You are on page 1of 11

TDS GENERAL PROVISIONS IN RELATION TO TDS/TCS (SECTION 190, 191, 198, 202 & 205) General : TDS is one

of the means by which income tax is recovered from the assessee in the previous year itself. The payer of certain income deducts tax at source at the specified rate at the time of accrual or payment of such income to the payee and pays such tax on behalf of the payee. TDS is a pre-paid tax, which is deducted from the tax liability of the assessee (i.e. from whose income tax is deducted). In case of tax collection at source, the recipient of income collects tax from the payer of the income and pays such tax on behalf of such payer. Such tax collected at source is deducted from the tax liability of the person from whom the tax has been collected. Section 190 : Although regular assessment in respect of any income is to be made in later assessement year, but tax on such income is payable in the previous year itself in the following manners. (1) TDS/TCS , (2) Advances Tax In addition to above taxes , the assessee has to pay self assessment tax under sec 140A at the time of filling the return, if any tax is still due Section 191 : If TDS/TCS is not deducted or paid to Govt. then payer is considered as assessee deemed to be in default. Tax deducted is income received [Section 198] Any tax deducted under the provisions of Chapter XVIIB relating to TDS under sections 192 to 196 shall be deemed to be income received by the assessee for the purpose of computing his income. In other words, for the purpose of computation of total income of the payee, gross salary, gross dividend or gross interest i.e. the amount actually received plus the amount of tax deducted at source will have to be considered. However, the tax paid by the employer under section 192(1A) on the non-monetary perquisites of the employee shall not be deemed to be income received. Others: As per section 202, TDS is one of the modes of recovery and other modes of recovery may also be adopted against the assessee. However, as per section 205, if tax has been deducted at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. Illustration 1 -Bar against direct demand, if tax deducted: M, an individual, has let out, his building at a monthly rent of Rs. 12,000. The tenant-deducted tax under section 194-1 from the rent paid to M, but did not remit such tax to the credit of the Central Government. M filed his return of income for the assessment year 2010-11 including therein the rental income from the said building and paid the balance tax on his total income after taking credit for tax deducted at source by the tenant. The Assessing Officer has called upon M to pay the tax to the extent of tax deducted at source. Is the Assessing Officer justified in doing so? Solution: In view of section 205, when tax has been deducted at source, the assessee

cannot be called upon to pay the tax himself to the extent of amount of such tax deducted at source. Accordingly, in this case, the Assessing Officer is not justified in calling upon M to pay the tax to the extent of tax deducted at source. PROVISIONS RELATING TO TAX DEDUCTION AT SOURCE Sec. 192 Type of Payment Salaries (Discussed in detail later) Payer Employer Payee Employee No TDS Nil Rate of TDS [GN (1)] Rate of tax applicable to employee for the financial year in which payment is made 10%

193

Interest on Securities Any person

Resident

194

Dividend under section 2(22)(e)

Domestic company

Resident

194A

Interest other than Any person Interest on securities other than an Individual or HUF

Resident

Winnings from Any person lottery, crossword puzzles or card game & other game of any sort 194BB Winnings from Horse * A races. bookmaker * A person having license for horse racing arranging a wager or bet in any race course 194C Payment to Specified

194B

Any person

Up to Rs. 2500 during a financial year in case of an individual Up to Rs. 25000 during a financial year in case of an individual Up to Rs. 10,000 during a financial year in case of payments by bank/cooperative bank or on post office deposits; and Up to Rs. 5,000 in other cases. Up to Rs. 5000/-

10%

10%

30%

Any person

Up to Rs. 2500/-

30%

Resident

Up

to

Rs.

(i) 1%, if

contractor for person 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

194D 194E

Insurance commission

Any person

Payment to non- Any person resident sportsmen or sports association of income referred to u/s 115BBA Commission, Any person remuneration or prize for stocking, distributing, purchasing/selling lottery tickets. Commission Any person brokerage other than an Individual or HUF Rent Any person other than an Individual or HUF

194G

20,000/- for (n payee is an individual) individual or a * Aggregate Up to HUF Rs. 50,000 for(ii) 2%, if each payee. payee is any * Payment in curseother person, of business ofof the sum plying, hiring orpaid or leasing goodscredited. carriage, if PAN(Substituted furnished. by the Finance (no. 2), Act 2009 w.e.f. 1.10.2009) Resident Up to Rs. 5000/10% during a financial year Non-resident Nil 10% *Sportsmen being foreign citizen; or * Sports association Any person Up to Rs. 1000/10%

contractor (Note contract shall include sub-contract. Hence, contractor shall include subcontractor)

