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1 TAX DEDUCTED AT SOURCE BASICS UPDATE & PRACTICAL ISSUES D R Venkatesh, B.COM, LLB, FCA, Partner, MSSV & Co., Chartered Accountants Bangalore.

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Presentation on theme: "1 TAX DEDUCTED AT SOURCE BASICS UPDATE & PRACTICAL ISSUES D R Venkatesh, B.COM, LLB, FCA, Partner, MSSV & Co., Chartered Accountants Bangalore."— Presentation transcript:

1 1 TAX DEDUCTED AT SOURCE BASICS UPDATE & PRACTICAL ISSUES D R Venkatesh, B.COM, LLB, FCA, Partner, MSSV & Co., Chartered Accountants Bangalore

2 2 BACKGROUND PRESS RELEASE DATED MAY 21, 2009 NO 402/92/2006-MC(12 of 2009) FY (in Crores) FY (in Crores) Remarks (in Crores) Direct Tax3,38,2123,12,20226,010 increase, i.e. 8.33% Corporate Tax2,12,8231,92,91120,912 increase, i.e % Personal Income Tax (FBT, STT & BCTT) 1,23,9671,18,9045,063 increase, i.e. 4.25% FBT7,9977, increase, i.e % STT5,4088,5773,169 decrease, i.e % Corporate TDS61,68345,45016,233 increase, i.e % Non-Corporate TDS68,78659,1459,641 increase, i.e % C.G. TDS3,3642,0341,330 increase, i.e % Tax Collected by way of Assessment 31,242

3 3 Direct Tax Collection short by Rs 52,798 Crores, as against the Budgeted Target of Rs 3,65,000 Crores. Direct Tax Collection only Rs 48,280 Crores during the FY , risen to over Rs 3,38,212 Crores, the increase is nearly SEVEN times in 11 years time. TDS Collection is Rs 1,30,469 Crores out of the Direct Tax Collection of Rs 3,38,212 Crores. Cost of Collection is 0.66% during the FY Cost of Collection was 0.54% during the FY

4 4 Presentation Basics Update Practical Issues u/s 194 C, 194 I and 194 J Lower Deduction of Tax Annual Tax Statement Conclusion

5 5 Basics Status of Deductor/Payer oAny Person ……. oTax Payer oAgriculturist oCharitable/ Educational Institutions

6 6 Basics Individual / HUF oWhose total sales, gross receipts or turnover oExceed the monetary limits specified under clause (a) or clause (b) of Section 44AB oDuring the financial year immediately preceding financial year

7 7 Status of Recipient/Payee oRate of Deduction oApplicability of Surcharge oGovernment Basics

8 8 Basics Residential status of Recipient/Payee oResident oNon resident

9 9 Basics Nature of expenditure oIn the hands of the deductor – payment / Debit may be towards  Capital Expenditure  Revenue Expenditure  Personal Expenditure

10 10 Basics When to deduct oPayment oCredit

11 11 Basics Rate of Deduction oTax rate oSurcharge oEducation Cess

12 12 Basics Remittance Deductor oGovernment - On same day oOthers  During the year payment  Year end provisions oWith Special Permission  Salaries – 15 th June, 15 th September, 15 th March  Interest, Insurance Commission, Commission or Brokerage u/s 194H – 15th July, 15th October, 15th January, 15th April

13 13 UPDATE The Taxation law (Amendment) Act, 2006 The Finance Act 2007 The Finance Act 2008 Circulars/Notifications

14 14 UP DATE: THE TAXATION LAWS (AMENDMENT) ACT, ASSENT OF THE PRESIDENT ON THE 13 TH JULY THE GAZETTE OF INDIA ON 14 TH JULY Clause 8 – Amendment to Section 40(a)(ia) w.e.f Rent, Royalty - Clause 16 – Amendment to Section 194J- Royalty - Any sum referred to in clause (va) of Section 28

15 15 UP DATE: Clause 15 – Amendment to Section 194I - Rent means any payment, by what ever name called, under any lease, sublease, 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 build (including Factory Building) ; or (d)Machinery ; or(g) Furniture ; or (e)Plant ; or(h) Fittings (f) Equipment ;or Whether or not any or all of the above are owned by the payee.

