Importance of tds for Govt.TDS accounted for 43% of the total revenue of DirectTaxes. The Department is totally computerized and all theinformation is available with them. Therefore, absolutelyessential that all the stakeholders understand theirobligations and ensure that at their respectiveend, accuracy is maintained in feeding the relevant data inthe system. It is the responsible of the deductor to ensureaccuracy and completeness of data relating to PAN/TANand filing of returns in a stipulated time which enables thedeductee to claim the credit.
Important points relating to TDS• What is the nature of payment being made?• Is it covered by any of the TDS sections?• On what amount is it to be deducted?• What is the rate of TDS?• When is it to be deducted?• When is to be paid to the Govt.?• Which challan is to be used for payment?• Which TDS statement is to be filed?• When is it to be filed?• Which form of TDS certificate to be issued?• When is it to be issued?
Section 192 - TDS on salaries• Payment should be in the nature of salary• The employer has to deduct tax from the salary that he pays• At what rate to deduct? - TDS at average rate of tax on the estimatedincome of the employee under the head “Salaries”• When to deduct? - TDS is attracted on payment basis.• When to pay the TDS to the Govt.? – Within 7 days from the end of themonth in which tax is deducted
Income under Other Heads• Employee not under an obligation to furnish details of income under otherheads• If he furnishes the details of income and TDS thereon, the employer isunder an obligation to take them into account.• There is no prescribed form for this.• Loss under any head, except house property, cannot be taken into account• Particulars of other income and TDS on the same, except under Houseproperty, cannot reduce the amount of tax which was otherwise deductible
Other Issues• The annual circular is issued by the CBDT every year guides employers on how to compute thetaxable salary and the tax• Short or excess deduction can be adjusted from subsequent salaries within the same year.• CIT vs Marubeni P. Ltd [294 ITR 157]• A.P State electricity board [20 ITD 318] (Hyd)• Vinsons [89 ITD 267](Mum)• Donation made by employee u/s 80G• Annual Circular on salary• Proof for allowance u/s 10(14) and deduction under chapter VI• Larsen and Tubro [221CTR 620]• Retainership fees – Salary Vs Professional fees.Disallowance u/s 40a(iii)
Salaries payable in foreign currency• Conversion into Indian currency at Telegraphic Transfer (TT) buying rate onthe date on which tax is required to be deducted – Rule 26• While calculating income under the head salary, the TT buying rate as onthe last day of the month immediately preceding the month in which salaryis due or paid – Rule 115• Provison to Explanation 2 to Rule 115(1)
Section 194C – Payments to contractorsand sub-contractors• Applicable to Individuals and HUF only if they are liable for tax auditduring the preceding financial year• What is covered? - Payment made for carrying out any work includingsupply of labour for carrying out any work, in pursuance to a contract• Written as well as Oral contracts are covered• No TDS if payment is made by an Individual/HUF for personal purposes.• Tax to be deducted on advance payment against the contract
Monetary Limit and Rates• Single payment exceeds Rs. 20,000, or• Aggregate payments during the financial year exceed or are likely to exceed Rs.50,000• At what rate to deduct? -• Payment to Individual and HUF: 1%• Other than Individual and HUF : 2%• No Difference between contractor and sub-contractor• Payments to Transport Contractors – No TDS on furnishing PAN.• Otherwise, TDS as per the above rates. w.e.f 01/04/2010 - @20%• Person responsible for making payment to transporter to furnish prescribedinformation.
