in determining whether the income arising from a transaction is chargeable to tax in India.
Conclusion
Section 135A of the Income Tax Act is a significant development in the Indian tax landscape, aimed at enhancing transparency and accountability in transactions with persons located outside India. While compliance with this provision may present certain challenges for taxpayers, it is essential to ensure that the income arising from such transactions is properly disclosed and taxed in India. Taxpayers should seek professional advice to ensure that they comply with the provisions of section 135A and avoid any penalties or adverse tax consequences.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
What is section 135A of the Income Tax Act?
Section 135A of the Income Tax Act is a provision that requires taxpayers to disclose additional information in their tax audit report if they have undertaken a transaction with a person located outside India, and whose income is chargeable to tax in India.
Who is required to comply with the provisions of section 135A?
Taxpayers who are required to get their accounts audited under section 44AB of the Income Tax Act and who have undertaken a transaction with a person located outside India, and whose income is chargeable to tax in India, are required to comply with the provisions of section 135A.
What information needs to be disclosed under section 135A?
Taxpayers must disclose the name, address, and country of the person located outside India with whom the transaction has been undertaken. Additionally, the taxpayer must also furnish the amount of transaction undertaken with such a person.
What is the objective of section 135A?
The objective of section 135A is to ensure greater transparency in transactions with persons located outside India and prevent tax evasion.
What is the penalty for non-compliance with the provisions of section 135A?
Failure to comply with the provisions of section 135A can result in a penalty under section 271B of the Income Tax Act. The penalty is 0.5% of the total sales, turnover or gross receipts, or Rs. 1,50,000, whichever is lower.
When did section 135A come into effect?
Section 135A was introduced in the Finance Act of 2021 and came into effect from 1st April 2021.
Is section 135A applicable to individuals?
Yes, section 135A is applicable to individuals who meet the prescribed turnover or income thresholds and are required to get their accounts audited under section 44AB of the Income Tax Act.
Does section 135A apply to all transactions with persons located outside India?
No, section 135A applies only to transactions with persons located outside India whose income is chargeable to tax in India.
Is there any threshold limit for transactions under section 135A?
There is no threshold limit for transactions under section 135A. Taxpayers who have undertaken a transaction with a person located outside India, and whose income is chargeable to tax in India, are required to comply with the provisions of section 135A, irrespective of the amount of the transaction.
Can taxpayers seek professional assistance for compliance with section 135A?
Yes, taxpayers can seek professional assistance, such as the services of a chartered accountant or tax consultant, for compliance with section 135A. This can help ensure that the necessary information is accurately disclosed in the tax audit report and help avoid any penalties or adverse tax consequences.
