TDS PROVISIONS & ISSUES

CA Vishal H. ShahN. K. Kalra & Associates

11th May, 2014

TDS on Salary – Section 192 TDS on Payments other than Salary – Section 193 to 194J Interest & Compliance – Section 201, 206AA & 234E Penalties – Section 271C, 271H, 272BB & 276B Miscellaneous Issues & Case Laws

Scope of the Presentation

2

Any person responsible for paying any income under the head “income from salary” to any person shall deduct tax at the average rate of income tax computed on the basis of rates in force.

Multiple employer?

Any other income / Loss from House Property

TDS on salary payable in foreign currency?

192 – TDS on Salary

3

The person responsible for paying to a resident, any income by way of interest on securities shall at the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier deduct tax at the rates in force on the amount of interest payable

Rate – 10%

193 – TDS on Interest on Securities

4

The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividend within India shall before payment of dividend, deduct income tax at the rates in force.

Not applicable to –a. Dividend when DDT u/s. 115O is paidb. Dividend paid by account payee cheque for Rs. 2,500/- or less

TDS to be deducted at the time of payment

Rate – 10%

194 – TDS on Dividends

5

Any person, other than an Individual or HUF, responsible for paying to a resident any income by way of interest, other than interest on securities, shall at the time of payment or credit, whichever is earlier, shall deduct income tax at the rates in force

Applicable to Individual or HUF, if liable to audit under clause (a) or clause (b) of section 44AB in the immediately preceding financial year.

No TDS is to be deducted if the recipient of income furnishes Form 15G/ 15H for the financial year.

194A – TDS on Interest other than Interest on Securities

6

194A cont..

Not applicable if the amount of such income, credited or paid, during the financial year-

a. does not exceed Rs. 10,000/- in case the payer is a banking company, co-operative society in the business of banking or deposit with the post office. (the limit of Rs. 10,000/- is to be considered for each branch separately)

b. does not exceed Rs. 5,000/- in case of any other payer.

c. if the amount is paid to any banking company, co-operative society engaged in the business of banking, financial corporation established by or under Central, State or Provincial Act,

7

194A cont..

d. if the amount is paid to LIC, UTI, co-operative society carrying on the business of insurance, or such other institution as the government may notify in the official gazette

e. if the income is credited or paid by a firm to a partner of the firm

f. if the income is credited or paid by co-operative society to a member thereof, or any other co-operative society

Rate – 10%

8

The person responsible for paying to any person, income by way of winnings from any lottery, crossword puzzle, card game or any other game of any sort, in an amount exceeding Rs. 10,000/- shall at the time of payment thereof, deduct income tax thereon at the applicable rates.

Winnings in cash and kind.

Cash amount not enough to recover taxes

TDS deduction at the time of payment.

Rate – 30%

194B – TDS on Winnings from Lottery or Crossword Puzzle

9

Any person, being a bookmaker or a person to whom license has been granted by the government for horse racing in any race course or for arranging for wager or betting in any race course, who is responsible for paying to any person any income by way of winnings from horse race in an amount exceeding Rs. 5,000/- shall at the time of payment deduct income tax at the applicable rates.

TDS deduction at the time of payment

Rate – 30%

194BB – TDS on Winnings from Horse Race

10

Any person responsible for paying any sum to any resident (contractor) for carrying out any work in pursuance of a contract between the contractor and the specified person, shall at the time of credit or payment, whichever is earlier, deduct income tax;

at the rate of 1% if the contractor is an individual or HUF at the rate of 2% if the contractor is other than an individual or

HUF

Where amount of material is not bifurcated on the invoice?

194C – TDS on Payments to Contractors

11

194C cont..

No tax shall be deductible –a. where the amount is paid/ credited to the account of the contractor

by an individual or HUF for exclusive personal purpose

b. where single invoice/ payment to the contractor does not exceed Rs. 30,000/-. However, if aggregate of the amounts paid/ credited to the account of the contractor during a financial year, exceeds Rs. 75,000/- TDS shall be deducted.

c. where the amount paid/ credited during the previous year to the account of the contractor carrying on the business of plying, hiring or leasing goods carriage, provided such contractor furnishes his Permanent Account Number (GTA)

12

194C cont..

Work shall include: advertising broadcasting and telecasting including production of programmes for

such broadcasting or telecasting carriage of goods or passengers by any mode of transport other than

railways catering manufacturing or supplying a product according to the requirement

or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement of a customer by using material purchased from a person, other than such customer

13

194C cont..

Specified Persons Include:a. Central Government or State Governmentb. any local authorityc. any corporation established under the Central, State or Provincial

Actd. any companye. any co-operative societyf. any authority, constituted in India by or under any law engaged

either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both

14

Specified Person cont..

h. any society registered under the Societies Registration Act or similari. any trustj. any university established or incorporated by or under a Central,

State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956

k. any Government of a foreign State or a foreign enterprise or any association or body established outside India

l. any firmm. Individual/ HUF/ AOP/ BOI liable to audit under clause (a) or

clause (b) of section 44AB in the immediately preceding financial year.