194H

Resident

Up to Rs. 2500/during a financial year

10%

194-I

Resident

Up to Rs. 120000* Rent for use during a financialof any year machinery or plant or equipment : 2% * Any other case : 10% (Amdt. Finance (No. 2) Act, 09 w.e.f 1.10.09) Up to Rs. 20,000/-10% during a financial

194J

Fees forAny person professional other than an

Resident

194LA 195 [SN (9)] 196B 196C

196D

services individual or Fees for HUF technical services Royalty; or Non competing or exclusivity fees referred u/s 28(va) Compensation Any person compulsory acquisition * Interest or Any person * Any other sum (Other sum income taxable as salaries) Long-term capitalAny person gains on units referred u/s 115AB Interest or Long-termAny person capital gains on Bonds or GDRs referred u/s 115AC Income fromAny person securities referred u/s 115AD(1)(a).

year for each kind of payment separately

Up to Rs. 1,00,00010% during a financial year * Non resident Dividend referredAs specified * Foreign in section 115-O by the company Finance Act Offshore fund Nil Non-Resident Nil 10% 10%

Resident

Foreign institutional investors

Dividend falling u/s20% 115-O; and Capital gains on transfer thereof

1. TDS In case of income under the head salary (sec-192) 1. In the case of Salaries, the liability to deduct tax arises only at the time of payment. There is no question of tax deduction in cases where the employees account is credited with the salary due to him, which for some reason or other was not paid. (1) Computation of TDS on salaries: In case of 'Salaries' tax deduction shall be made from the estimated income of the employee under the head 'Salaries' for the relevant financial year. The amount of tax to be deducted at source in case of' Salaries' shall be computed as per following step s _ (A) Total Income, for TDS purposes = Income taxable under the head 'Salaries' + Income (not loss) taxable under any other heads - Loss under the head 'Income from houseproperty' _ Deductions under Chapter VIA (B) Gross TDS-1 = Tax on Total Income for TDS purposes (inclusive o(surcharge and education cesses) - Relief u/s 89 - Tax deduction under any other section.

(C) Gross TDS-2 = Tax on total income considering only Income under head Salaries and Loss under head income from house property - Relief u/s 89 - Tax deduction under any other section. (D) Net TDS = Gross TDS-1 or Gross TDS-2, whichever is higher. (E) TDS to be deposited per month by employer = Net TDS / No. of months for which the employee has rendered service during the financial year. The employer may increase or reduce the amount of TDS for the purpose of adjusting any excess or deficiency arising out of any, previous deduction or failure to deduct during the financial year. Note: If an employee is in receipt of income (not being a loss) chargeable under any other head, he shall furnish particulars of such other income and tax deducted thereon, to his employer in Form No. 12C. (2) Tax on non-monetary perquisites paid by employer: At his option, employer may pay tax on whole or part of non-monetary perquisites referred to u/ s 17(2) without making any tax deduction from it. Computation : Tax on non-monetary perquisites = Income chargeable under head "Salaries" (including the non-monetary perquisites)_x Average Rate of income tax. Tax on non-monetary perquisite shall be construed as tax deductible at source from the income under the head "Salaries". (3) Employment with more than one employer due to simultaneous employment or due to change in employment : In that case, the employee shall. choose one of those employers and tax shall be deducted at Source by the such employer taking into account salary received by the employee from the other employers. Illustration 1 -Computation of TDS on salaries: Rajkumar is employed in a company in Ahmedabad. He would receive salary of Rs. 625000 (annual) from his employer during financial year 2010-11. During the financial year 2010-11 he would payments of Rs. 85,000 eligible for deduction u/ s 80C & 80G. Compute the amount of tax deductible at source per month from the salary of Mr. Rajkumar, if Mr. Rajkumar has following other incomes, as reported to the employer company: Loss under the head House property Winnings from lottery (gross) Loss from business Royalty income (after expenses) Rs. 40,000 Rs.50,000 Rs. 10,000 Rs. 50,000 (TDS deducted Rs. 20,000)

Solution: The Tax to be deducted from salary income shall be the higher of(a) Tax due on salary income after deducting loss from house property; or

