TAX DEDUCTED AT SOURCE-INTRODUCTION

What is tax deducted at source and its importance? Every assessee has to pay tax on his total income for the previous year at rates applicable to the relevant assessment year. However while making certain payments to the assessee ,a certain amount of tax is already deducted and the net payment is made to him. The tax deducted is deposited in the Central Government's treasury by the payer. So if Mr. A wins a lottery of Rs. 1,00,000/- then tax will be deducted @ 30% i.e Rs. 30,000/- and he will be paid the net amount of Rs. 70,000/.The tax of Rs. 30,000/- will be deposited by the payer in the government treasury on behalf of Mr. A. Ofcourse when A files his return of income, he will not pay tax again since the tax amt. on winnings was already deducted at source and paid to the government. The chapter of TDS explains the various provisions under which tax is deducted and paid to the Government.

Importance of TDS Recovery of tax at an early stage Reduces tax defaults by ensuring that a certain amt. of tax is already deducted before making payment to the assessee. Ensures a regular cash flow to the Government.

General Points regarding TDS Tax is to be deducted only if a particular income is chargeable to tax in India. If a particular income is exempt, then the question of deducting tax does not arise. Generally ,tax is to be deducted at the time of credit of income or payment, whichever is early. Take an e.g.. If interest on loan is credited on 31/03/2012 but actually paid in say April 2012,then even though the payment of interest is made later on in April ,tax should be deducted on 31st March itself i.e at the time the interest is credited.

Exceptions In the following cases, tax is deducted at the time of payment Salary Winnings from lottery and horse races Payment under NSS (National Savings Scheme) Compensation on compulsory acquisition

Tax is to be deducted as per the basic rates given as per the various provisions.

Surcharge @ 2% on the basic rate will be applicable in case of foreign companies only if the payment exceeds one crore. Education cess (2%) and higher education cess( 1%) so overall 3% cess will be added to the basic rate only in the following cases:

Payment of Salary to a resident /non-resident (Pls note ,in case of payment of any other income, education cess is not applicable)

Any payment to a non resident or a foreign company.

Consequences of Default (Section 201) When a person who is required to deduct tax does not do so or after deducting tax does not deposit the same in the Government treasury, he shall be deemed to be an assessee in default in respect of such tax U/S 201(1).He will be liable for payment of the tax along with interest as well as penalty and prosecution in certain cases. Interest will be charged as under 1% per month or part of a month from the date on which tax was deductible to the date on which tax is actually deducted. 1.5% per month or part of a month from the date on which tax was actually deducted till the date of payment.

In some cases, that particular expenditure is disallowed as per sec 40(a). However from 01.07.2012,Section 201 has been amended. It states that such a payer shall not be deemed to be an assessee in default if the resident recipient has included this income in his return, paid tax on it and accordingly furnished a certificate from the chartered accountant. Lets take an e.g.. Tax on interest on loan is to be deducted at source @ 10%.Now if XYZ Ltd. has to pay interest Rs. 30,000/- to Mr. Z on 01.08.2012,then it must deduct tax @ 10% i.e. Rs. 3,000/- and pay Mr. Z Rs. 27,000/-.The tds Rs. 3,000/- should be deposited in the Government treasury.

Now if XYZ Ltd. fails to do so, then it will be an assessee in default. The interest expenditure will be disallowed as a deduction. Also various penal provisions may follow. However if Mr. Z furnishes a certificate saying that he has included this interest income in his return and paid tax on it, then XYZ will not be deemed to be an assessee in default.

Low TDS or No TDS

Section 197 In case the payee doesn't want tax to de deducted because his total income is lower than basic exemption limit and he is not liable to income tax, he may make an application in Form No. 13 to the Assessing Officer declaring the same. Accordingly the Assessing Officer will give him a certificate on the basis of which tax may not be deducted or it may be deducted at a lower rate.

Section 197A Alternatively in certain cases ,the payee may furnish a declaration U/S 197A to the payer of his income declaring the same in Form no 15 G/15H.This form will be submitted by the payer of the income to the Commissioner of Income Tax and accordingly no or low tax will be deducted.

Requirement to furnish PAN U/S 206AA,it is mandatory for the person receiving the income (payee) to furnish his Permanent account no. to the payer, else tax will be deducted at Higher of 1)Prescribed rate of tds as per the provisions or 2) 20% This provision is to ensure that all payees have a PAN and disclose it, else their income will be subject to tax at a higher rate.

SEC 192 -TDS ON PAYMENT OF SALARY

Who is liable to deduct tax? Any employer responsible for paying salary to his employees should deduct tax at the time of payment of salary. Rate No specific rate (average rate of tax on the estimated total income of the assessee). The employer has to estimate the employee's total salary for the year. The employee may also furnish details of other incomes (i.e income under other heads) and the tax deducted at source on it.In that case, the positive incomes under other heads and tds will be considered by the employer. However if there are any losses under any particular head, they will be ignored by the employer except Loss from House Property .The employee shall also furnish details about his various investments due to which deductions U/Ch. VI A may be claimed.