15

Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

No deduction if aggregate of amount does not exceed Rs. 20,000/-

Rate – 10%

194D – TDS on Insurance Commission

16

Any person, not being an individual or HUF, responsible for paying to a resident, any income by way of commission (not being insurance commission) or brokerage, shall at the time of payment or credit to the account of the payee, whichever is earlier, deduct income tax.

The provisions shall apply to Individual/ HUF liable to audit under clause (a) or clause (b) of section 44AB in the immediately preceding financial year.

194H – TDS on Commission or Brokerage

17

194H cont..

No deduction of tax is required to be made under this section if -

a. the amount does not exceed Rs. 5,000/-.

b. the commission or brokerage is payable by BSNL to MTNL to their public call franchises

Rate – 10%

18

Any person responsible for paying to any resident any income by way of rent shall at the time of credit to their account or payment, whichever is earlier, deduct income tax at the prescribed rates.

Threshold Limit – Rs. 1,80,000/- p.a.

Rates in force:◦ Use of machinery or plant or equipment – 2% , ◦ Use of land or building (incl. factory building) or land

appurtenant thereto or furniture or fittings – 10%

Not applicable to the payer, being an individual or HUF, not liable to audit under clause (a) or clause (b) of section 44AB in the immediately preceding financial year.

194I - TDS on Rent

19

194I cont..

Rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—

(a)  land; or(b)  building (including factory building); or(c)  land appurtenant to a building (including factory building); or(d)  machinery; or(e)  plant; or(f)  equipment; or(g)  furniture; or(h)  fittings,whether or not any or all of the above are owned by the payee.

20

Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.

Threshold Limit – Rs. 50,00,000/-

No need to obtain TAN (Payment in Form 26QB)

Introduced w.e.f. 1st June, 2013

Rate – 1%

194IA – TDS on payment on transfer of certain immovable property other than agricultural land

21

Section

• Applicable to Immovable property other than agricultural land

• Threshold limit – Rs. 50,00,000/-

• Rate – 1%

Certificate

• New Form 16B• Download from

Traces Portal within 15 days of due date

Others

• No need to obtain TAN

• Challan cum statement in Form 26QB

• Property details to be provided in challan

22

Any person, not being an individual or HUF, who is responsible for paying to a resident any sum by way of;

a. fees for professional services, orb. fees for technical services, orc. any remuneration or fees or commission, by whatever name

called, other than those on which tax is deductible under section 192, to a director of a company, (introduced w.e.f. 1st July, 2012) or

d. royalty, ore. any sum referred to clause (va) of section 28shall at the time of credit to the account of the payee or payment, whichever is earlier, deduct an amount equal to 10%. of such amount as income tax on income comprised therein.

194J – TDS on Fees for Professional or Technical Service

23

194J cont..

Not applicable to the payer, being an individual or HUF, not liable to audit under clause (a) or clause (b) of section 44AB in the immediately preceding financial year.

No deduction under this section is required to be made;a. from sums credited or paid before 1st July 1995b. where the amount of such sum, or the aggregate of such sums

credited/ paid/ likely to be paid during the financial year to the payee does not exceed Rs. 30,000/-

c. where the amount of professional fees paid by an individual or HUF, is exclusively for the personal purpose of such individual or any member of HUF.

Rate – 10%

24

194J cont..

Professional fees means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.

Fees for Technical Services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries.

25

194J cont..

Royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for—

a. the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

b. the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property;

c. the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;

d. the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

26

Royalty Cont..

e. the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

f. the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or

g. the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and](v).

27

Interest, Penalties & Compliances

28

Assessee in DefaultWhere any person, including the principal officer of a company, who is required to deduct any sum in accordance with the provisions of this act (including the employer),

does not deduct, or does not pay, or after deducting fails to pay,

the whole or any part of the tax, as required by or under this Act, then, such person, shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of such tax.

Section 201 – Consequences of failure to deduct or pay

29

Section 201 cont.. Proviso (inserted by Finance Act, 2012, w.e.f. 01/07/2012)

Any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident—(i)  has furnished his return of income under section 139;(ii) has taken into account such sum for computing income in such return of income; (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in Form No. 26A (Rule 31ACB)

30

Section 201 cont.. Interest a. 1% for every month or part of a month on the amount of such tax,

from the date on which the tax was deductible to the date of actual deduction, and

b. 1.50% for every month or part of a month on the amount of such tax, from the date of actual deduction to the date of payment

Limitation for ordera. Two years from the end of the financial year in which the statement

(TDS returns) is filed, where the statements are filed, b. Six years from the end of the financial year in which payment is

made or credit is given, where no statements are filed.

31

Any person, responsible for receiving any sum on which tax is deductible, shall furnish his Permanent Account Number (PAN) to the person responsible for such deduction. In case of failure to furnish PAN, tax will be deductible at the higher of the following rates;

a. at the rates specified in the provisions of the act, orb. at the rate or rates in force, orc. at the rate of twenty percent

Section 206AA – Furnishing of PAN

32

Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement (returns) within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.