(b) Tax due on salary income including other incomes (not loss) but excluding loss from house property. (A) Computation of tax considering salary income and loss from house property _ Income from salary Less : Loss from house property Gross total income Less : Deduction u/s 80C & 80G Total income liable to tax deduction at sources Tax due Add : Education Cess @ 2% and SHEC @ 1% Tax to be deducted at source 625000 40000 585000 850000 54000 1620 55620

(B) Tax due on salary income including other incomes (not loss) but excluding loss from house property Income from salary Loss from house property Winnings from lottery Royalty income Gross total income Less : Deduction under sections 80C & 80G Income on which TDS to be made Tax due Add : Education Cess @ 2% and Secondary and Higher education cess @ 1% Total tax Less : Tax deducted at source under other sections (30% on 50,000 + 20,000) (C) Tax to be deducted at source per month Tax deductible at source (Higher of the amounts at in (A) or (B)) Monthly instalments 55620 4635 625000 40000 50000 50000 685000 85000 600000 84000 2520

86520 35000 51520

DEDUCTION OF TAX FROM INTT. ON SECURITIES (SEC-193) Tax is to be deducted (a) either at the time of payment thereof in cash or by issue of a cheques or draft or by any other mode, or (b) at the time of credit of interest to the account to the account of the payee or to interest payable account or suspense account, whichever happens earlier. In the following cases, tax is not to be deducted at source.

(A) Interest payable to insurance companies, etc.: Any interest payable to:(i) Life Insurance Corporation of India; (ii) General Insurance Corporation of India or any of four companies formed under it; (iii) Any other insurer, in respect of any securities owned by them, or in which they have full beneficial interest Interest other than Intt on securities (section 194-A) 1. Who is liable to deduct tax : 1. Individual or HUF required audited u/s 44AB 2. Other person paying intt. To resident 2. No TDS in certain cases: No tax shall be deducted at source from the following interest incomes (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; (ii)Rs. 10,000 where the payer is a co-operative society carrying on the business of banking; (iii)Rs. 10,000 on any deposit with post office under notified scheme of Central Government; (iv)Rs. 5,000 in anv 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,OOO/Rs. 10,000 shall be computed branch-wise. (b) income credited or paid to any bank or statutory financial corporation or LIC or UTI or any insurer or notified institution/ association; (c) income credited or paid by a firm to a partner of the firm; (d) income credited or paid by a co-operative society - (i) to its member or other cooperative . society; or (ii) to non-members on deposits other than time deposits. (Therefore, only interest on time deposits paid to non-members is liable for TDS). (e) income credited or paid by the Central Government under any provision of this Act or the Estate Duty Act, 1953, or the Wealth-tax Act, 1957, or (f) 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; (g) income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public.sector company or scheduled bank in relation to a zero coupon bond issued on or after 1-6-2005. (Amendment by the Finance (No.2) AN, 2009 to w..e f. 1-4-2009) WINNING FROM LOTTERY, CROSSWARD PUZZLE, CARD GAME ETC. (SEC-194B) TDS when winnings are wholly in kind or partly in cash and parly in kind: W.e.f. 1-6-1997, where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings. Thus, prizes offered in various contests in tele-serials, in lucky draws for promoting sales of NSCs, Kisan Vikas Patras, etc. and similar sales promotion activity will attract provisions of TDS. Example: R wins a motor car in a lucky draw held by G Ltd. The market price of the car is Rs. 3,00,000. In this case before giving car to R, G Ltd. will recover Rs. 90,000 from R [30% of Rs. 3,00,000]. In case G. Ltd. cannot recover the tax as per the terms of the draw, then G. Ltd.

shall have to pay TDS itself calculated as under. Gross up the draw amount which shall be 3,00,000 The tax to be deducted shall be = 4,28,571 x G Ltd. shall deposit Rs. 1,28,571 as tax and the gross income of R shall be Rs. 4,28,571. No TDS on bonus or commission payable to lottery agents: If out of winning amount of lottery, etc., any bonus or commission is paid/payable to lottery agents or sellers of lottery tickets, or sales made by them, no income tax is to be deducted for that amount paid and tax will therefore be deducted after deducting such bonus and commission. For example Mr. A wins a lottery price of Rs. 1,00,000. A sum of Rs. 5,000 is deducted for payment to the lottery agent. Tax will be deducted on Rs. 95,000 after allowing bonus/ commission paid to agent. Section 194C Work shall include : (A) Work: "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 (i.e. "job work"),but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. **TDS in case of "job work" : In this case, TDS shall be made _ (i) on invoice value excluding value of material, if such value is mentioned separately in invoice or (ii) on whole of invoice value, if the value of material is not mentioned separately in the invoice.y Rates of TDS prior to 1.10.2009 : Section 194-H (A) Commission or brokerage: Commission or brokerage doesn't include insurance commission. However it includes payment received directly or indirectly, by a person acting on behalf of another person for services rendered. Further, the services do not include professional services but includes services rendered in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. (B) No deduction shall be made under this section on any Commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar relephone Nigam Ltd. to their public call office franchisees. Section 194-I (A) '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. Any of the aforesaid payment would be covered under rent (i) whether or not any or all of, su~h assets are owned by the payee; or