What is ‘Work’?Work includes:• Advertising• Broadcasting and telecasting including production of programmes for broadcasting andtelecasting• Carriage of goods and passengers by any mode other than railways• Catering• Manufacturing a product according to specification of customer by using materialpurchased from customer• Work includes but is not limited to a Works Contract• The word ‘any’ preceding the word ‘work’ indicates that each and every type of work iscoveredBirla Cement Works v. CBDT [248 ITR 216](SC)
Contract for work v Works contract• The term ‘Works contract’ has a separate meaning under tax lawsand cannot be equated with the term ‘work’• Contract for work is a broader term than Works Contract• Associated Cements Co. Ltd. [201 ITR 435](SC)• All Gujarat Federation of Tax Consultants [214 ITR 276](Guj)• For instance, transport contract and service contracts are contractsfor carrying out work but are not works contracts
Reimbursement of expenses• The term ‘Any Sum’ refers to the Gross Amount paid under thecontract. Hence, reimbursement of expenses would also attract TDS• Reimbursement of actual expenses cannot be deducted out of the billamount for the purpose of tax deduction at source• CBDT’s Circular No. 715• The percentage deduction prescribed in law is with reference to theamount of payment and not income comprised in the payment• Associated Cement Co. Ltd. v. CIT [201 ITR 435]
Service tax• Since section 194C refers to any sum paid, TDS will beattracted on the service tax portion also• Circular No. 4/2008 states that TDS should not bemade on service tax element of rent. Since thecircular specifically mentions rent, it cannot beapplied for the purpose of section 194C
Advertising contracts• A person makes payment to an advertisement agency. The agencymakes payments to its artists and the media. What are the TDSimplications?Payment to agency – 1% / 2% u/s 194CPayment to artists – Section 194JPayment by agency to media (Print/Electronic) – No TDSPayment directly to media – TDS applicable u/s 194C(Q. no. 1,2 & 3 of Circular 715)• Payment to Doordarshan is not liable to TDS as it is a governmentagency• Q. no. 4 of Circular No. 715• Payment made for production of program for the purpose ofbroadcasting and telecasting - TDS u/s 194C
Advertisement Hoardings• Contract for putting a hoarding is an “Advertisement contract” and iscovered under section 194C• However, if the space for hoarding is taken on rent and then sub-let, thepayment will be covered under section 194I• Payment made for sponsorship for debate, seminar or other functionsheld in college, schools etc. is in the nature of carrying out work ofadvertisement and liable to TDS• TDS would apply in case of advertisement issued in souvenirs broughtout by organizations
Maintenance Contracts and InstallationChargesNormal maintenance contracts which include supply of spares will becovered under section 194CWhere technical services are rendered, section 194J will applyWhether contract for design, manufacture and supply of Plant andEquipment including erection and installation - liable for TDS?
Payments to travel agents• Whether payment made to airlines or travel agents forbooking of travel tickets attracts TDS under section 194C?• There is no privity of contract between the passenger andthe travel agent.• Section 194C does not apply• However, TDS under section 194-I is applicable forchartering of aircraft, ship etc.• CBDT’s Circular No. 715
Payments to Clearing and forwardingagents• Payments to clearing and forwarding agents attracts TDS undersection 194C• National Panasonic P Ltd [3 SOT 16](Del)
Car Hire charges• The terms of hire need to be examined• Section 194C includes payment for carriage of goods and passengers• Hirer should not have control over the direction of the car• It should be a time charter – Gosalia Shipping Co case• Point-to-point service / Pick and drop facility is covered undersection 194C• Controversy now resolved by amendment made by Finance Act2009
Section 194H – Commission orBrokerage• Applicable to all payers other than Individuals and HUF.• Applicable to Individuals and HUF liable to tax auditduring the preceding financial year• What is covered? - TDS on payment of income by wayof commission or brokerage• Insurance commission, brokerage for securities are notcovered• At what rate to deduct? - 10%
Section 194-I - Rent• Applicable to all payers, except Individuals and HUF• Applicable to Individuals and HUF only if they are liable to tax audit during the precedingfinancial year• What is covered? – Income by way of rent• When to deduct? – At the time of payment or credit whichever is earlier• Credit to suspense account is deemed to be credit to the account of the payee• At what rate to deduct? –Machinery, Plant or Equipment - 2%Furniture, Land or Building - In All cases: 10%• No TDS if the amount paid or likely to be paid during the financial year does not exceedRs. 1,20,000 in aggregate
