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 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 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 Rate-30% 194BB-WINNING FROM HORSE RACES Limit > Rs 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 CONTRACTORS Monetary 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 CONTRACTORS Specified 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 CONTRACTORS Work 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% _______________________________________________ Directors commission will be covered u/s 192

Section 194-I, RENT Rent > Rs.1,80,000 p. a. Rent of Plant & Rent of Land, Building, Furniture, Payment or credit whichever is earilier Limit of Rs applies upon the payee.

Section 194IA- Payment for non-agriculture land and building or its part Applicable from Transferee or buyer will deduct 1% TDS is based on the consideration of the property being transferred. In case of co-owned property of > Lac TDS will be deducted by all the buyers of all the sellers. PAN Compulsory of all the parties. No PAN- 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 TDS 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 Other Sums A-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)

SituationTime Limit For Deposit Of Tax When Tax is deducted Person other than Government Where income or amount is credited or Paid in the Month of March On or before 30th April In any other CaseOn or before 7 days from the end of the month in which – The deduction is made Income tax is due u/s 192 (1A)

QuarterForm 24QForm 26Q 1stJuly 15th 2ndOctober 15th 3rdJanuary 15th 4thMay 15th 24 Q – Salary 26Q – Other than Salary

ParticularsTDS on SalaryTDS on Non Salary FormForm No 16Form No 16A PeriodicityAnnualQuarterly Due Date upto which TDS Certificates Should be issued 31st May of Following relevant FY 15 days from due date of Furnishing Return. 30th July 30th October 30th January 30th May

ParticularsDescription Failure to Deduct or Failure to Pay TDS (Section 201(1)) Interest U/S 220 – Upto amount not deducted or pay. Penalty U/S % pm from date on which tax was deductible to order u/s 201(1) Late Deduction Or Late Payment of TDS (Section 201(1A)) 1% p.m. from date on which tax was deductible to actual date of deduction 1.5% (Actual date of deduction – Actual Date of Payment )

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)

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 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)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 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 “ 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