Tax Deduction at Source, Tax Collection at Source, Advance Tax

WIRC 27th February, 2010

CA. DEEPAK GHADI

2010

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TAX DEDUCTED AT SOURCE

Why TDS? The basic objective of TDS was nothing more than a collection mechanism (Sec. 190 enumerates this) but of late Government has converted it into an anti-tax evasionary tool (introduction of Sec. 40(a)(ia) for disallowance of expense on which TDS was deducted) Sec. 190 describes the mode or method of collection of tax in the form of Tax Deducted at Source (TDS), Tax Collection at Source (TCS) and Advance Tax. Circular No. 720, dated 30-8-1995 says Each section regarding TDS under Chapter XVII deals with a particular kind of payment to the exclusion of all other sections in this Chapter. Thus, payment of any sum shall be liable for deduction of tax only under one section. TDS on Salary [Sec. 192]:Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax on the estimated income of the assessee under this head for that financial year. Donations:The employer should not give any deduction in respect of donations given by an employee to a notified public charitable institute. (Circular no. 9/2008, dated 30th Sep, 2008) However, Prime Ministers Drought Relief Fund, National Childrens Fund etc. are out of the purview of above circular. When employee has additional sources of income including salary [Sec. 192(2B)]:Method 1: (including other incomes) Income from Salary Add/Less: Income under other heads of income and Loss in case of House Property Gross Total Income Less: Deductions u/s 80C to 80U Net Taxable Income Tax on above Less: TDS already Deducted Tax Liability Method 2: (excluding other incomes) Income from Salary Less: Loss in case of House Property

Gross Total Income Less: Deductions u/s 80C to 80U Net Taxable Income Tax on above Less: TDS already Deducted Tax Liability

TDS on salary would be higher of the above two TDS on Interest on Securities [Sec. 193]:The person responsible for paying to a resident any income by way of interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax on the amount of the interest payable