What is Rent?• Any payment, by whatever name called• Under any lease, sub-lease, tenancy or any other agreement orarrangement• For the use ,either separately or together, of any• Land• Building• Land appurtenant to a building• Machinery or Plant• Equipment, Furniture or Fittings• Whether or not owned by the payee
Section 194J – Fees for professional ortechnical services• Applicable to all payers except Individuals and HUF• Applicable to Individuals and HUF only if they are liable to tax audit during the precedingfinancial year• What is covered?• Fees for professional services• Fees for technical services• Royalty• Non-compete fee• When to deduct? - TDS at the time of payment or credit, whichever is earlier• Credit to suspense account is deemed to be credit to the account of the payee• At what rate to deduct? - 10%
Section 194J – Fees for professional ortechnical services• No TDS if fees for professional services are paid by anIndividual or HUF for personal purposes of the individual ormember of the HUF• No TDS if the payment does not exceed Rs. 20,000 in aggregateduring the financial year
Professional servicesServices rendered by a person in the course of carrying on a:• Legal profession• Medical profession• Engineering profession• Architectural profession• Accountancy profession• Technical consultancy profession• Interior decoration profession• Profession of Information Technology• Profession of Company Secretary• Film artistes• Sports person, Umpires and Referees, Coaches and trainers, Team Physicians andPhysiotherapists, Event Managers, Commentators, Anchors and Sports Columnists(Notification 2085(E) dated 21st August 2008)
Fees for technical services• Consideration for rendering of• Managerial, technical or consultancy services• Including provision of services of technical or otherpersonnel• But does not include consideration for• Construction, Mining or like project, or• Consideration chargeable in the hands of the recipientunder the head ‘Salaries’
Section 194 J• Since section 194J refers to “any sum paid”, TDS is applicable even onreimbursement of expenses including service tax ( Circular )• If separate bill is raised for reimbursement of expenses, TDS is notapplicable• Dr. Willmar Schwabe India (P) Ltd. [3 SOT 71](Del)
Non-resident making payment toprofessional in India• Non-resident making payment of professional fees to any residentCA, lawyers, advocate and solicitor is not required to deduct taxprovided:• Such fees is paid through regular banking channels• Such non resident does not have any agent, business connectionor permanent establishment in India
Section 195- TDS on payment to non-residents• Section applies to all payers, including individuals and HUF• Section covers payment made to a non-resident not being a company or aforeign company• What is covered? – Payment in the nature of interest or any other sumchargeable under the Act• When to deduct? – TDS at the time of payment or credit, whichever isearlier• At what rate to deduct? – Rates in force for the section under which thepayment falls (for e.g. Section 115A, 111A etc.) or treaty rate whichever isbeneficial
An overview of TDS u/s 195Snapshot of the Section• Sec. 195(1) – Scope & conditions for applicability• Sec. 195(2) – Application by payer to A.O. for lower deduction of tax• Sec. 195(3 & 4) – Application by payee to A.O. for lower deduction oftax• Sec. 195(5) – Powers to CBDT to make Rules• Sec. 195(6) – Payer to furnish information in prescribed form
Certain Cross Border Payments –Withholding Tax Issue• Business Income (of NR)…• Off-shore Supply : 288 ITR 408• If title to goods passed outside India and payments outside India not taxable• Signing in India is not relevant• Performing of certain activities in India (loading, unloading, inland transportation)not relevant• Payment to foreign agents• Operations outside India (CBDT circulars 23 and 786)• Not taxable in India – (125 ITR 525), (267 ITR 725)• Contrary view taken by AAR in case of Wallace Pharma [278 ITR 97] andRajiv Malhotra [285 ITR 564](AAR)
Section 193- TDS on Interest on securities• “Interest on Securities” as per section 2(28B) means(i) interest on any security of Central Government or State Government;(ii) interest on debentures or other securities for money issued by or onbehalf of a local authority or a company or a corporation established by aCentral, State or Provincial Act
