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WHT under DTC Bill 2010

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Various TDS / WHT tax provisions under new proposed Direct Tax Code Bill 2010 has

Various TDS / WHT tax provisions under new proposed Direct Tax Code Bill 2010 has

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  • 1. Withholding of Tax under Direct Tax Code Bill 2010 Organised by Quest India Presented by Paras K Savla KPB & Associates Chartered Accountants 1
  • 2. Background Income-tax Act 1961 (the Act) has been subject to numerous amendments in last 50 years - 34 times by amendment acts and various yearly finance bills These amendments - has overburdened the basic structure of the Income-tax Act and its language has become complex has rendered the Act difficult to decipher by the average tax payer The government therefore decided to revise, consolidate and simplify the language and structure of the direct tax laws. 14-10-2010 WHT under DTC 2010 2
  • 3. Background New law to take into account established and time test practices which have withstood judicial scrutiny, leading to taxation regime which is simple and broad-based leading to lowering of tax rates, better tax compliance and reduced litigation. It is proposed to replace the Income-tax Act, 1961 and Wealth- tax Act 1957 by a single Act, ie Direct Taxes Code (the Code). 14-10-2010 WHT under DTC 2010 3
  • 4. Basic Provisions Clause 193 provides that tax on the income shall be payable by deduction / collection of tax at source or by advance tax, irrespective of the fact that such income is assessed in later financial year. Chapter XIII of the Code deals with collection & recovery of taxes and part A of the chapter deals with deduction of tax at source / withholding of taxes where as part B deals with collection of tax at source The assessee is required to pay tax direct (Clause 194) if - No provision for deduction or collection of income-tax or No tax has been deducted or collected as per provisions 14-10-2010 WHT under DTC 2010 4
  • 5. General Applicability Resident payee Applies to All payers for payments in nature or salary All payers except individual & HUF who are not subject to tax audit during earlier financial year for payments other than Salary No specific exemption for personal payment by individual & HUF subject to audit in previous year Non-Resident payee Applies to all payers irrespective of there residential status 14-10-2010 WHT under DTC 2010 5
  • 6. Rates of TDS Any person responsible for specified payment is required to deduct income-tax at appropriate rate at the time of payment* Specified payment & appropriate rate are as referred in Third Schedule - applicable to resident deductee and Fourth Schedule - applicable to non-resident deductee WHT tax rate for NR deductee would be lower of the rate specified in Fourth Schedule or respective DTAA In case default in furnishing PAN to the deductor, applicable rate would be higher of 20 per cent or Rate specified in respective 3rd / 4th schedules * Payment includes deemed payment 14-10-2010 WHT under DTC 2010 6
  • 7. Point of time for deduction Specified payment shall be deemed to have been made if the payment has been made In cash By issue of cheque or draft By credit to any account, whether called suspense account or by any other name By any other mode as may be prescribed Whichever is earlier Common point of time for deduction across all specified payments Deemed payments may give rise to practical difficulties Eg in case of salaries Up till now TDS on salaries is governed by actual payments Profit-based commission paid to directors 14-10-2010 WHT under DTC 2010 7
  • 8. Specified payments and rates of TDS applicable to Residents Sr. Nature of Payment Rates of TDS where deductee is a resident No. Proposed rates under Current Rates DTC Rates as per the slabs and Average rate of tax on 1. Income from employment rates prescribed by the salary paid during the Finance Act financial year 1% (where deductee is individual/HUF) 2. Payment in respect of works contract 2% (where deductee is 2% person other than individual/HUF) 3. Payment in respect of any service contract __ 2% 1% (where deductee is individual/HUF) Payment in respect of broadcasting and 4. 2% (where deductee is 2% telecasting or advertising person other than individual/HUF) 14-10-2010 WHT under DTC 2010 8