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No TDS or TDS at lower rates:a) Interest on Debentures: i) debentures are issued by a Public Limited Company ii) debentures are listed on a recognized stock exchange iii) interest is paid by an account payee cheque iv) interest does not exceed Rs.2,500/- during the financial year then no TDS is required to be deducted b) Interest payable on any security of the Central Government or a State Government (except interest on 8% Savings (Taxable) Bonds, 2003 exceeding Rs.10,000/-) c) Interest payable to the LIC, or GIC, or four subsidiary companies of GIC, or any other insurer TDS on Dividend [Sec. 194]:The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder, of any dividend deduct from the amount of such dividend, income-tax at the rates in force No TDS or TDS at lower rates:a) Dividend covered u/s 115-O: b) Dividend upto Rs.2,500/- during the financial year by an account payee cheque c) Dividend to LIC/GIC TDS on Interest other than Interest on Securities [Sec. 194A]:Any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of interest other than interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Individuals or HUFs whose turnover exceeded Rs.40 lakh in case of business and Rs.10 lakh in case of profession during the preceding financial year shall be liable to deduct TDS. No TDS or TDS at lower rates:a) Income, paid or payable, by a person during a financial year doesn't exceed: i) Rs.10,000/- where the payer is a banking company or any bank or banking institution or co-operative society carrying on the business of banking ii) Rs.10,000/- on any deposit with post office under notified scheme of Central Government iii) Rs.5,000/- in any other case However, in case of interest on fixed time deposits (other than recurring deposits) with banking company or co-operative society referred to above or interest on deposits with housing finance companies, the aforesaid limits of Rs. 5,000/- or Rs. 10,000/- shall be computed branch-wise b) No TDS on interest credited or paid by Firm to its Partners
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c) Interest on compensation amount awarded by the Motor Accidents Claims Tribunal where the amount thereof does not exceed Rs.50,000/- during the financial year TDS on Winnings from Lotteries or Crossword Puzzles [Sec. 194B]:The person responsible for paying to any person any income by way of a) winnings from any lottery or b) crossword puzzle or c) card game and other game of any sort in an amount exceeding Rs.5,000/- shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. Where the winnings are wholly in kind or partly in cash and the part in cash is not sufficient to meet the liability of TDS then the person responsible for paying shall ensure that tax has been paid in respect of the whole of the winnings. TDS on Winnings from Horse Races [Sec. 194BB]:Any person, a) being a bookmaker or b) a person to whom a licence has been granted by the Government and c) who is responsible for paying to any person any income by way of winnings from any horse race exceeding Rs.2,500/- shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. TDS on Payments to Contractors [Sec. 194C]:Any person responsible for paying any sum to any resident (contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, deduct TDS ata) 1% if payee is individual or HUF b) 2% for other payees Specified Person (Payer):a) Central Govt. or State Govt. b) any local authority c) any company d) a co-operative society e) any statutory corporation f) a university g) a trust h) a firm i) a registered society j) any housing board authority k) any Government of a foreign State or a foreign enterprise or any association or body established outside India l) an AOP/BOI covered under audit during preceding financial year m) Individuals or HUFs whose turnover exceeded Rs.40 lakh in case of business and Rs.10 lakh in case of profession during the preceding financial year
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Work shall include:a) Advertising b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting c) carriage of goods or passengers by any mode of transport other than by railways d) catering e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer (job work) (if material is purchased from a person other than such customer then it will not fall under the purview of work) TDS on such job work will be deducted on invoice value excluding value of material if it is mentioned separately in the invoice otherwise on entire invoice value. Other Conditions:1. No deduction shall be made if sum paid or payable to contractor does not exceed Rs.20,000/- and the aggregate of amounts of such incomes during the financial year does not exceed Rs.50,000/2. In case of payments in course of goods transport business no TDS shall be deducted if PAN is furnished by the payee. However if PAN is not furnished then the applicable rate of TDS is 20% 3. Reimbursement of expenses liable for TDS u/s 194C TDS on Insurance Commission [Sec. 194D]:Any person responsible for paying to a resident any income - by way of remuneration or reward, commission or otherwise, - for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, - deduct income-tax thereon No deduction shall be made when amount of such commission does not exceed Rs.5,000/during the financial year. TDS on Payments to non-resident sportsmen or sports associations [Sec. 194E]:Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete) who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, deduct income-tax thereon at 10%. According to Sec. 115BBA income by way ofa) participation in India in any game or b) advertisement or c) contribution of articles relating to any game or sport in India in newspapers, magazines or journals TDS on Payments in respect of Deposits under NSS etc. [Sec. 194EE]:The person responsible for paying any amount referred to in clause (a) of sub-section (2) of section 80CCA i.e. payments in respect of deposits under National Savings Scheme will deduct TDS at 20% at the time of payment.
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TDS on Payments on account of repurchase of units by Mutual Funds etc. [Sec. 194F]:The person responsible for paying to any person any amount referred to in sub-section (2) of section 80CCB shall, at the time of payment thereof, deduct TDS at the rate of 20% TDS on Commission etc. on the sale of lottery tickets [Sec. 194G]:Any person who is responsible for paying - to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, - any income by way of commission, remuneration or prize (by whatever name called) on such tickets - in an amount exceeding Rs.1,000/- shall, deduct TDS at the rate of 10% TDS on Commission or Brokerage [Sec. 194H]:Any person, not being an individual or a Hindu undivided family, - who is responsible for paying, to a resident, - any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, deduct TDS thereon at the rate of 10% - No TDS to be deducted if amount does not exceed Rs.2,500/Individuals or HUFs whose turnover exceeded Rs.40 lakh in case of business and Rs.10 lakh in case of profession during the preceding financial year shall be liable to deduct TDS. No deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office (PCOs) franchisees TDS on Rent [Sec. 194I]:Any person, not being an individual or a HUF, who is responsible for paying to a resident any income by way of rent, shall, deduct income-tax thereon at the rate of a) 2% for the use of any machinery or plant or equipment; and b) 10% for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings No TDS is deductible if payment during the financial year does not exceed Rs.1,20,000/Rent:'Rent' means any payment under any lease, sub-lease, tenancy or any other agreement or arrangement for use of any (a) land; or, (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings It is irrelevant whether or not such assets are owned by the payee.
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Non-refundable deposit:TDS will be applicable if deposit is non-refundable as it represents consideration for the use of land or building etc. If deposit carries interest then TDS on such interest will be convered u/s 194A. (Circular No. 718 dated 22nd Aug, 1995) If Rent includes municipal tax, ground rent:If rent includes municipal taxes & ground rent and the same has been borne by tenant then TDS will be deducted on such sum (Circular No. 718 dated 22nd Aug, 1995) When different payees are there When rent is paid to different payees then the limit of Rs.1,20,000/- will apply to each payee separately TDS on Service Tax Component of Rent:According to the circular no. 4/2008 dated 28th Apr, 2008 TDS will not be deducted on the service tax component of rent. However the benefit of the above circular had been restricted only to Sec. 194I by Board Letter: F.No.275/73/2007 IT(B) dated 30th Jun, 2008 TDS on fees for Professional or Technical Services [Sec. 194J]:Any person and individual or HUFs whose books of accounts were required to be audited during the preceding financial year, who is responsible for paying to a resident any sum by way of fees for professional services, or fees for technical services or royalty shall be liable to deduct TDS at the rate of 10% of such amount. No TDS will be deducted if amount payable does not exceed Rs.20,000/- during the financial year Professional Services means: services rendered by a person in the course of carrying ona) legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or b) any other other profession notified u/s 44AA ; or c) any other profession notified for purpose of this section. The services notified u/s 194-J are services rendered by following persons in relation to the sports activities: Sports Persons, Umpires and Referees, Coaches and Trainers, Team Physicians and Physiotherapists, Event Managers, Commentators, Anchors and Sports Columnists. Reimbursement of expenses Reimbursement of expenses for which bill is separately raised did not attract provisions of section 194J. ITO v. Dr. Willmar Schwabe India (P.) Ltd. [2005] 3 SOT 71 ITAT That is to say if a consolidated bill is issued by a professional or consultant then TDS will be applicable on the entire amount of bill.

