Section 135A of the Income Tax Act

Introduced in the Finance Act of 2021, Section 135A of the Income Tax Act is a relatively new provision. It concerns taxpayers who, in accordance with Income Tax Act section 44AB, must have an audit of their accounts. We will talk about section 135A's provisions and how they affect taxpayers in this blog.

What is Section 135A?

Certain taxpayers are required by Income Tax Act Section 135A to provide additional information in their tax audit report. Particularly, additional information must be disclosed in the tax audit report by taxpayers who have transacted with an individual who is not in India but whose income is subject to tax in India.

For Whom Is Section 135A Compliance Required?

The provisions of section 135A must be followed by taxpayers who have transacted with a person residing outside of India whose income is subject to tax in India and who are required by section 44AB of the Income Tax Act to have their accounts audited.

What Data Is Required to Be Shared in Order to Comply with Section 135A?

The name, address, and nationality of the non-Indian party to the transaction must be disclosed by the taxpayer. The taxpayer is also required to provide the total amount of transactions made with this individual.

The Purpose of Section 135A

Preventing tax avoidance and ensuring greater transparency in transactions with individuals outside of India are the goals of section 135A.

Penalties for Violation of Section 135A

Section 271B of the Income Tax Act stipulates that there may be penalties for noncompliance with section 135A. The fine is Rs. 1,50,000, or 0.5% of the total sales, turnover, or gross receipts, whichever is less.

Section 135A Went into Effect When?

The Finance Act of 2021 included Section 135A, which became operative on April 1st, 2021.

Does Section 135A Apply to Private Persons?

Yes, those who meet the specified income or turnover thresholds and are mandated by section 44AB of the Income Tax Act to have an audit of their books may be subject to section 135A.

Does Every Transaction with Individuals Who Are Not in India Fall Under Section 135A?

No, only transactions involving individuals who are based outside of India and whose income is subject to taxation in India are covered by section 135A.

Does Section 135A Have a Transaction Threshold Limit?

Section 135A does not have a threshold limit on transactions. Regardless of the amount of money involved, taxpayers who have transacted with an individual residing outside of India whose income is subject to taxation in India must abide by the rules of section 135A.

Is it Possible for Taxpayers to Seek Expert Help to Comply with Section 135A?

Yes, in order to comply with section 135A, taxpayers may choose to hire a chartered accountant or tax adviser, among other professionals. This can assist prevent any penalties or unfavorable tax implications and guarantee that the relevant information is appropriately provided in the tax audit report.

In Summary

A major change to the Indian tax system, Section 135A aims to improve accountability and transparency in transactions involving individuals who are not in the country. Although taxpayers may have certain difficulties in adhering to this regulation, it is imperative to guarantee that the revenue generated from these transactions is appropriately declared and subjected to taxation in India. To make sure they abide by the rules, taxpayers should consult a specialist.