SPECIAL PERMISSION• Prior approval of the Joint Commissioner• Permit quarterly payment• Salary - under section 192• Interest - under section 194A• Insurance Commission - under section 194D• Commission or Brokerage - under section 194H
Due Dates…Quarter ending…Quarter ended Due date30th June 7th July30th September 7th October31st December 7th January31st March 30th April
E – Payment• a company and• a person (other than a company) to whom the provisions of Sec 44AB areapplicable
Deductor – Government without challan remittance• Submit statement in Form No. 24G within 10 days from the end of themonth to the Agency authorized by the Director General of Income Tax(Systems)• Intimate the BIN generated by the agency to each of the deductors
CERTIFICATE• Form No. 16 – Salary• Form No. 16A – other than Salary• SpecifyValid PAN of the DeducteeValid TAN of the DeductorBIN-CINReceipt number of the relevant Quarterly Statement
Time SpecifiedForm No. Periodicity Due Date16 Annual By 31st day of May16A Quarterly Within 15 days from the duedate
Quarterly ReturnsStatement of Deduction of Tax• Form No. 24Q - Salary• Form No. 26Q - All other deductees• Form No. 27Q - Deductees – Non-Resident
Time ScheduleDate of ending of the Due DateQuarter of the F.Y30th June 15th July30th September 15th October31st December 15th January31st March 15th May
Furnishing the statement electronically• the deductor is an office of the Government or• the deductor is the Principal Officer of a Company or• the deductor is a person who is required to get his accounts audited u / s44AB in the immediately preceding Financial Year or• the number of deductee’s records in the statement for any quarter of theFinancial Year are twenty or more
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 31st of 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)• Details of Refund granted
Obligations……Obligations of a person responsible for deduction/collection of tax :• Obtain TAN• Identity the nature of payment• Deduct tax at prescribed rate• Remit in Govt. A/c in due time• File TDS statements on due date• Issue TDS Certificates in time
Nature of payment - understand2. Identifying nature of payment and deduction of taxthereon:Depending on the nature of payment to be made by thedrawing and disbursing officers/deductor, there arevarious rates of tax to be deducted which are shown inthe chart at the next para. Payment by the DDOs undersome important heads of income are also discussed, inbrief, later.
When do we deduct TDS?3. When to deduct or collect tax and at what rate :Tax is required to be deducted on specified sum under different heads atthe time of – Actual cash payment or receipt Issue or receipt of cheque/draft Credit or debit to the account of the payee or payer Even if the amount is credited to suspense account or any other account, TDS to be madewhichever is earlier as per different provisions of Income Tax Law and as per ratesprescribed in the Income Tax Act as shown in the chart given in next page.
5(a)IssueofTDSCertificates:ThedeductorsmustissueTDScertificatestothededucteesintheformedprescribedinIncomeTaxRules. DifferentformsofcertificatesofdeductionorcollectionofTaxi.e.TDS&TCStogetherwiththeirduedatesofissueareistabledbelow:-Description FormNo.Periodicity Due DateDeduction of taxfrom salary16 Annual By 31st May of the next financialyear in which deduction is madeDeduction of taxfrom other thansalary16A Quarterly Within 15 days from the duedate of furnishing the TDSstateement.TCS 27D Quarterly Within 15 days from the duedate of furnishing the TCSstatement.Tax deducted on or after 1.4.2012, it is mandatory for all type ofdeductors to issue quarterly form 16A (non salary tds certificate)only after downloaded the same from the TIN-NSDL website
6.FurnishingofTDSandTCSquarterlyStatements:Sec200(3)oftheI.T.Act providesthateverydeductorhastofurnishquarterlystatementswithintheprescribedtime,andintheprescribedformastabulatedbelow:-6.1Prescribedforms:Nature of Deduction/Collection FormNumberTDS from Salary 24QTDS from payments other than salary 26QTDS from payments other than salary made to nonresidents27QStatements of non deduction of TDS by BankingCompanies27QAATCS 27EQ
6.2 Due dates of filling quarterly returnsQuartersending onDue dates for TDSreturn form No. 24Q,26Q and 27Q)Due dates for TCSreturn (form No. 27EQ)Due datesfor Filling27QAAFor Govt.DeductorFor otherDeductorFor Govt.DeductorFor otherDeductor30th June 31st July 15th July 31st July 15th July 31st July30th Sept. 31st Oct. 15th Oct. 31st Oct. 15th Oct. 31st Oct.31st Dec. 31st Jan. 15th Jan. 31st Jan. 15th Jan. 31st Jan.31st March 15th May 15th May 15th May 15th May 30th JuneNOTE 1. Electronic filling of quarterly TDS/TCS statements iscompulsory if the deductor is an office of the government.