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TDS on compensation on acquisition of capital asset [Sec. 194L]:Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any capital asset, shall, deduct an amount equal to 10% of such sum as TDS thereon. However, TDS will not be deducted if amount of such compensation or consideration does not exceed Rs.1,00,000/TDS on compensation payable on compulsory acquisition of immovable property [Sec. 194LA]:Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, deduct an amount equal to 10% of such sum as TDS thereon. However, TDS will not be deducted if amount of such compensation or consideration does not exceed Rs.1,00,000/TDS on other sums [Sec. 195]:Any person responsible for paying - to a non-corporate non-resident, or to a non-domestic company, - any interest (other than interest on securities) or - any other sum (not being Salaries) shall, deduct income-tax thereon at the rates in force Points to remember:Non-Resident, non- Non-domestic Non-domestic corporate person company (payment company (payment (payment may or may not does not exceed Rs.1 exceeds Rs.1 crore) exceed Rs.1 crore) crore) Surcharge Nil Nil 2.5% Education Cess 2% 2% 2% SH Education Cess 1% 1% 1%

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Gist of Rates of Tax Deduction at Source:Section Nature of Payment 194C Payments to Contractors- Individuals/HUFs - Others Rent- Plant & Machinery - Land, building, furniture or fittings Interest on Securities Dividend Interest other than Interest on Securities Insurance Commission Non-Resident Sportsman or Sports Association Commission or Brokerage Fees for Professional Compensation for Immovable Property Winnings from Lottery Winnings from Horse Races Rate of TDS (SC: Nil, EC: Nil & SHEC: Nil) 1 2 2 10

194I

193 194 194A 194D 194E 194H 194J 194LA 194B 194BB

10

30

Certificate of lower rate from A.O. [Sec. 197]:The recipient of income can apply in Form 13 to get certificate authorizing the payer to deduct tax at lower or deduct no tax as may be appropriate. The recipient may apply in respect of Sec. 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA & 195 i.e. but not in respect of Sec. 194B, 194BB, 194E, 194EE, 194F & 194L No Deduction in certain cases [Sec. 197A]:Interest on Dividend Securities (Sec. 194) (Sec. 193) Payee Other than Resident company or Individual Firm Interest other than interest on securities (Sec. 194A) Other than company or Firm National Savings Scheme (Sec. 194EE) Resident Individual Interest on Units (Sec. 194K) Other than company or Firm

Total Income

Total income does not exceed maximum amount not chargeable to tax

If the above conditions are satisfied then TDS will not be deductible if a declaration is submitted in duplicate in Form 15H (for senior citizen) Form 15G (for others)

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TAX COLLECTION AT SOURCE

Every person, being a seller shall, collect tax from the buyer of goods specified u/s 206C(1) at the rates specified herein below:Nature of Goods % Rate of TCS Alcoholic liquor for human consumption Scrap (i.e. waste and scrap from manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons) 1 Tendu leaves 5 Timber obtained under a forest lease or under any other mode 2.5 Any other forest produce not being timber or tendu leaves 2.5 Seller means the Central or State Government; or any local authority; or any statutory corporation or authority; or any company or firm or co-operative society and also includes an individual or a HUF who was required to get his accounts audited u/s 44AB during the preceding financial year Buyer a) A public sector company, Central or State Government, an embassy, a high commission, legation, commission, consulate and the trade representation, of a foreign State and a club; or b) A buyer in retail sale of such goods purchased for his personal consumption. Procedural aspects of TDS/TCS:1. Obligations of deductor:a) The person responsible for tax deduction shall obtain Tax Deduction & Tax Collection number within prescribed time period b) The person who has been allotted such numbers shall quote such numbers on challans, certificates, statements & other documents pertaining to all transactions in the interest of the revenue c) Any person deducting or collecting any tax at source (or an employer liable to make payment u/s 192(1A) of tax on non-monetary perquisites) as per the provisions of this Chapter, shall pay within prescribed time, the sum so deducted or collected to the credit of the Central Government or as the Board directs d) After paying TDS/TCS to the credit of the Central Government within the prescribed time, the aforesaid person shall prepare such periodical statements for such period as may be prescribed and deliver such statement in prescribed form within prescribed time to the prescribed income-tax authority/authorised person. (Amendment by the Finance (No.2) Act, 2009 w.e.f. 1-10-2009) e) Every person deducting/collecting tax at source [along with employer referred to u/s 192(1A)] shall within prescribed period furnish to the person on whose credit tax is deducted/collected at source (i.e. recipient of sum, or buyer or licensee/lessee), a certificate to the effect that tax has been deducted/collected,
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specifying amount and rate of such deduction/collection, and other particulars. No such certificate shall be required to be furnished in case where tax has been deducted or collected on or after 1-4-2010 2. Obligations of deductee:a) Every deductee (from whose. income tax is required to be deducted) shall furnish his PAN to the deductor and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other. b) If PAN is not furnished then TDS will be deducted at higher rate i.e. 20% Payment of TDS/TCS, and issuance of certificate of TDS/TCS:Payment When payment is to be made by or on behalf of On the same day Government Certificate within one month from the end of the month in which such sum is paid/ credited/ collected within a week after the expiry of 2 months from the month in which income is so credited within one month from the end of the month in which such sum is paid/ credited/collected