  • 9. Specified payments and rates of TDS applicable to Residents Sr. Nature of Payment Rates of TDS where deductee is a resident No. Proposed rates under Current Rates DTC 1% (where deductee is individual/HUF) Supply of labour for carrying out any works, 5. 2% (where deductee is 2% or service contract person other than individual/HUF) 1% (where deductee is 2% (No deduction of Payment in respect of carriage of goods and individual/HUF) TDS in case of passengers by any mode of transport other 6. 2% (where deductee is carriage of goods by than railways person other than road if deductee individual/HUF) furnishes PAN) Interest 7. 10% 10% Dividend other than dividend on which DDT 8. 10% 10% is payable Commission, brokerage, remuneration or 9. prize (by whatever name called) for rendering 10% 10% any services 14-10-2010 WHT under DTC 2010 9
  • 10. Specified payments and rates of TDS applicable to Residents Sr. Nature of Payment Rates of TDS where deductee is a resident No. Proposed rates under Current Rates DTC 10. Fees for professional or technical services 10% 10% 11. Payment for royalty or non-compete fees 10% 10% Compensation on compulsory acquisition of 12. immovable property other than agricultural 10% 10% land Rent for the use of machinery or plant or 13. 2% 2% equipment Rent for use of land or building (including factory building) or land appurtenant to a 14. 10% 10% building (including factory building) or furniture or fittings Winning from any lottery or crossword puzzle 15. 30% 30% or card game or other game of any sort 16. Winnings from any horse race 30% 30% 14-10-2010 WHT under DTC 2010 10
  • 11. Specified payments and rates of TDS applicable to Residents Sr. Nature of Payment Rates of TDS where deductee is a resident No. Proposed rates under Current Rates DTC Income distributed by mutual fund on which income distribution tax is not paid 10% (where deductee (Threshold for not deducting TDS-where 17. __ is individual/HUF) payment to unit holder does not exceed Rs. 20% (other deductee) 10,000 in any financial year. TDS proposed to be introduced under) Payment by a life-insurer where payment under life policy is not tax-exempt 10% (where deductee (Threshold for not deducting TDS-where 18. __ is individual/HUF) payment to policyholder does not exceed Rs. 20% (Other deductee) 10,000 in any financial year. TDS proposed to be introduced under DTC) 14-10-2010 WHT under DTC 2010 11
  • 12. New Categories for TDS Life insurance payments Payments by Life insurance companies to the policy holder other than arising out of following is subject to TDS Premium paid or payable during the term of policy does not exceed 5% of the capital sum Amount is received upon completion of contract period Amount on which Income Distribution Tax (IDT) under clause 110 has been paid. IDT is payable on any amount of income distributed or paid to policy holders of approved equity oriented life insurance scheme Income distributed by Mutual Funds Any income distributed by mutual fund which is not subject to IDT IDT is payable on any amount of income distributed or paid to unit holders of equity oriented fund Threshold limit for non deduction of tax Rs 10,000 applicable only for non-company unit holder/policy holder Rates of TDS 10% – individual & HUF & 20% others 14-10-2010 WHT under DTC 2010 12
  • 13. Salaries TDS provisions are applicable to all payer who are responsible for payment of salary and where such payments exceeds maximum amount not chargeable to tax Rate of TDS : Average rate of income-tax Salaries paid to non-resident is covered by 4th Schedule Income from employment means income as computed under clause 21 (Clause 314(124)) Deductor to consider tax relief for arrears or advance receipts under clause 206 details if any furnished by the payee about salaries received from other employer and tax deducted thereon Provisions about salary received from another employer were absent in DTC 2009 Whether possible to consider - deduction on losses from self occupied house property? deductions for savings under clause 68? 14-10-2010 WHT under DTC 2010 13
  • 14. Contract charges TDS is applicable on following payments works contract service contract; broadcasting and telecasting; supply of labour for carrying out any works, or service contract; advertising; or carriage of goods and passengers any mode of transport other than by railways. ‘‘work’’ includes manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer and not from any other person. 14-10-2010 WHT under DTC 2010 14
  • 15. Contract charges (Cont.) Service contract is the new category added Service Contract includes job work “Service” for the purposes of non-compete agreement means service of any description which is made available to potential users and includes the provision of services in connection with business of any industrial or commercial nature such as accounting, banking, merchant banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging (Clause 314 (232)) ‘‘broadcasting and telecasting’’ includes production of programmes for broadcasting or telecasting; ‘‘contract’’ and ‘‘contractor’’ include ‘‘sub-contract’’ and ‘‘sub- contractor’’ respectively; 14-10-2010 WHT under DTC 2010 15