Defaults in TDS/TCS :1. Failure to deduct the whole or part of the tax at source (Non-deduction, short deduction ordelay in deduction)2. Failure to deposit whole or part of the Tax deducted at source (non-deposit, short deposit orlate deposit)3. Failure to apply for TAN within prescribed time limit or failure to quote TAN on allotment asrequired u/s 203A4. Failure to furnish in due time TDS returns as required u/s 206 or to furnish TDS certificates asrequired u/s 203 or to deliver or cause to be delivered a coy of the declaration as required u/s197A or to furnish a statement in form No. 12B as required u/s 192(2C)5. Failure to mention the PAN of the deductee in all quarterly statements delivered in accordancewith the provision of Section 200 as well as in all certificates furnished in accordance with theprovisions of section 203.
Consequences of defaults:1. Treating Tax Deductor to be an assessee in default (Sec 201(11)2. Charging of penal interest under Sec 201(1A)3. Levying of penalty u/s 221, 271C, 272A(2) & 272BB4. Launching of prosecution u/s 276B & 2775. Creating a charge on the assets of the defaulter u/s 201(2)6. Disallowance of specified expenditure to the assessee u/s 40(a)(ia)
These are summarized in the tables as follows :-CONSEQUENCE OF DEFAULT/FAILUREFAILURE TO DEDUCT TAX ATSOURCEFAILURE TO DEPOSIT THE TAXDEDUCTED AT SOURCEAssessee deemed to be in defaultUnder SectionAssessee deemed to be in defaultunder Section20(11) 207(1A)271C 221 201(1) 201(1)A221 276BTaxdemandInterestPenalty Penalty TaxdemandInterestPenalty ProsecutionAmountof taxdeductible butnotdeducted1%p.m. ontheamountof taxdeductibleAmountof taxdeductible butnotdeductedMax.uptotheamountof taxinarrearAmountof taxnotdeposited1.5%p.m. ontheamountof taxnotdepositedMax.uptotheamountof taxinarrearRigorousimprisonmentmin. of 3monthsand Max.of sevenyearsand alsowithinfine.
Fee for defaults in furnishing statements – Sec.234E1. If a deductor fails to submit the e-TDS/e-TCS statement, which is due after1.7.2012, within the due date, he shall be liable to pay, by way of fee, asum of two hundred rupees for every day during which the failurecontinues. However, the amount of fee shall not exceed the amount of taxdeductible or collectible.2. Penalty for failure to furnish quarterly TDS/TCS statements – Sec. 271H3. If a deductor fails to submit the e-TDS/e-TCs statement, which is dueafter 1.7.2012, within one year from the due date or furnishes incorrectinformation he is liable for penalty. The minimum amount is Rs. 10,000/-and it may go upto Rs. 1,00,000/-.4. This is payable over and above fees payable under section 234E.
S.No. Section of Act Nature of payment in brief Cut off amount Rate %1.4.2012 1.7.2012 HUF/IND Others1 192 Salaries Salary income must be more than exemption limitafter deductionsAverage Rate2 193 Interest on debentures 2500 5000 10 103 194 Deemed dividend - - 10 104 194A Interest other than Int. on securities (by bank) 10000 10000 10 104A 194A Interest other than Int. on securities (by others) 5000 5000 10 105 194B Lottery/Cross word puzzle 10000 10000 30 306 194BB Winnings from Horse Race 5000 5000 30 307 194(C)1 Contracts 30000 30000 1 28 194(C)2 Sub-contracts/Advertisements 30000 30000 1 29 194D Insurance Commission 20000 20000 10 1010 194EE Payments out of deposits under NSS 2500 2500 20 2011 194F Repurchase of units by MF/UTI 1000 1000 20 2012 194G Commission on sale of lottery tickets 1000 1000 10 1013 194H Commission or Brokerage 5000 5000 10 10
S.No. Section of Act Nature of payment in brief Cut off amount Rate %1.4.2012 1.7.2012 HUF/IND Others14 194J Rent(Land & bldg.) 180000 180000 10 10Rent (P & M Equipment, furniture & fittings) 180000 180000 10 1015 194J Professional/Technical charges/Royalty & Non-compete fees30000 30000 10 1016 194J(1)(ba) Any remuneration or commission paid to directorof the company (effective from 1 July 2012)NA NIL 10 1017 194LA Compensation on acquisition of immovableproperty100000 200000 10 10