The Finance (No. 2) Bill, 2024 [FB (No. 2) 2024 or Bill] was presented by the Hon’ble Finance Minister Nirmala Sitharaman on 23 July 20241. While moving the Bill for approval by the Lok Sabha on 7 August 2024, the Union Finance Minister introduced amendments to the Finance Bill (No, 2) 2024. The amendments are generally intended to address certain ambiguities/uncertainties arising from the proposals as contained in the Bill.
As per the amendment the employer is currently permitted to consider other income (including house property loss but not any other loss) and corresponding TDS reported to employer while deducting tax on salary income. There is also a limitation that the salary TDS cannot reduce below the amount which would have been deductible if the other income and corresponding TDS was not considered (except in case of house property loss).
However, the existing provisions do not specifically permit consideration of foreign tax credit (FTC), TDS unrelated to any source of income of the employee (such as TDS on cash withdrawals), or TCS from the employee.
Expansion of TCS provisions to cover payments under Liberalised Remittance Scheme as per foreign exchange laws, overseas tour package and purchase of high value motor cars (exceeding INR10L) resulted in many employees suffering TCS but not being able to correspondingly claim credit for the purpose of salary TDS resulting in higher tax payment and need for subsequent claim of refund by filing of tax returns.
In the wake of representations received in this regard, FB (No. 2) 2024 proposed to substitute existing salary TDS provisions in order to, inter alia, permit the employer to consider credit of TDS unrelated to any source of income of employee or TCS from employee at the time of computing amount of salary TDS.
However, Finance Bill (No. 2) 2024 also placed a limit on the extent to which such credit could be considered requiring that the salary TDS cannot be lower than the amount which would have been withheld in absence of consideration of such other income, TDS and TCS. This appeared to be contrary to the object of the amendment to facilitate the employer to consider other TDS/TCS to reduce salary TDS and thereby ease compliance and cash flow issues for the employees.
In the wake of further stakeholder representations, the Amended Bill proposes that the employer can consider the entire amount of the other TDS/TCS even if it has the effect of reducing the salary TDS, thereby making it consistent with the intent of amending the provision.