Steps to compute (this has to be calculated by the Employer) 1)Compute taxable Salary considering all taxable allowances and perquisites.Any other income will also be added . 2)Set off only House Property loss and no other Loss 3)Give deductions U/Ch VIA and calculate NTI 4) TDS will be Tax plus education and higher education cess Less relief U/S 89 ,if any Less TDS on any other income X X X X (A)

5) Now compute only taxable salary without considering any other income even if details are furnished by the assessee. 6)Set off only house Property Loss 7)Give deductions U/Ch VIA and calculate NTI 8) TDS will be Tax plus education and higher education cess Less relief U/S 89 ,if any X X X (B)

Tax to be deducted from salary = A or B whichever is higher Tax to be deducted every month = Total TDS as estimated above /No. of months for which employee has rendered service during the financial year.

Example

Mr. Ramesh is employed in a company which pays him the following remuneration (estimated) Basic Rs. 50,000 P.M. D.A. 20% of Basic Transport Allowances Rs. 1,000 P.M. Mr. Ramesh is expected to make the following investments: Public provident Fund 50,000 Mediclaim 20,000 N.S.C. purchased 60,000 Mr. Ramesh has also reported the following income to his employer HP loss 50,000 Business Loss 15,000 Interest on Fixed deposit 30,000 (tax deducted on it 3,000) Calculate how much tax will his company deduct?

Steps First lets calculate TDS after considering other Income, TDS and HP loss
Basic salary D.A. Trp allow. Less: exempt u/s 10(14) Taxable salary HP loss Income from other sources Gross total income Less Deductions Sec 80C PPF and NSC max. Mediclaim max Net Total Income Tax on NTI Add Education cess Total tax liability Less T.D.S Balance T.D.S on salary @ 3% 50,000 *12 0.2 1,000 * 12 800 * 12 = = = = = = = 6,00,000 1,20,000 2,400 7,22,400 -50,000 30,000 7,02,400

= = = = = = = =

1,00,000 15,000 5,87,400 47,480 1,424 48,904 3,000

(A)

45,904

Now lets calculate TDS without considering the employees other income and TDS but considering the HP loss

Basic salary D.A. Trp allow. Less: exempt u/s 10(14) Taxable salary HP loss Gross total income Less Deductions Sec 80C PPF and NSC max. Mediclaim max

50,000 *12 0.2 1,000 * 12 800 * 12

= =

6,00,000 1,20,000

2,400

= = =

7,22,400 -50,000 6,72,400

= = = = @ 3% = =

1,00,000 15,000 5,57,400 41,480 1,244

Net Total Income Tax on NTI Add Education cess Total tax liability

(B)

42,724

TDS on salary is A or B whichever is higher 45,904 or 42,724 whichever is higher, hence 45,904 Tax to be deducted each month from salary = 45,904/12 = approx. Rs. 3,825/The employer may increase or decrease the tds amount in the later months if salary increases or decreases.

 Employment with more than one employer If during the previous year, an assessee is employed simultaneously with more than one employer or he has changed his employment during the previous year, then he may furnish to the employer of his choice or to the subsequent employer such details of salary due or received from his other employer along with tax deducted on it ,if any in Form No. 12B.The employer who receives such Form 12B will take into account such details while deducting tax from salary.

Example

During the P.Y. 2012-13 Mr. Nihit works simultaneously with two employers, A Ltd. which pays him a salary of Rs. 30,000/p.m. and B Ltd. which pays him a salary of Rs. 40,000/- p.m. Mr. Nihit submits Form No. 12B to B Ltd. Calculate tax to be deducted by both employers

Answer First lets calculate the tds on salary by A Ltd. Total salary 30,000 * 12 = 3,60,000 Tax = 16,000 Add Ed.cess 3% = 480 TDS by A Ltd. = 16,480 Now if this information is furnished to B Ltd. B Ltd. will calculate as follows Salary from B Ltd. 40,000 * 12 = Salary from A Ltd. 30,000 *12 = Gross total Income = Tax on Total Salary = Add Ed. cess @ 3% = Total tax on Salary Less TDS by A Ltd. Balance tax to be deducted

4,80,000 3,60,000 8,40,000 98,000 2,940 = 1,00,940 = 16,480 = 84,460

Pls Note: -If Salary is payable in foreign currency, then the buying rate as adopted by the SBI on the date of payment will be considered - No tax will be deducted if employee's total income is less than basic exemption limit and hence no tax is payable by him.

SEC 193 - TDS ON PAYMENT OF INTEREST ON SECURITIES

Who is liable to deduct tax? Any person responsible for paying/crediting interest on securities to a resident.

Rate 10% (20% if PAN not furnished by payee)

No T.D.S. up to Rs. 5,000/- (interest on debentures if paid by account payee cheque to resident individual and resident HUF) Rs. 10,000/- (on 8% Govt. relief bonds)

T.D.S. not applicable in the following cases Interest on Central or State Govt. securities (except Govt. Relief Bonds) Interest on Debentures of any co-operative society,co-operative land development bank, any institution or public sector company notified by the Central Government If interest is to be paid to the L.I.C.,G.I.C. or their subsidiaries if interest is payable on any listed security which is held in demat form

Please note : 1)No T.D.S. if Form No.13 is furnished by the assessee to the assessing officer or form No. 15G/15H is furnished by the assessee to the payer of income. 2)TDS on deep discount bonds is deductible at the time of redemption only.

