Demystifying THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961: Understanding the Impact on Taxpayers

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Hi, my name is Shruti Goyal, I have been working in the field of Income Tax since 2011. I have a vast experience of filing income tax returns, accounting, tax advisory, tax consultancy, income tax provisions and tax planning.

The Income Tax Act, 1961, is the legal framework that governs the taxation of income in India. This Act is periodically amended to incorporate changes that reflect the changing economic and social realities of the country. One such amendment was the introduction of THE SEVENTH SCHEDULE section 35E, which has caused confusion among taxpayers and tax professionals alike.

In this blog post, we will demystify THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 and explain its impact on taxpayers. We will cover the following topics:

• What is THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?
• Who is affected by THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?
• What are the implications of THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 for taxpayers?
• Frequently asked questions (FAQs) about THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961.
• Conclusion.

What is THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?

THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 was introduced in the Finance Act, 2021, and came into effect on 1 April 2021. It is a provision that requires specified persons to deduct tax at source (TDS) at the rate of 0.1% on the amount paid or credited to a seller of goods or services exceeding Rs. 50 lakhs in a financial year.

The specified persons who are required to deduct TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 include:

• A person whose turnover exceeds Rs. 10 crores in the previous financial year, and
• A person who has made a payment exceeding Rs. 50 lakhs to a seller in the previous financial year for the purchase of goods or services.

Who is affected by THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?

THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 affects two categories of people:

1. Specified persons: As mentioned earlier, specified persons whose turnover exceeds Rs. 10 crores in the previous financial year or who have made a payment exceeding Rs. 50 lakhs to a seller in the previous financial year for the purchase of goods or services are required to deduct TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961.

2. Sellers of goods or services: If a seller of goods or services receives a payment exceeding Rs. 50 lakhs in a financial year from a specified person, they will be subject to TDS at the rate of 0.1% under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961.

What are the implications of THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 for taxpayers?

THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 has several implications for taxpayers, which are outlined below:

1. Increased compliance burden: Specified persons who are required to deduct TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act

   1961 will need to ensure that they comply with the provision and deduct TDS at the correct rate. This will involve additional paperwork and record-keeping, which could increase the compliance burden on these taxpayers.

   2. Cash flow impact: Sellers of goods or services who are subject to TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 will see a reduction in their cash flow, as the TDS amount will be deducted at the time of payment or credit. This could affect their ability to meet their financial obligations and could have an impact on their profitability.

   3. Disputes and litigation: There is a possibility of disputes and litigation arising under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961, particularly in cases where there is ambiguity or disagreement over whether a person falls under the definition of a specified person or a seller of goods or services. This could lead to additional costs and time spent resolving disputes.

   4. Increased tax collection: THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 is expected to result in increased tax collection, as TDS is deducted at the time of payment or credit, thereby ensuring that the tax liability of the seller is met. This will help the government in meeting its revenue targets and funding its various initiatives.

   Frequently asked questions (FAQs) about THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961.

   Q: What is the rate of TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?

   A: The rate of TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 is 0.1% of the amount paid or credited to a seller of goods or services exceeding Rs. 50 lakhs in a financial year.

   Q: Who is required to deduct TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?

   A: Specified persons whose turnover exceeds Rs. 10 crores in the previous financial year or who have made a payment exceeding Rs. 50 lakhs to a seller in the previous financial year for the purchase of goods or services are required to deduct TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961.

   Q: When did THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 come into effect?

   A: THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 came into effect on 1 April 2021.

   Q: Will THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 have an impact on small businesses?

   A: Small businesses with turnover below Rs. 10 crores in the previous financial year and who have not made a payment exceeding Rs. 50 lakhs to a seller in the previous financial year for the purchase of goods or services are not required to deduct TDS under THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961.

   Q: Is there a penalty for non-compliance with THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961?

   A: Yes, there is a penalty for non-compliance with THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961. The penalty can be up to the amount of TDS that should have been deducted.

   Conclusion

   In conclusion, THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 is a provision that requires specified persons to deduct TDS at the rate of 0.1% on the amount paid or credited to a

   seller of goods or services exceeding Rs. 50 lakhs in a financial year. The provision came into effect on 1 April 2021 and is expected to result in increased tax collection for the government. However, it could also have some negative impact on the sellers of goods or services who are subject to TDS under this provision, including increased compliance burden, cash flow impact, and the possibility of disputes and litigation.

   It is important for specified persons and sellers of goods or services to understand the provisions of THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 and ensure compliance with it. This will involve maintaining proper records, filing of returns, and payment of TDS within the prescribed time frame. Failure to comply with the provision could result in penalties and other legal consequences.

   Overall, THE SEVENTH SCHEDULE section 35E of Income Tax Act 1961 is a step towards ensuring greater tax compliance and increasing tax collection for the government. While it may have some short-term impact on the sellers of goods or services, it is expected to have a positive long-term impact on the economy as a whole.