SALIENT ISSUES OF TDS

By CA Paras Bafna

TRACES & ASSESSEES

INTRODUCTION

Tax Collection Mechanism

• Assessee requires to pay tax on his income by way of:

• Direct Payment by assessee (Section 191) Advance tax or

Self Assessment tax: Section 191

• TDS or TCS (Section 192 to 196D)

S 192: TDS ON SALARY

• Deduct at Average rate of Income Tax compute on the

basis of rate in force• TDS has to be deducted at the time of Payment (Not • on due basis)• Employee may furnish details of other income to

employers to deduct higher tax. (Losses will not be

adjusted other than loss from House property)• Two employer or more employer details of previous

employer may be collected in the prescribed format.

• 80G deduction to be ignored while calculating avg. tax

rate.

S 193: TDS ON INTEREST ON SECURITIES

(PAID TO RESIDENTS)• TDS Rate 10% • Limit Rs 5000/-• No TDS on certain Govt. sponsored Bonds

savings certificates. Interest on Securities payable to LIC, GIC etc.

• Debenture interest payable to Individual and HUF by a public company limit Rs. 5000.

• Payment by A/c Payee cheque

194: TDS ON DIVIDENDS

(PAID TO RESIDENTS)• Dividends are exempt u/s 115-O.

– No TDS• Dividend other than 115-O dividend TDS

has to be deducted. Limit Rs 2500/- • No TDS on Dividend payable to LIC, GIC • Principle officer of Indian co. is required to

deduct tax on deemed dividend u/s 2(22)(e)

@ 10%.

S 194A: OTHER INTEREST - RESIDENT

(OTHER THAN ON SECURITIES)

• Rate of TDS 10%

• Limit – Rs. 10,000/- for Bank, Co-Op Soc., Post Office

• Limit – Rs. 5,000/- for any other case

• Accrual basis

SECTION 194B-194BB

• 194B- WINNING FROM LOTTERY OR CROSS WORD PUZZLES :

• Limit > Rs.10000

• Rate-30%

• 194BB-WINNING FROM HORSE RACES

• Limit > Rs. 5000

• Rate-30%

194C: PAYMENTS TO CONTRACTORS

• Tax is to be deducted at source:• On the invoice value excluding the value of

material, if such value is mentioned separately in the invoice; or

• On the whole of the invoice value, if the value of the material is not mentioned separately in the invoice.

• TDS rate:• 1% where payment/credit is to an individual

/HUF• 2 % where recipient is any other person.

194C: PAYMENTS TO CONTRACTORSMonetary Payment Limits

• If the credit or the payment in pursuance of the single contract does not exceed Rs.30,000/-, no deduction has to be made at source.

However , if the aggregate of all amounts paid/credited or likely to be paid /credited exceeds in F. Y. Rs. 75,000/- then tax at source is to be deducted.

194C: PAYMENTS TO CONTRACTORSSpecified Persons

• Individual/HUF covered under the Tax Audit U/s 44AB(a) or 44AB(b) are specified persons.

• Individual/HUF covered under the Tax Audit U/s 44AB(d) as required by Section 44AD(5) are not specified persons.

• All other persons have been covered under the definition.

• No TDS on Transporters if PAN is provided

194C: PAYMENTS TO CONTRACTORSWork

• 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 by railways• catering ;• manufacturing or supplying a product according to the

requirement or specification of a customer by using material purchased from such customer,

If material purchased from others- it’s not work

Other TDS Sections

• 194D (Resident)

Insurance Commission > Rs.20,000 10%• 194E (NR) Sportsmen, Sport Association, Entertainer

20%• 194G (R/ NR) Commission on Sale of Lottery Tickets

> Rs.1,000 10% • 194H (Resident) Commission or Brokerage • > Rs.5,000 10%

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Directors commission will be covered u/s 192

Section 194-I, RENT

• Rent > Rs.1,80,000 p. a. • Rent of Plant & Machinery @2%• Rent of Land, Building, Furniture, etc @10%• Payment or credit whichever is earilier• Limit of Rs 180000 applies upon the payee.

Section 194IA- Payment for non-agriculture land and building or its part

• Applicable from 1.06.2013• Transferee or buyer will deduct TDS @ 1% • TDS is based on the consideration of the property being

transferred. • In case of co-owned property of > 50.00 Lac TDS will be

deducted by all the buyers of all the sellers. • PAN Compulsory of all the parties. • No PAN- TDS @ 20% would apply • TAN of the deductor (s) not required• Form No 26QB Challan cum statement • Form No 16B : TDS certificate

Section 194J-Fees for professional or Technical Services

Applicable on payments or credit towards - • Fees for Professional or Technical Services• Any remuneration or commission paid to director of the

company (Effective from 1 July 2012). Other than those

covered under section 192• Royalty • Any sun referred to in Section 28(va) payable towards

not carrying out any business activity or not sharing any know-how patent, CR,TM, Licence, commercial rights etc.

• Limit > Rs. 30000 TDS Rate @ 10%

Other TDS Sections • 194K- Income in respect of units• 194L- Compensation on Acquisition of Capital Asset• 194LA- Compensation on Acquisition of certain

immovable property• 194LB- Income by way of Interest from Infrastructure

debt fund• 194LC- Income by way of Interest from Indian

Companies.• 194LD-Income by way of interest on certain bonds and

Govt. Securities.• 195- Other Sums • 196-196A-196B-196C-196D

197-Certificate for deduction at lower rate

• Application in Form 13 is to be made by the assessee

• If AO satisfied that total Income of recipient justifies

deduction at lower rates or no deduction at the time of payment at the rates in force under the provisions of section 192, 193, 194, 194A, 194D, 194-I, 194J,194K, 194LA and 195.