SEC 194 TDS ON DIVIDEND

Who is liable to deduct tax? Any domestic company which declares and pays deemed dividend U/S 2(22)(e) to a resident shareholder. The principal officer of the company is responsible for deduction of tax.

Rate 10% (20% if PAN not furnished by payee)

No T.D.S. up to Rs. 2,500/-p.a. (if paid by account payee chq to an individual)

T.D.S. not applicable in the following cases 1)Dividend which is exempt in the hands of the shareholders U/S 10(34) including deemed dividend from Sec.2(22)(a) to sec 2(22)(d).This is the dividend covered U/S 115O on which dividend distribution tax is paid by the company, hence not taxable again in the hands of the shareholder. 2)If dividend is paid by account payee cheque to an individual shareholder and it does not exceed Rs. 2,500/3)If dividend is payable to any shareholder who is an insurance company(e.g. L.I.C.,G.I.C. etc) or its subsidiaries. 4)If an application is made in Form no.13 to the Assessing Officer or a declaration is furnished to the company in Form no.15G or 15H for low or no deduction of tax.

Example

ABC Pvt. ltd. gives a loan of Rs. 10 lacs on 02/04/2012 to Mr. A who is a 20% shareholder. This loan is repaid on 02/12/2012 along with interest to the company. Discuss the tax / tds consequences in the hands of the co. and shareholder.

Answer

Any loan granted by a pvt. ltd. co. to a min. 10% shareholder is taxed as deemed dividend u/s 2(22)(e) in the hands of the shareholder even though the loan may be repaid with or without interest. In the above case, since the co. is paying this dividend, it will deduct tax @ 10% before making the payment. So ABC Pvt. ltd. will deduct tax of 1 lac and pay him the net amt. of 9 lacs. Mr. A will offer Rs. 10 lacs as deemed dividend under the head "Income from other sources", he can also claim the interest as a deduction. He can adjust the tds of 1 lac against his total tax payable.

SEC 194 A TDS ON INTEREST OTHER THAN INTEREST ON SECURITIES

Who is liable to deduct tax? Any person (other than Individual or H.U.F. who are not subject to tax audit in the preceding financial year) paying or crediting interest (whichever is early) to a resident. In other words, Individuals and H.U.F. are liable to deduct tax only if they were subject to tax audit in the proceeding year. All other assessees are liable to deduct tax irrespective of whether their businesses are subject to tax audit or not.

Rate 10% (20% if PAN not furnished by the payee) No T.D.S. up to Interest of 5,000 p.a./10,000 p.a. in case of interest from banking institutes or notified schemes of post office (as of now Senior Citizen scheme has been notified).The limit of Rs. 5,000/- is for all other interest except bank interest.

T.D.S. not applicable in the following cases Interest payable by any person which doesn't exceed Rs.5,000/ Interest payable on time deposits by post office, banks, cooperative societies engaged in banking which doesn't exceed Rs. 10,000/(as mentioned above ) Interest payable/paid by the following institutions 1) a firm to its partners 2) A cooperative society to its members or to another co-operative society 3)Central Government under various provisions of direct taxes. 4)A bank with respect to interest credited to Non Resident External (NRE) account 5)Interest on time deposits payable by agricultural credit societies or cooperative land development banks.

6)Interest payable by Infrastructure capital company/fund or public sector company with respect to zero coupon bonds 7)Interest payable by banks(including cooperative banks) with respect to interest on savings a/c, recurring a/c or any other deposit except time deposit. 8)By any person to a bank, financial institution, insurance company or similar notified institutions 9)By the Government or Post Office under various schemes of Post Office, Kisan Vikas Patra (KVP),Indira Vikas Patra (IVP),National Savings Certificate (NSC) 10)Payable by Motor Accidents Claims Tribunal where total interest doesn't exceed Rs. 50,000/-.p.a. 11)Application in Form no 13 or declaration in Form 15G/15H by the assessee.

Example

Find the tds amount in respect of the following interest payable by a bank 1)Rs.9,500 payable to Mr.A as Interest on Fixed deposit

Answer

No tds since total interest doesn't exceed Rs. 10,000/-

Example

2)Rs. 23,000/- payable to Mr.A on account of interest on recurring deposits

Answer

No tds since Sec 194A is applicable only for time/term/fixed deposits

Example

3)Rs. 80,000/- as interest on fixed deposit to Mr. Z

Answer

Tds 10% i.e Rs. 8,000/-

Example

4)Rs. 50,000/- as interest on fixed deposit to a senior citizen who has furnished form 15H to the bank

Answer

No since the payee has furnished a declaration for no deduction of tax

Example

5)Interest of Rs. 10 lacs to L.I.C.