  • 16. Contract charges (Cont.) No specific inclusion of catering whether covered under service contract? No separate rate in respect of payments to individual / HUF and others TDS not applicable in case individual contract is for less than Rs 30,000 and/or aggregate value during financial year is less than Rs 75,000 No TDS for carriage of goods by road transport if payee furnishes PAN Such payment to transporters may be notified to be incorporated in the return of TDS 14-10-2010 WHT under DTC 2010 16
  • 17. Interest No distinction between interest on securities and other interest Largely exemptions similar to the currently available. TDS on Interest is not deducted in respect of - Interest on Central/State Government Securities May be No TDS on 8% Saving (Taxable) Bonds, 2003 Securities issued by company and such securities are listed and in dematerialised form Interest on debentures issued by widely held companies up to Rs 5,000 paid to individual and such debentures listed on recognised stock exchange Interest on time deposits (excluding recurring deposits) payable by banking company, co-operative bank or housing finance company, up to Rs 10,000 Interest on any deposits other than time deposits with banking company / co-operative bank Interest under income/wealth tax Act & DTC 14-10-2010 WHT under DTC 2010 17
  • 18. Interest (Cont) Compensation awarded by motor accident tribunal if not exceeding Rs 100,000 during financial year Interest payable to any banking company, any co-operative bank, financial corporation set up under Central/State Act, insurer, mutual fund, notified entities Interest on Zero Coupon Bonds Interest on deposits under any notified scheme framed by Central Government Other Interest paid up to Rs 5,000 No exemption provided in respect of interest on time deposits exceeding Rs 10,000 paid by Co-operative banks to its members 14-10-2010 WHT under DTC 2010 18
  • 19. Commission/Brokerage TDS is deductible on any payments made as Commission, brokerage, remuneration, or prize (by whatever name called) for rendering any services Combined rate for insurance commission, sale of lottery tickets as well as other commission Commission, brokerage not defined Recent controversies continues For rendering of services may over lap with service contract No specific exemption for brokerage on securities No TDS in case aggregate amount does not exceeds Rs 5,000 during the year Current threshold limits of Rs 2,500 14-10-2010 WHT under DTC 2010 19
  • 20. Professional/Technical Services, Royalty non-compete fees ‘Professional or technical services’ means services rendered by a person in the course of carrying on legal, medical, engineering, architectural or accountancy profession, technical consultancy, interior decoration or any other profession as notified by the Board. Royalty is as defined under clause 314(220) Wide definition No threshold limit for non-deduction of TDS Currently TDS not applicable for aggregate payments up to Rs 30,000 during the year 14-10-2010 WHT under DTC 2010 20
  • 21. Specified payments & TDS applicable to Non-Residents Sr. Nature of Payment Rates of TDS where deductee is a non-resident No. Proposed rates under Current Rates DTC Rates as per the slabs and Average rate of tax on 1. Income from employment rates prescribed by the salary paid during the Finance Act financial year Payment by way of – • Interest 2. • Dividends on which DDT has not been paid - 20% • Income distributed by mutual fund on which income distribution tax is not paid Payment for Royaties Fees for technical 3. 10% 20% services in respect of any service contract Winning from any lottery or crossword puzzle 4. or card game or other games or gambling or 30% 30% betting 14-10-2010 WHT under DTC 2010 21
  • 22. Specified payments and TDS applicable to Non-Residents Sr. Nature of Payment Rates of TDS where deductee is a non-resident No. Proposed rates under Current Rates DTC Winnings from any horse race (not relating to 5 activity of owning and maintaining horse 30% 30% races Payment to non-resident sportsman – • Participation in India in any game or sport (other 4&5) 6 • Advertisement or 10% 10% • Contribution in any article relating to any game or sport in any newspaper/magazine/ journal in India Payment by way of guarantee money to a non-resident sports association or institution 7 10% 10% in relation to any game or sports played in India 8 Any other sum chargeable to tax 30% 30% Payments made to FII for sale of securities on recognised stock exchange is not subject to TDS 14-10-2010 WHT under DTC 2010 22