16 16 THE FINANCE ACT 2007 Section 194A - w.e.f Rs.5000 to Rs Rs – Co-operative Society engaged in carrying on the business of banking - Rs – On any deposit with Post Office under any scheme framed by Central Government and notified by it in this behalf -Rs in any other case. Section 194C C (1) – Substituted - (a), to (j) - old - (k) – New sub section - Any individual or a HUF

17 17 Section 194 H - w.e.f % to 10% - Insertion of proviso – No deduction Any commission or brokerage payable by BSNL or MTNL to their public call office franchises Section 194 I - w.e.f (a)10% for use of any machinery or plant or equipment - (b)15% land or building or furniture or fittings Payee – individual or HUF - (c)20% land or building or furniture or fittings Payee – other than individual or HUF

18 18 Section 194J - w.e.f % to 10% Section 201(1A) - 12% per annum to 1% for every month or part of a month

19 19 The Finance Act 2008 –Amendment to Sec 199 –Amendment to Sec 203 –Amendment to Sec 40(a)(ia)

20 20 Amendment to Sec 40(a)(ia) Has not been paid- [A] In a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub - section[1] of section 139; or [B] In any other case, on or before the last day of the previous year;

21 21 Circulars/Notifications Circular No. 4/2008, Dated April 28, 2008 Circular No. 275/73/2007, Dated June 30, 2008 NotificationNo.88/2008/F.NO.275/43/2008-IT[B], Dated August 21, 2008 Notification No. 28/2009, Dated March 16, 2009 Notification No. 30/2009, Dated March 25, 2009 Notification No. 31/2009, Dated March 25, 2009 Notification No. 142/22/2008, TPL Circular No. 02/2009, Dated May 21,2009

22 22 Circulars/Notifications Circular No. 4/2008 dated April 28, 2008 Clarification regarding service tax should be excluded for TDS u/s 194I Clarificatory Circular No. 275/73/2007 dated June 30, 2008 Clarification regarding service tax should be included for TDS u/s 194J

23 23 U/s 194I U/s 194J Rent Rs. 100,000 Service Tax Rs. 10,300 Total Rs. 110,300 TDS on Rs. 100,000 Fees Rs. 100,000 Service Tax Rs. 10,300 Total Rs. 110,300 TDS on Rs. 110,300

24 24 Any income by way of Any sum by way of 194A 194B 194BB 194D 194E 194G 194H 194I 194C 194J 194L 194LA

25 25 Circulars/Notifications NotificationNo.88/2008/F.NO.275/43/2008-IT[B] Professional includes for Section 194J Sports Persons Umpires and Trainers Team Physicians and Physiotherapists Event Managers Commentators Anchors and Sports Columnists

26 26 Circulars/Notifications Notification No.28/2009 –Income Tax (Sixth Amendment) Rules, 2009 –W.e.f April 1, 2009 –New Rule 37BA, 37I –Credit for tax deducted at source for the purpose of sec 199(3) –On the basis of information relating to deduction of tax furnished by the deductor to the income tax authority or the person authorized by such authority –TDS amount –Assessment Year

27 27 Circulars/Notifications Notification No.30/2009 –Income Tax (Seventh Amendment) Rules, 2009 –W.e.f July 1, 2009 –New Rules 37BB –Furnishing of information u/s 195(6) –Form No. 15CA – Information shall be furnished electronically to the website designated by the IT Department prior to remitting the payment –Form No. 15CB – Certificate of Accountant

28 28 Circulars/Notifications Notification No.31/2009 –Income Tax (Eight Amendment) Rules, 2009 –W.e.f April 1, 2009 –New Rules 30, 31, 31A, 37CA, 37D –New Forms 16, 16A, 17, 24C