Answer

No tds since tds provisions are not applicable if payment is to be made to insurance companies

SEC 194B- TDS ON WINNINGS FROM LOTTERY,CROSSWORD PUZZLES,CARD GAMES ETC

Who is liable to deduct tax? Any such winnings payable by a any person to anyone (deduct tax at the time of payment)

Rate 30%

No T.D.S. up to Rs. 10,000/-

Note: If winnings are partly in cash and partly in kind, and the cash amt. is not sufficient to meet the tds amount on entire winnings, then the payer will ensure that entire tax has been paid by the winner before giving him his prize/winnings.

SEC 194BB- TDS ON WINNINGS FROM HORSE RACES

Who is liable to deduct tax? Any such winnings payable by a any person being a bookmaker or person holding a license for horse racing, betting or wagering. (deduct tax at the time of payment)

Rate 30%

No T.D.S. up to Rs. 5,000/-

Example

Mr. Lucky won a lottery of Rs 2,00,000 in cash and a bike worth Rs. 50,000/-.He also won Rs. 4,500 in horse races. Calculate the tax that will be deducted before making him any payment.

Answer

Total Winnings from lottery - Cash - Rs. 2,00,000 and kind Rs. 50,000 TDS @ 30% on total winnings i.e. 30% of Rs. 2,50,000/TDS Rs. 75,000 will be deducted before making him any payment on account of his winnings So he will get a net cash amt. of Rs.1,25,000 (2,00,000 - 75,000) and the bike worth Rs. 50,000/Total winnings from horse races Rs. 4,500/ No tds since amount doesn't exceed Rs. 5,000/-

SEC 194C- TDS ON CONTRACTS

Who is liable to deduct tax? Any person responsible for paying any sum to a resident contractor for carrying out any work in connection with a contract or subcontract. A contract for this purpose means a contract for supply of labour for carrying out any work. Work shall also include advertising, broadcasting and telecasting, carriage of goods and passengers by any mode of transport other than railways, catering, manufacturing or supplying a product as per clients requirement by using material supplied by the client. It has been clarified that there is no tds on a contract of a sale; it is there only if it is a contract of work i.e. material supplied by the client and goods returned to the client after labour charges/job work.

So the Payer may be -Central/State Govt. -Local authority -Central/State Corporation -Any Company -Cooperative society -Housing Board -Trust -University -Any foreign enterprise -Firm/L.L.P -Individual, HUF,AOP,BOI only if they were subject to tax audit in the preceding previous year. Tax will be deducted at the time of payment or credit ,whichever is early

 Rate -1% of contract value if payee is Individual or HUF -2% of contract value if payee is any person other than individual or HUF (e.g.. firms, companies etc) Note: TDS will be 20% if PAN is not furnished by payee

No TDS up to -Rs. 30,000/- (per contract) or -Rs. 75,000/-(total amount credited or paid to the contractor in the entire financial year) In other words ,tds will be deducted on the entire contract value only if 1)Contract value exceeds Rs. 30,000/- or 2)Single contract value may not exceed Rs. 30,000/- but total amt. payable to the contractor during the year exceeds Rs. 75,000/-

 TDS is not applicable in the following cases 1)If any contract is for personal purposes of Individual or HUF for e.g. a businessman gets a painting job done in his factory, he will have to deduct tax if the amount exceeds Rs. 30,000/-(assuming his business was subject to tax audit in the preceding year and hence he is liable to deduct tax) However if he gets the painting done in his own house, no need to deduct tax because the contract of painting was for personal purposes. 2)If the payee contractor is in the business of plying, hiring and leasing of goods carriages and he has furnished his permanent account number to the payer, then no need to deduct tax with respect to his freight charges.

Example

Mr. X is a Chartered Accountant in practice. His gross receipts from profession for the year ended 31st March 2012 are 5o lacs. Gross receipts for the year ending on 31st March 2013 are estimated to be only 10 lacs. He makes the following payments to a resident contractor. Calculate his tds liability.

Contract No. and Date 1) 02.04.2012 2) 05.05.2012 3) 07.07.2012 4) 10.10.2012 5) 12.12.2012

Name of Contractor Mr. A Mr. B Mr. Z ( PAN NOT FURNISHED) Mr. B Mr. B

Description of Contract Computer Maintenance Office Furnishing Printing Contract Office Furnishing House Furnishing

Amount Rs. 35,000 Rs. 15,000 Rs. 40,000 Rs. 29,000 Rs. 70,000

Answer

1)Mr A -Since contract value exceeds 30,000/- and A is an individual, tax will be deducted @1% of contract value i.e. 1% of 35,000 = Rs. 350 and the net amount of Rs. 34,750 will be paid to him

2)Mr.B -Each single contract doesn't exceed Rs. 30,000/- and the total contract value doesn't exceed Rs. 75,000/-(15,000 + 29,000...the house furnishing contract is not considered because tds is not applicable for personal contracts).So no tax to be deducted and entire amount will be paid to Mr.B 3)Contract value exceeds Rs. 30,000/- and the applicable tds rate is 1% but since the payee has not furnished his PAN, tax will be deducted @ 20% i.e. 20% of 40,000/- i.e. Rs. 8,000/- and the net amount of Rs. 32,000/- will be paid to Mr. Z.