  • 23. Tax Collected Source TCS is required to collected at the uniform rate of 3% in respect of following payments Sale of alcoholic liquor for human consumption Sale of tendu leaves Sale of timber obtained under a forest lease or otherwise Sale of any other forest produce not being timber or tendu leaves Sale of scrap Grant of lease or licence or contract or transfer of any right or interest, either in whole or in part, for a parking lot Grant of lease or licence or contract or transfer of any right or interest, either in whole or in part, for a toll plaza Grant of lease or licence or contract or transfer of any right or interest, either in whole or in part, for mining or quarrying Currently varied rates on different items ranging 1% to 5% 14-10-2010 WHT under DTC 2010 23
  • 24. Other provision Payment in kind In case of payments made in kind (wholly or partly) deductor to ensure that tax has been paid prior to payment Currently similar provisions exists only for the payments winning from lottery or cross puzzle S. 194B Payments in kind has been judicially considered for TDS purposes Adjustment of deficiency or excess arising out of previous deduction or non deduction In case payments arising on account of income from employment or in the nature of interest, deductor is allowed to increase or reduce the amount of TDS on account excess or short previous deduction. No such adjustment is allowed for other specified payments. Ideally this should have considered for all specified payment 14-10-2010 WHT under DTC 2010 24
  • 25. Application for deduction at lower rate Tax can be deducted at lower or NIL rate, in case, such certificate is issued by Assessing Officer (Clause 197) Application for deduction of tax at lower rate can be made by resident deductee or In respect of payments made to non-resident application be made either by payer or by such non-resident deductee. Board has been empowered for necessary rules to be made in this regards. However no provision to submit declaration for NIL by the assessee to the payer Current assessee could submit declaration in form 15H/15G 14-10-2010 WHT under DTC 2010 25
  • 26. Disallowances of expenses While computing total income no deduction of expenses shall allowed in case Where tax was deductible under chapter XIII and such tax has not been deducted or After deduction tax has not been paid before the due date of filing of return of income A deduction would be allowed in subsequent financial year In case tax has been deducted during the financial year but was been paid after due date of filing return of income or Tax has been deducted and paid in subsequent financial year Single provisions governs allowance of expenditure under all heads and payment to resident & non- resident (clause 19) 14-10-2010 WHT under DTC 2010 26
  • 27. Assesee in default Deductor / collector is treated as Assesee In Default (AID) in case he fails to Deduct / collect whole or part of the tax or After deduction/collect fails to pay whole or part of the tax and Assessee (payee) has also failed to pay such tax directly Currently similar provisions overlap under S. 191 & S. 201 14-10-2010 WHT under DTC 2010 27
  • 28. Interest If the Person fails to deduct or collect whole or part of the tax or after such deduction fails to pay whole or part of tax, he is liable to pay interest as under At the rate of 1% per month from the date of tax deductible / collectible to the date on which tax deducted or collected At the rate of 1.5% per month from the date of tax deducted or collected till the date of payment (Clause 214) 14-10-2010 WHT under DTC 2010 28
  • 29. Assessment TDS / TCS returns filed by the deductor / collector shall be assessed by the assessing officer as if such return is a return of tax bases. (Clause 177) All the provisions of the code as far as applicable shall apply 14-10-2010 WHT under DTC 2010 29
  • 30. Penalty Deductor / collector of tax, without reasonable cause fails to deduct or collect whole or part of the tax, is liable to penalty as under minimum penalty not less than 25% maximum penalty not more than 100% of the tax deductible or collectible to furnish in time a return of tax deductible/collectible to issue certificate of tax deducted or collected at source to furnish return of interest or other specified payment where no tax has been deducted is liable to penalty as under minimum penalty not less than Rs 5,000 and maximum penalty not more than Rs 1,00,000 (Clause 232) 14-10-2010 WHT under DTC 2010 30
  • 31. Thank you can be reach at Paras.Savla@in.com 14-10-2010 WHT under DTC 2010 31