29 29 Rule 30 : Time schedule for remittance of TDS –No change Within two months from the end of the month in which amount is credited by the payer to the account of the payee Any other case, within one week from the end of the month

30 30 Rule 30 : Special cases – prior approval of the Joint Commissioner –Quarterly payment of amount on 15 th June, 15 th September, 15 th December and 15 th March - salaries –Quarterly payment of amount on 15 th July, 15 th October, 15 th January and 15 th April – Interest, Insurance Commission, commission or brokerage u/s 194H Rule 30(4) - Payment of tax under chapter XVII- B –Electronically furnish an income tax challan in Form No. 17 Rule 30(5) – electronically remitted by way of –Internet banking facility –Credit or Debit card

31 31 Rule 31 Rule 31(1) – TDS Certificate –Form No. 16 –Form No. 16A Rule 31(2) – Time schedule for furnishing TDS Certificate –Within one week –Within one month –Within fourteen days –Within one month Rule 31(3) – Duplicate Certificate Rule 31(4) – Duplicate Certificate –Obtain indemnity bond from deductee –Get a payment certified by the AO designated in this behalf by the chief commissioner or commissioner

32 32 Rule 31A Quarterly Statement of Deductions of Tax or Collection of Tax –Form No. 24C – TDS Compliance Statement –Form No. 24Q – Salaries –Form No. 27Q – Other Cases – Deductees other than company being non-residents or a foreign company –Form No. 26Q – Other Cases – others –Form No. 27EQ – Collection of Taxes

33 33 Form 16, Form 16A and Form 27D has been modified with similar changes and have the same structure Additional changes made applicable to the above 3 forms are: –Whether Original/Duplicate/Amended –TDS Certificate Number –Unique Transaction Number (UTN) has to be mentioned i.e. provided by IT Department, along with Gross amount paid and TDS amount. Removal from old form: –Details of Tax Deducted and Deposited into Central Government account –PAN of the Deductor

34 34 TDS Challan – Form No. 17 TDS remittance challan – challan No. 281 is replaced by Form No. 17 and the remittance is to be done electronically (either by way of internet banking or through Debit/ Credit Cards) Additional Requirements as per Form No. 17 –PAN of the Deductor –Challan is section Independent. Deductor can prepare a single challan at the end of the month for all his TDS deductions (Including Salaries and Non Salaries). –Due date of deposit of TDS is same as per old provision. –Deductor has to provide deductee wise PAN, Name and TDS amount.

35 35 TDS/TCS Compliance Statement – Form No. 24C It is to be filed by all assesses who have been allotted TAN. Section wise (all), 3 months separate information, are to be filed electronically to the DGIT or the person authorized by the DGIT on quarterly basis. It contain information of Total Payment, Total amount eligible for deduction, Total amount considered for TDS at full rate, Amount of TDS at full rate, Total amount considered for TDS at lesser rate, Amount of TDS at lesser rate, Total TDS. The due dates for delivering the Form 24C i.e. 15 th July. 15 th October, 15 th January for first 3 quarters of financial year and 15 th June following the last quarter of the financial year.

36 36 TDS/TCS Compliance Statement – Form No. 24C SCH COM-1 Details of TDS compliance in the month of ___ ____ SCH COM-2 Details of TDS compliance in the month of ___ ____ SCH COM-3 Details of TDS compliance in the month of ___ ____ SCH PAY Details of payment of tax deducted or collected at source At a glance the preliminary structure of Form 24C is similar to Income Tax Return especially the deductor details

37 37 Unique Transaction Number [UTN] The Deductee records under that challan have to be entered online [if less than 10] or have to be uploaded through a file. On successful payment, an acknowledgement would be generated in Form 17 format, which validates [Yes/No] for each PAN of the deductee and generates a Unique Transaction Number [UTN] for each deductee record. It is a common link between Challan, TDS certificate and eTDS Statement and will be provided by the I.T. department.