AO shall give the assessee such certificate as may be appropriate

S 197A-No deduction to be made in certain cases

• Resident Individual Assesee can file a declaration of his estimated total income in the prescribed form for No TDS under S. 194 (Dividend) & S. 194EE (NSS)

OR • Any person ( other than a company or a firm) can

also file a declaration of its estimated total income in the prescribed form for No TDS under

• S. 193 (Interest on Securities)• S. 194A (Other Interest)• S. 194K (Income in respect of units)

S 197A-No deduction to be made in certain cases

• A senior citizen can also apply in the prescribed manner

• for No TDS on income covered U/s 193,194A, 194EE,

• 194K or 194K(1B)

S200: DUTY OF PERSON DEDUCTING TAX

• Any person deducting any sum in accordance with the provisions of TDS section, shall pay within the prescribed time, the sum so deducted to the credit of the Central Government.

• File TDS return within prescribed time.

S. 200A- Processing of e-TDS Returns

• E-Tds returns shall be processed in the prescribed manner under this section by considering

• the sum deductible under chapter XVII• Arithmetical errors• Prima facie-incorrect claims • Interest• any amount paid otherwise• Intimation u/s 200A is notice under section 156. (Finance

Act 2012)

Situation Time Limit For Deposit Of Tax

When Tax isdeducted Personother thanGovernment

Where income or amountis credited or Paid in theMonth of March

On or before 30th April

In any other Case On or before 7 days from the end of themonth in which –

•The deduction is made•Income tax is due u/s 192(1A)

Quarter Form 24Q Form 26Q

1st July 15th July 15th

2nd October 15th October 15th

3rd January 15th January 15th

4th May 15th May 15th

24 Q – Salary

26Q – Other than Salary

Particulars TDS on Salary

TDS on Non Salary

Form Form No 16 Form No 16A

Periodicity Annual Quarterly

Due Date upto which TDS Certificates Should be issued

31st May of Followingrelevant FY

15 days from due date ofFurnishing Return.• 30th July• 30th October• 30th January• 30th May

Particulars Description

Failure to Deductor Failure to PayTDS(Section 201(1))

Interest U/S 220 – Upto amount not deducted or pay.

Penalty U/S 221 - 1% pm from date on which tax wasdeductible to order u/s 201(1)

Late Deduction OrLate Payment ofTDS(Section 201(1A))

• 1% p.m. from date on which tax was deductible toactual date of deduction

• 1.5% (Actual date of deduction – Actual Date ofPayment )

2.  Section 271C inter alia lays down that if  any person  fails  to  deduct whole or any part of tax at source or fails to pay the whole or part of tax under second proviso to section 194B, he  shall  be  liable to pay, by way of  penalty, a sum equal to the amount  of tax  not  deducted or paid by him.

3.  Further, section  276B  lays  down that  if  a person fails to pay to the credit  of  the CG within the prescribed  time, as above, the  tax  deducted at  source  by him, he shall be punishable with rigorous imprisonment  for a term which shall be between 3 months and 7 years, along with fine.

Amendment by Finance Act 2012 – Proviso to Section 201(1)

Deductor cannot be treated as assessee in default where deductor has failed to deduct TDS but deductee (R) has paid the tax directly.

has furnished his return of income under section 139;

has taken into account such sum for computing income in such return of income; and

has paid the tax due on the income declared by him in such return of income, and furnishes a certificate to this effect from an accountant in such form as may be prescribed then assessee will not be regarded as assessee-in-default.

TDS not deducted But deductee has taken amount in Income and Filed his return and paid tax on income Then no disallowance under section 40(a)(ia)

“Amounts not deductible

40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”, —

(a)in the case of any assessee— ……………

Section 40(a)(ia)

Section 40(a)(ia)• any interest, commission or brokerage, rent,

royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work,

• on which tax is deductible at source and such tax has not been deducted or;

• after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139

First Proviso to Section 40(a)(ia)

• Provided that where in respect of any such sum, tax has been deducted in any subsequent year,

• or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139,

• such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has

been paid.”

Second Proviso to S.40(a)(ia)inserted by the Finance Act 2012, w.e.f. 1-4-2013

• Provided further that where an assessee fails to deduct the whole or any part of tax in accordance with the provisions provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to Section 201(1) then for the purpose of this clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of ROI by the resident payee referred to in the said proviso.

Conclusion

• If the assessee is not an assessee in default U/s 201(1) his claim of expenditure is decided by the fact which is not under his control.

• Such claim depends on –

• The date of filing of return of the payee.

No TDS on Service Tax• An important judgement of the Hon’ble Rajasthan High

Court, in the case of

• CIT (TDS), Jaipur Vs. M/s. Rajasthan Urban Infrastructure [2013 (8) TMI 12 – (RAJ)

held that if as per the terms of the agreement between the payer and the payee, the amount of service tax is to be paid separately and was not included in the fees for professional services or technical services, no TDS is required to be made on the service tax component u/s 194J

Circular No. 4/2008 dated 28-04-2008 

it was clarified that tax is to be deducted at source under Section 194-I of the Act, on the amount of rent paid/payable without including the service tax component.

Representations/letters has been filed to CBDT seeking clarification whether such principle can be extended to other provisions of the Act also.

CBDT has examined the matter afresh and clarified vide Circular No. 1/2014 dated 13-1-2014  -

“TDS on service tax component comprised of payments made to residents” that wherever in terms of the agreement /contract  between the payer and the payee, the service tax component comprised in the amount payable to a resident is indicated separately, tax shall be deducted at source on the amount paid/ payable without including such service tax component

Other Relevant Provisions

• Section 206AA – Requirement to furnish PAN

• Section 206C- TCS