Maximum Fee = Amount of tax deductible

Applicable to returns which are to be filed or caused to be filed on or after the 1st July, 2012.

Section 234E – Interest for late filing of returns

33

234E cont..

Rajasthan High Court – Mr. Om Prakash Dhoot

Bombay High Court – Rashmikant Kundalia vs. UOI

Kerela High Court – Narath Mapila LP School vs. UOI

Karnataka High Court – Adithya Bizorp Solutions India Pvt. Ltd vs UOI

34

If any person fails to deduct the whole or any part of the tax as required under the provisions of chapter XVII –B, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.

Section 271C – Penalty for failure to deduct tax at source

35

Inserted by Finance Act, 2012 w.e.f. 01/07/2012

Penalty for -a. Non-filing of TDS returnb. Filing incorrect TDS return

Penalty amount = Min. Rs. 10,000/- going up to Rs. 1,00,000/-

No penalty if TDS returns are filed before the expiry of a period of one year from the time prescribed for filing such return

Section 271H – Penalty for failure to furnish statements

36

If any person does not issue the TDS certificates as per the provisions of section 203 or quotes incorrect TAN in documents as required under the provisions of section 203A, he shall be liable to a penalty of a sum equal to ten thousand rupees.

Section 272BB – Penalty for quoting of wrong TAN or non-issuance of TDS certificate

37

If any person fails to pay the whole or any part of the tax deducted as required under the provisions of chapter XVII –B, then, such person shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

Section 276B – Penalty for failure to pay tax deducted at source

38

TDS Payment Due Dates –

TDS Returns Due Dates –

Miscellaneous

Particulars Payment Due Date

Amount Paid/ Credited in the month of March

30th April

Amount Paid/ Credited in any month other than March

7th day of the Subsequent Month

Quarter Ended Due Date

30th June 15th July

30th September 15th October

31st December 15th January

31st March 15th May

39

Misc. cont..

Circular No. 1/2012 dated 09/04/2012 – All deductors shall issue TDS certificate in Form No. 16A generated through TIN central system and which is downloaded from the NSDL website (w.e.f. 1st April, 2012)

Circular 1/2014 – No TDS on service tax component if the same is separately bifurcated on the invoice.

40

Misc. cont.. Notification No. 56/2012 dated 31-12-2012 – No TDS in case

following payments made to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign bank, namely:-

a. Bank guarantee commissionb. Cash management service chargesc. Depository charges on maintenance of demat accountsd. Charges for warehousing services for commoditiese. Underwriting service chargesf. Clearing charges (MICR charges)g. Credit card or debit card commission for transaction between the

merchant establishment and acquirer bank

Applicable w.e.f. 1st January, 2013

41

1. Advertisement Expenses• to advertisement agency• to media

2. Renting of Hoardings for Advertisement

3. Renting of Machinery (Crane / Vehicle)

4. Hotel Rooms on Rent

Issues

42

5. Purchase of Computer Software - Notification No. SO 1323(E) dated 13/06/2012

6. Payments to Recruitment Agency

7. Section 40(a)(ia) – Disallowance for short deduction? - CIT, Kolkata v. S. K. Tekriwal (ITAT No. 183 of 2012)- Disallowance only on outstanding as on 31st March?

Issues

43

8. Payments made towards Carriage of Passengers -• to Travel Agent • to Airlines Directly • by Agents to Airlines

9. Payments made to / by Clearing & Forwarding Agents

10. Warehousing Charges

Issues

44

11. Payments towards printed material as per specifications

12. Testing & Inspection Charges - Bharat Forge Ltd. v. Addl. CIT

13. Installation Charges

14. Whether department can recover tax from deductor for short deduction, if recipient of income has already paid tax thereon? Hindustan Coca Cola Beverage (P.) Ltd. v. CIT, 293 ITR 226 (SC) 2007

Issues

45

15. Whether contract for manufacture under specifications provided, would constitute a contract for sale or contract for work?CIT v. Glenmark Pharmaceuticals Ltd [2010] 191 Taxman 455 (Bom.)

16. Payment for a contract was made to a society of truck operators, which in turn paid to the truck operators. Whether payment by society to truck operators can be considered as sub-contract?CIT v. Ambuja Darla Kashlog Mangu Transport Co-op Society [2010] 188 Taxman 134 (HP)

Issues

46

17. Advertisement agents retained 15% of the collection and the balance was paid to Doordarshan. Whether the amount retained can be considered as commission u/s. 194H?CIT v. Prasar Bharti [2010] 189 Taxman 315 (Ker.)

18. Whether deduction of TDS from salary has to be regular for every month or can be irregular?CIT v. Enron Expat Services Inc. [2011] (330 ITR 496) (Uttarakhand)

Issues

47

19. Whether employer is under obligation to check correctness of claims made by employees towards deductions and exemptions? CIT vs. Larsen & Toubro Ltd [2009] (313 ITR 1) (SC)

Issues

48

THANK YOU

Contact Details:CA Vishal H. ShahM: +91 9819593006E: vishal@nkkalras.comW: www.nkkalras.com