When income referred u/s 193/194A/ 194C/194D/194E/194G/194H/194I/194J/195/ 196B/ 196C/ 196D, is credited by a person to the account of the payee as on the date up to which the accounts of such person are made In any other case

within two months of the expiration of the month in which that date falls

Within one week from the last day of month in which the deduction/collection is made

Failure to Deduct/Collect Or Pay Tax At Source [Sec. 201 & Sec. 206C]:a) The defaulter is deemed to be an assessee in default in respect of the tax. Therefore, he becomes liable for penalty u/s 221 up to the amount of tax in arrears b) Time Limit to pass order u/s 201(1):If statement of TDS u/s 200 is filed 2 years from the end of the FY in which such statement is filed Any other case 4 years from the end of the FY in which payment is made For FY commencing on or before 01/04/2007 order can be passed at anytime on or before 31/03/2011 c) In case of failure to collect tax at source, he shall be liable to pay the tax himself to the credit of the Central Government d) Simple interest of 1% will be charged for every month or part of the month to the date on which such tax is actually paid. Such interest shall be paid before furnishing
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statement u/s 200 e) Sec. 40(a)(ia) If TDS is not deducted in respect of any interest, commission or brokerage, rent, royalty, fees for professional or technical services, payments to contractors then such sum will be disallowed. However, such sum will be allowed as a deduction in the year in which TDS has been paid

ADVANCE TAX
a) Assessee is required to pay tax in advance in respect of current income from all sources. b) Payment of advance tax is mandatory only if it is Rs.10,000/- or more c) Current Income means aggregate of income under five heads of income, as computed after allowing deductions under Chapter VI-A d) Advance tax = Tax liability on current income (taking into account net agricultural income) - Tax deductible/collectible at source during the financial year e) An assessee who opted for presumptive computation u/s 44AD at the rate of 8% of turnover then such assessee will be exempted from payment of advance tax from AY 2011-12 onwards. Due Dates for payment of Advance Tax:Due date of Assessee is a Company installment On or before 15th Jun 15% of Total Advance Payable th On or before 15 Sep 45% of Total Advance Payable th On or before 15 Dec 75% of Total Advance Payable th On or before 15 Mar 100% of Total Advance Payable i) Assessee is a Other than Company Tax Not Applicable Tax 30% of Total Advance Tax Payable Tax 60% of Total Advance Tax Payable Tax 100% of Total Advance Tax Payable

Any amount of tax paid by the assessee on or before 31st March shall also be treated as advance tax paid during the financial year. ii) The amount of advance tax demanded by the AO by issue of notice of demand, shall be payable on or before the due dates falling after the date of service of such notice iii) Where on the last date of payment of any installment the notified bank is closed then such installment of advance tax can be paid on the following working day without levy of interest u/s 234B and 234C

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Interest for default in payment of advance tax [Sec. 234B]:Interest u/s 234B

Assessee liable to pay, failed to pay Interest @ 1% for every month or part of the month From Apr 1 to the date of determination of total income Interest for deferment of advance tax [Sec. 234C]:Due date of installment On or before 15th Jun On or before 15th Sep On or before 15th Dec On or before 15th Mar Assessee is a Company ADT 1 < 12% Assessed Tax ADT 2 < 36% Assessed Tax ADT 3 < 75% Assessed Tax ADT 4 < 100% Assessed Tax Assessee is a Other than Company Not Applicable ADT 1 < 30% Assessed Tax ADT 2 < 60% Assessed Tax ADT 3 < 100% Assessed Tax

Advance Tax paid < 90% of Assessed Tax

Assessed Tax = Advance Tax TDS/TCS

Interest @ 1% 3 months 3 months 3 months 1 month

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