SEC 194D - TDS ON INSURANCE COMMISSION

Who is liable to deduct tax? Any person responsible for paying/crediting to any resident person (insurance agent) any commission or reward for solicitation, continuing or renewing insurance policies. Rate 10% (20% if PAN not furnished by payee) No T.D.S. up to Rs. 20,000/T.D.S. not applicable in the following cases If Form No. 13 is furnished by the payee for low or no deduction of tax

SEC 194E - TDS ON PAYMENT TO NON RESIDENT SPORTSMEN/SPORTS ASSOCIATION/ENTERTAINER

Who is liable to deduct tax? Any person responsible to pay/credit any income to a non resident sportsman or an entertainer who is not a citizen of India when such income is earned by way of 1)participation in India in any game or sports 2)advertisement 3)contribution of articles relating to any game or sports in newspapers, magazines or journals 4)any performance in India (in theatre, radio, television etc) w.e.f. 01.07.2012 Any person responsible to pay/credit any income to a non resident sports association or institution in relation to any game or sports played in India

Rate 10% (plus surcharge if applicable and education cess @ 3%) 20% (w.e.f. 01.07.2012) Note All TDS rates are standard basic rates without any surcharge or cess. However if payments are made to a foreign co . or non resident, tax is to be deducted at the standard rate including surcharge if applicable and education cess.

SEC 194EE - TDS ON AMOUNT RECEIVABLE FROM NSS (NATIONAL SAVINGS SCHEME)
Who is liable to deduct tax? Post Office while paying the amount matured from NSS to the depositor (other than legal heirs of the depositor) Rate 20% (on total amount received on maturity i.e. principal amount + interest amount) No TDS up to Rs. 2,500/T.D.S. not applicable in the following cases If Form No.15G/15H is furnished by the payee for low or no deduction of tax

SEC 194G - TDS ON COMMISSION ON PURCHASE AND SALE OF

LOTTERY TICKETS

Who is liable to deduct tax? Any person paying/crediting commission, remuneration or any prize to any person stocking, distributing, purchasing or selling lottery tickets. Rate 10% (20% if PAN not furnished) No TDS up to Rs. 1,500/T.D.S. not applicable in the following cases If Form No. 13 is furnished by the assessee If authorised lottery ticket agent purchases lottery tickets in bulk at a discount from the State Govt. and sells it at the same price.

SEC 194H - TDS ON COMMISSION OR BROKERAGE

Commission or Brokerage means any payment received or receivable directly or indirectly by a person acting on behalf of another person for services rendered (other than professional services) or for any other services in relation to buying/selling goods or similar related transactions.

Who is liable to deduct tax? Any person paying/crediting any commission or brokerage to any resident person. However an Individual or HUF who was not liable to tax audit in the preceding previous year is not liable to deduct tax at source.

Rate 10% (20% if PAN not furnished) No TDS up to Rs. 5,000/T.D.S. not applicable in the following cases When BSNL or MTNL pays commission to their public call office franchisees. When RBI pays turnover commission to its banks for work done by them. If Form no. 13 is furnished by the assessee for low or no deduction of tax at source.

Example

Mr. Kapoor who has a printing press secured a job of printing 1,000 books to Resham Publications through the contacts Mr. Desai for which he paid Mr Desai a commission of Rs. 50,000/-.Is there any tax required to be deducted assuming Mr. Kapoors business turnover in the preceding year was Rs. 120 lacs.

Answer

The turnover of Mr. Kapoor exceeded 100 lacs in the preceeding year.So he was subject to tax audit, hence he is liable to deduct tax at source before making the payment to Mr. Desai. Tax will be deducted @ 10% .Hence Rs. 5,000/- will be the t.d.s and only the net amt. of Rs. 45,000/- will be paid to Mr. Desai. Pls Note : if Mr. Kapoor was not subject to tax audit in the preceding previous year, then he wouldn't have been liable to deduct tax at source. Also, if Mr. Desai doesnt submit his PAN,tax will be deducted @ 20% i.e. Rs.10,000/-

SEC 194I - TDS ON RENT

Rent means any payment made under any lease, sub lease or any other agreement for use of land or building including factory building, plant and machinery, equipment, furniture or fittings whether or not any or all of the above are owned by the payee. Rent for the purpose of deduction of tax also includes any non refundable deposit and advance rent or arrears of rent if any.

Who is liable to deduct tax? Any person paying/crediting any rent to any resident person. However an Individual or HUF who was not liable to tax audit in the preceding previous year is not liable to deduct tax at source.