38 38 Circular No. 02/2009 Dated May 21, 2009 TDS or TCS effected on or after April 1, 2009, but not later than May 31, 2009: Fill-up Form No. 17 – between July 1, 2009 to July 15, 2009 Return of Income in Form No. ITR 1 to ITR 8 for the AY Quoting of relevant UTN for every TDS or TCS Deductions or collections made before April 1, 2009

39 39 Practical issues General Specific

40 40 Mr.X a practicing CA who is subject to Tax Audit u/s 44AB for the year ending having the following transactions during the financial year : 1.Constructed a house for self occupation & he is making payment to contractor Rs.10,00,000/- 2.Borrowed funds from friends Rs.10,00,000/- on which he wants to pay interest Examine the applicability of TDS Issues - General

41 41 Issues - General The entries passed in books of accounts for MIS purposes. Examine the applicability of chapter XVII - B

42 42 Issues – General Excess/Short deduction Excess/Short Remittance - Adjustment -With in the quarter. -With in the financial year Refund of Excess tax remitted

43 43 Issues - General Defaults oNon deduction oShort deduction oNon remittance o Short remittance oDelay in remittance

44 44 Issues - General Consequences oInterest oPenalty oProsecution oAmount not deductible

45 45 Issues - General  Disallowance u/s 40(a)(ia) & Form No 3CD o In the case of  non deduction  short deduction  non remittance  short remittance  delay in remittance

46 46 Issues - General Compute the Disallowance u/s 40(a)(ia) for the AY Internal Audit Fee for the FY Paid every month with out deduction of tax. TDS made during March 2009 (Including earlier months) and remitted to Govt. -On or before March 31, On July 25, 2009 or September 25, 2009 Internal Audit Fee for the FY Paid every month with deduction of tax but not remitted to Government. Remitted before March 31, 2009 Remitted on July 25, 2009 or September 25, 2009

47 47 Issues - General M/s X Private Limited paid statutory audit fee of Rs.1,00,000/- in cash during the accounting year 2008 – 2009 with out deduction of tax at source. For Assessment year 2009–10, Examine the disallowance u/s 40(a)(ia) and u/s 40A(3) ?

48 48 Issues - General The Assessee has received the transport advance of Rs.10 Crore from X Limited. X Limited has deducted the TDS U/s 194C on 10Crores while making the advance payment. The Assessee couldn't complete the contract work to the extent of Rs.6Crores and the same has been returned to X Limited. The Assessee has credited Rs.10Crores as income debited Rs.6Crores to as Fright Charges refund account in the P&L A/c. The assessing officer disallowed Rs 6Corores u/s 40a(ia) since the assessee has not deducted the tax at source. Discuss

49 49 Issues - General Assessment completed U/s 143(3) for the Assessment Year 2005 – 2006, 2006 – 2007 & 2007 – The Assessing officer verified the books of accounts and all the records & no observations regarding noncompliance of provisions of Chapter XVII – B is noted in the said order. Survey officials of TDS Circle observed that for the above years the assessee has violated the TDS provisions and propose to invoke Section 40(a)(ia). examine

50 50 Issues - General  Time limit for verifying the TDS returns and demanding interest u/s 201(1A)?  Interest paid u/s 201(1A) – is it a deductible expenditure?

51 51 Issues – Specific U/s 194C oContract between the contractor and specified entity oEach contract less than Rs. 20,000 oTotal payment in financial year Rs. 50,000 oSub contractor – individual – not owned more than 2 lorries

52 52 Issues – Specific Incentive paid to a Contractor Liquidated damages recovered from contractor

53 53 Issues – Specific Transport contract Vehicle hire charges - Section 194C or Section 194I

54 54 Issues – Specific Reimbursement of expenses to agent -Loading and unloading charges -Freight/transportation charges

55 55 Issues – Specific M/s A limited has given turnkey project to B Limited for setting the data centre in their premises for 3 Crore plus applicable taxes. B Limited raised the invoice which is as follows: ____________________________________________________________________________________ Invoice Towards setting data centre- 3,00,00,000 Add: 75% of the value)- 28,12,500 Add: Service (33% of the value)- 12,23, ,40,36, ____________________________________________________________________________________________________________________________________ Issue – 1 :M/s A Limited propose to deduct the Tax on 33% of contract value. Issue – 2 :Whether TDS should be made including Service Tax and VAT?