Rate 2% on Plant and Machinery 10% on Land, Building, Furniture and fittings (20% if PAN not furnished) No TDS up to Rs. 1,80,000/- (limit of Rs. 1,80,000/- applies to aggregate rent charged for land, bldg. ,plant and machinery, furniture)

T.D.S. not applicable in the following cases Tenant is Government or local authority which enjoys exemption U/S 10. If any service tax is charged on the rent, tax is not deducted on the service tax amount. i.e. it is deducted only on the rent amt. excluding service tax. (Pls. note this is as per an Income tax Circular 04/2008.This circular applies only for Sec 194 I ,so in all other payments tds will be deducted on the gross amount including service tax.) If Form no. 13 is furnished by the payee.

Example

Compute the amt. of tax to be deducted in the following cases:

1)ABC ltd. takes a building on rent and sublets it to Mr. X an individual who has only salary income. Mr. X pays a rent of Rs. 2,00,000/- for the P.Y. 2012-13.

Answer

Though it is payment of rent and it exceeds the limit of Rs. 1,80,000/-,still Mr. X is not liable to deduct any tax because he was not subject to tax audit in the preceding year. Hence Sec. 194I is not applicable to him.

Example

2)If in the above case, the building was sublet to another company say XYZ Ltd. would the answer change?

Answer

Yes, because now the payer is a company, hence he is liable to deduct tax @ 10%.So XYZ Ltd. will deduct tax Rs. 20,000/- and pay the net amt. of Rs. 1,80,000/- to ABC Ltd.

Example

3)Mr. A and Mr. B are equal owners of a building which they have let out to a company and are charging rent of Rs.3,20,000/p.a.

Answer

Even though the total rent exceeds Rs. 1,80,000/- ,the share of rent per co owner (A and B) is only Rs.1,60,000/- each. The limit of Rs. 1,80,000/- will apply separately to each co-owner for the purpose of deduction of tax. So, since rent paid to each co owner doesn't exceed Rs. 1,80,000/-,no tax is required to be deducted.

SEC 194J - TDS ON PROFESSIONAL SERVICES/TECHNICAL SERVICES/ROYALTY/NON COMPETE FEES/DIRECTOR FEES

Professional services means those covered U/S 44AA (services in the legal, medical, engineering, accountancy and other notified fields) . Technical Services are managerial technical or consultancy services including provision of services of technical or other personnel. (as defined U/S 9) Royalty means any consideration received for transfer of all or any rights in respect of any patent, invention, formula, design etc. or for imparting any information as regards the use of the same. ( as defined U/S 9) Non Compete fees means fees referred to U/S 28 i.e. for not carrying on any activity in relation to any business, sharing any knowhow, patent, copyright, trademark or similar rights or information. Director's fees means remuneration paid to a director of a company who is not an employee (tds on director's fees is applicable from 01.07.2012)

Who is liable to deduct tax? Any person paying/crediting any professional services/technical services/royalty/non compete fees/director fees to any resident person. However an Individual or HUF who was not liable to tax audit in the preceding previous year is not liable to deduct tax at source. Rate 10% (20% if PAN is not furnished) No T.D.S. Up to Rs. 30,000/- (limit of Rs. 30,000/- applies separately to each of the above payments except director fees).So TDS is liable on director's fees irrespective of any limit.

T.D.S. not applicable in the following cases If Individual or HUF makes payments for professional services which are used exclusively for personal purposes. If form no. 13 is furnished by the payee If along with the bill of services rendered, a separate bill is given for reimbursement of expenses, then tax is not deductible on reimbursement of expenses. If however a consolidated bill is given of professional/technical services rendered along with reimbursement of expenses, then tax is deductible on the gross amount without seggregating the expense amount.

Example

Calculate the amount of tax to be deducted in the following cases:

1)XYZ Ltd. has to pay Rs. 50,000/- to Mr Mafatlal which includes Rs. 27,000/- on account of audit fees and Rs. 23,000/- on account of technical fees .

Answer

Even though the total amount payable exceeds Rs. 30,000/-,there is no liability to deduct tax because the limit of Rs. 30,000/- applies separately for professional fees and technical fees. So XYZ Ltd. will pay the entire amount of Rs. 50,000/- without deducting any tax at source.

Example

2)ABC Ltd. has to make the following payments in the P.Y. 201213 i)Rs. 80,000/-on account of professional fees to Mr. Sawant ii)Rs. 20,000/- as director's fees to Mr. Desai on 01/08/2012 who is not an employee of the company. iii)Rs. 40,000/- as technical fees to Mr. Mehta (which includes Rs. 2,000/- as out of pocket expenses)

Answer

i)Since professional fees exceed Rs. 30,000/-,tax will be deducted @ 10% i.e Rs. 8,000/ii)The limit of Rs. 30,000/- doesn't apply to director's fees. So tax will be deducted on the director's fees @ 10% (irrespective of the amount spent) Tax deducted will be Rs. 2,000/(Please note ,if this payment was made prior to 01.07.2012,tax would not have been deducted) iii)Tax will be deducted on the entire Rs.40,000/- @ 10% i.e. Rs. 4,000/- (assuming that a consolidated bill is furnished)

SEC 194LA - TDS ON PAYMENT OF COMPENSATION ON

ACQUISITION OF CERTAIN IMMOVABLE PROPERTY

Who is liable to deduct tax? Any person responsible for paying such compensation/enhanced compensation to a resident on account of compulsory acquisition of any land or building (other than rural or urban agricultural land) Rate 10% (20% if PAN not furnished by payee) No T.D.S. Up to Rs. 100,000/Rs. 2,00,000/- (on or after 01.07.2012)

T.D.S. not applicable in the following cases If Form No. 13 is furnished by the payee for low or no deduction of tax

Example

The Govt. compulsorily acquired commercial land of Mr.X on 01.08.2012 and paid him a compensation of Rs. 1,50,000/-.How much tax will be deducted before making the payment?