56 56 Issues – Specific X Limited entrusted the construction work to C Limited. As per the arrangement, construction materials is supplied by X Limited to maintain the quality. X Limited deducted the amount towards supply of material from gross contract price. The details are as follows: Contract Price (Gross)Rs.100 Lakhs Less: Amount deducted towards supply of material Rs.70 Lakhs Net amount paid to C LtdRs.30 Lakhs X Limited deducted TDS U/s 194C onRs.100 Lakhs. -Discuss the accounting entries to be passed in the books of accounts in both the companies to avoid the probable TDS issues.

57 57 Issues – Specific Rent oAdvance Rent of Rs. 5 Lakhs paid for next 5 Financial years on oRent of Rs.5 lakhs paid to 5 co-owners oWarehousing Charges oCooling Charges paid to cold storage owners

58 58 Issues – Specific M/s King fisher Airlines paid landing fee and parking fee of Rs.10 Crores to Airport authorities during the accounting year M/s Kingfisher Airlines proposes to deduct tax at source:- -194C or 194I ? Rent paid to owner as a percentage of sales. Tenants in a commercial complex following payments are made to the owner:- - Rent - Maintenance charges - Power & Water charges re-imbursements.

59 59 Issues – Specific M/s X Limited has paid interest free refundable deposit of Rs.100 lakhs to M/s Y Limited. M/s Y Limited allowed M/s X limited to use the building without rent. Assessing Officer observed that this arrangement is only to avoid the TDS and he propose to invoke the provisions of Section 194A in the case of M/s Y Limited and Section 194I in the case of M/s X Limited.

60 60 Issues – Specific Fees for professional services oIs TDS to be effected u/s 194J on the gross amount of bill including service tax and reimbursement of expenses or the fees only?

61 61 Issues – Specific Audit FeeRs. 1,00,000 Service Tax & CessRs. 10,300 Reimbursement of expensesRs. 50,000 TotalRs. 1,60,300

62 62 Issues – Specific M/s Specialty Hospital Private Limited makes payment to consulting doctors by collecting amount from patients. It retains 20% of the fee collected as its service charges and pays 80% to the consulting doctors. -TDS U/s 192 or 194J? -TDS on 80% or 100%

63 63 LOWER DEDUCTION OF TAX Section 197 Payments Covered: - Section Section 194J - Section Section 194K - Section Section 194LA - Section 194A - Section Section 194C - Section 194D - Section 194G - Section 194H - Section 194I Form No 13

64 64 ANNUAL TAX STATEMENT Form No. 26AS Section 203AA Rule 37AB Statement issued on behalf of Income Tax Department Details of Tax indicated based on the data submitted by the deductor Due Date for sending this statement is July 31 every year Form 26AS consists of: - General Information - Part A : Details of TDS - Part B : Details of TCS - Part C : Details of Tax Paid, other than TDS/TCS

65 65 Conclusion Remittance without deduction Transportation Charges Rs. 100L 2.266%Rs L TotalRs L

66 66 Conclusion Remittance in advance Duty / Responsibility under chapter XVII – B cannot be bypassed

67 67 Conclusion Method of accounting o Cash Basis o Mercantile Basis o Compliance Basis

68 68 Conclusion GOLDEN PRINCIPLES Applicability Rate Deduction & Remittance Planning

69 69 Tips for Better and clear understanding of provisions of chapter XVII B are

70 70 Step 1 : Read, Read and Read until you are clear about the provisions (Sections & rules) Step 2 : Read circulars and notifications

71 71 Step 3 : Read case laws of Supreme Court, High Court, ITAT… Step 4 : Advise accordingly

72 72 Finally Deduct and remitWithout failure Avoid – interest, penalty, prosecution and disallowance With due care File TDS returns & Issue the forms Within time


74 74 Thank You

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