Answer

The limit of Rs. 1,00,000/- has been increased to Rs. 2,00,000/- from 01.07.2012.Since the payment is made in August (i.e. after 01/07.2012) and the compensation doesn't exceed Rs. 2,00,000/-,no tax is required to be deducted before making the payment.

Pls Note: If the payment was made prior to 01.07.2012,tax deducted would be 10% i.e. Rs. 15,000/-

SEC 194LLA - TDS ON PAYMENT OF CONSIDERATION IN RESPECT OF SALE OF IMMOVABLE PROPERTY. (W.E.F. 01.10.2012)
Who is liable to deduct tax? Any person responsible for paying any consideration to a resident on account of transfer of Immovable property (other than agricultural land) . Rate 1% (20% if PAN not furnished by payee) No T.D.S. Up to Sale Consideration does not exceed Rs. 50,00,000/- in specified urban areas Sale Consideration does not exceed Rs. 20,00,000/- in other areas (Stamp Duty value adopted by the Registrar will be deemed to be the consideration)

SEC 194LB - TDS ON INTEREST FROM INFRASTRUCTURE DEBT

FUND

Infrastructure fund is a fund which is set up for investment in infrastructure projects referred to under Sec 10(47).

Who is liable to deduct tax? Any person paying/crediting income from such fund to a nonresident or foreign company. Rate 5% (Add surcharge if applicable and education cess) (20% if PAN not furnished)

SEC 194LC - TDS ON INTEREST ON FOREIGN BORROWINGS (APPLICABLE FROM 01.07.2012)

Who is liable to deduct tax? Any Indian company paying/crediting interest on money borrowed (on or after 01.07.2012) in foreign currency from a source outside India under a loan agreement or by way of long term infrastructure bonds as approved by the Central Government. Such interest is paid or payable to a non resident or a foreign company.

Rate 5% (Add surcharge if applicable and education cess) (20% if PAN not furnished)

SECTION 195-TDS ON INCOME

COMPANY

OF A NONRESIDENT/FOREIGN

Who is liable to deduct tax? Any person paying/crediting any interest or any other income (other than salary and other than income mentioned above U/S 194LB and U/S 194LC) to a non-resident or to a foreign company. Rate Applicable rate i.e. Rate of tax specified in the Finance Act or agreement U/S 90 or U/S 90A (i.e. double tax avoidance agreements) (20% if PAN not furnished)

T.D.S. not applicable in the following cases Dividend which are subject to dividend distribution tax U/S 115O If interest is paid/credited by an offshore banking unit on deposits made. Form no. 13 is furnished by the payee.

SECTION 196C-TDS ON LONGTERM CAPITAL GAINS FROM FOREIGN CURRENCY BONDS OR GLOBAL DEPOSITORY RECEIPTS
Who is liable to deduct tax? Any person paying/crediting the above income to a non resident. Rate 10%

SECTION 196D-TDS ON INCOME FROM SECURITIES PAYABLE TO F.I.IS(FOREIGN INSTITUTIONAL INVESTORS)

Who is liable to deduct tax? Any person paying/crediting the above income to a F.I.I.. Rate 20%

TDS RATE CHART

OTHER MISCELLANEOUS PROVISIONS

Grossing up income payable net of tax -Sec 195A Where under any agreement, tax chargeable on any income is borne by the payer , then the tax borne by the payer will be added to the net income of the Payee/ recipient i.e. the income of the payee will be grossed up by the amount of tax borne by the payer. However, no grossing up is required in case of tax paid by employer on non monetary perquisites provided to the employee (because this tax paid is a non taxable perquisite)

No TDS on certain income payable to the Government, Reserve Bank of India and other Corporations -Sec 196 Tax shall not be deducted at source if payment of any income is made to The Government The Reserve Bank of India Mutual Fund specified U/S 10(23D) Any other corporation established under a Central Act whose income is exempt.

Low or no deduction of tax -Section 197/197A (already discussed in the beginning in General points)

Tax deducted is income received -Sec 198 Any tax deducted is income deemed to be received by the assessee.(except tax on non monetary perquisites paid by the employer) So an assessee's total income will always be Net Amount received + T.D.S.

Credit for tax deducted -Sec 199 The tax deducted at source and paid to the credit of the Central government will be treated as tax paid on behalf of the assessee / deductee /payee. Credit for tds paid to the Government will be given on the basis of information furnished by the deductor. In case such income is assessable in the hands of some other person other than the deductee (for eg.clubbing of income),due credit will be given to that other person on the basis of information filed by the deductor. Credit for tax deducted shall be given for the assessment year for which the income is assessable. If the income is spread over a no. of years, credit for tds will be given proportionately.

Duty of Person/Payer deducting tax -Sec 200 The payer/ deductor has to deposit the tax so deducted to the credit of the Central Government in the prescribed time as mentioned below : Tax deducted from April to February - Should be deposited within seven days from the last day of the month in which tax is deducted So tax deducted in the month of April 2012 the month of May 2012 and so on....till the month of Feb. 2013 deposit by 07/03/2013

deposit by 07/05/2012 deposit by 07/06/2012

Duty of Person/Payer deducting tax -Sec 200 Tax deducted in the month of March -Should be deposited by 30th of April So tax deducted in the month of March 2013 deposit by 30/04/2013

All corporate assessees and non corporate assessees subject to tax audit must remit the tax through electronic payment i.e through internet banking facility of the authorised bank or debit/credit cards. Quarterly TDS statements should be furnished to the Central Government giving details of tax deducted at source and paid.The due dates for furnishing these returns are 15th July,15th Oct.,15th Jan and 15th May.(In case the payer is a Government, the due dates are 31st July,31st Oct.,31st Jan and 15th May)

Duty of Person/Payer deducting tax -Sec 203 TDS certificates need to be issued to the payee as a proof of tax deducted and paid. Only one tds certificate with respect to salary payment and quarterly tds certificates with respect to other income. Salary TDS certificate should be issued on or before 31st May of the relevant assessment year All other tds certificates should be issued within 15days from the due date of furnishing the quarterly tds returns.

Duty of Person/Payer deducting tax -Sec 203a Every person deducting or collecting tax shall apply to the Assessing Officer for Tax deduction and Collection Account Number and such number will be quoted by the payer in all returns, challans and other correspondence with the Govt.

TAX COLLECTED AT SOURCE -SEC 206C

Introduction In some cases, it is mandatory for a seller to collect tax at source before selling the goods to the buyer. Just like TDS, this tax is deposited to the credit of the Central Government and the buyer can claim credit for the same while filing his return of income. A seller will include every person except individuals and HUFs who were not subject to tax audit in the preceding previous year. Generally tax should be collected at the time of debiting the buyer's account or receipt of income, whichever is early. However in certain cases like lease contracts and sale of jewellery, tax is to be collected at the time of receipt of income.

Difference between TDS and TCS TDS is the tax which is deducted while making payments to parties with respect to certain expenses. Out of the gross bill charged,TDS is paid to the government and the net amount is paid to the party. TCS is the tax which is collected on sale of specified goods by the seller. It is charged over and above the sale price and then the tcs is collected from the buyer and paid to the Government. In both TDS and TCS, the person whose tax is deducted or from whom tax is collected will get the credit of these prepaid taxes while filing their return of income.

Self Declaration by buyer if goods are used for manufacturing purposes If a resident buyer furnishes a declaration to the seller that the goods bought by him are to be utilised by him for manufacturing/production/generation of power and not for trading purposes, then no tax will collection will be done. The person responsible for collecting tax shall accordingly deliver to the C.I.T such declaration.(This declaration doesnt apply for sale of bullion or jewellery)

TCS with respect to lease contracts As can be seen from the tcs rates table, tax is to be collected not just while selling specified goods but also when a person grants a lease or a licence or enters into a contract or transfers any right or interest in any 1)Parking lot 2)Toll Plaza 3)Mine 4)Quarry to another person(other than public sector company) for the use of the same in the business of the licensee.TCS rate is 2% of the lease amount.

TCS with respect to sale of bullion exceeding Rs. 2,00,000/and jewellery exceeding Rs. 5,00,000/From 01/07/2012,tax has to collected at source by the seller on the above sale if any amount out of the sale consideration is received in cash. Tax is to be collected @1% of the sale price and at the time of receipt of the amount in cash. This is irrespective of whether the buyer is a manufacturer, trader or purchases it for personal use.

Example

1)Mr. Jhaveri purchases jewellery from Pednekar Jewellers Pvt. Ltd. on 10/07/2012 for Rs.5,50,000.On the same day, half the amount is paid by cheque and the balance is paid in cash in September 2012.

Answer

In this case, tax @ 1% of sale price i.e. 5,500/- will be collected by Pednekar Jewellers from Mr. Jhaveri in September (at the time of receipt of cash).Mr. Jhaveri can claim credit of this tcs of Rs. 5,500/- while filing his income tax return

Consequences of default If any person liable to collect tax fails to collect tax or after collecting tax fails to pay it to the Central Government, then he will be liable for interest and even penalty and rigorous imprisonment in severe cases. Interest charged is the same as that charged for default in collecting or paying tds i.e. 1% per month or part of a month for not collecting tax and 1.5% per month or part of a month for not paying tcs.

Provisions regarding payment of TCS, furnishing returns and certificates are similar to the provisions of TDS