(ii) whether lease, sub-lease, tenancy etc. of such assets is given separately for each asset or together for all assets. (B) Tax not deductible on service tax component: Section 194-1 speaks of 'income by way of rent'. Service tax paid by the tenant doesn't partake the nature of "income" of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore, TDS will be made on rental income without including service tax. - Circular No. 4/2008, dated 28-4-08. (C) Rates o/IDS prior to 1-10-2009: The rates of TDS prior to 1-10-2009 were as under Rent for use of any machinery or plant or equipment -10%; Any other case (1) Where payee is Individual/HUF : 15%; O)Anyotherpaya:20%. Section 194J : (A) Professional services means services rendered by a person in the course of carrying on (a) 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. (B) Individual and HUF not liable for tax audit, or payment for personal purposes, - not liable to IDS : (a) An Individual or HUF whose turnover or gross receipts from business or profession carried on by him exceeds Rs, 40 lakhs/Rs. 10 lakhs in the immediately preceding financial year will be required to deduct tax at source. (b) However where fees for professional services is credited or paid exclusively for the personal purposes of such individual or any member of the HUF then such individual or HUF shall not be liable for TQS u/s 194J. (C) Tax deductible even on service tax component: Section 194J refers to 'any sum paid', not merely , income'. Therefore, the amount of service tax will be covered by the expression I any sum paid' and will, therefore, be liable to TDS. Hence, TDS will be made on gross amount inclusive of service tax, F. No. 275/73f2007-IT(B), dated 30-6-2008. Section 194LA : Payment liable for IDS : The payment, which is liable for TDS, is any sum being compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any l~w for the time being in force, of any land (other than agricultural land, whether rural or urban) or any building or part of a building. Illustration 2 -IDS liability: Discuss the liability for tax deduction at Source in the following cases _ (1) Mr. Anand has been numing a sale proprietary business whose accounts are audited under section 44AB of Income Tax Act, 1961. He pays a monthly rent of Rs. 15,000 for the office premises to Mr. R, an individual who himself has taken the same on rent. Besides, Anand also pays service charges of RS. 10,000 per month to Mr. R towards the use of furniture, fixtures and vacant land appurtenant thereto. (2) By virtue of an agreement with nationalised Bank, a catering organisation [Pvt Ltd. Co.] receives a Rs. 50,000 p.m. towards supply of food, water, snacks etc. during office hours to

the employees of bank. (3) An employee of the Central Government receives arrears of salary for the earlier 3 years. He enquires whether he is liable for deduction of tax on the entire amount during the current year. (4) A T.V. Channel pays Rs. 10 lakhs as prize money to the winner of a Quiz Programme. (S) State bank of India pays Rs. 50,000 per month as rent to the Central Government for a building in which one of its branches is situated. (6) A television company pays Rs. 50,000 to a cameraman for shooting of a documentary film. (7) State Government pays Rs. 20,000 as commission to one of its agent on sale of Lottery Tickets. (8) A company pays to a doctor a monthly retainership of Rs. l.500 for attending an outpatient clinic at its factory premises. - . (9) A company pays royalty of Rs. 15,000, fees for professional services of Rs. 18,000 and fees for technical services of Rs. 20,000 to Mr. A. (10) A company pays royalty of Rs. 50,000 to Mr. B. (11) A company pays royalty of Rs. 50,000, free of tax, to Mr. C. (12) X Ltd. pays noncompeting fees to Y Ltd. Rs. 10,00,000. Solution: The aforesaid cases have been dealt with as follows _ (1) Where the payer is an individual or HUF whose accounts are required In be audited u/s 44AB in the immediately preceding year, the payer shall be required to deduct tax at Source @ 10% U/S 194-1 (15% for payments pertaining to period before 1-10-2009), if the rent exceeds Rs. 1,20,000 p.a, Under section 194-1, rent covers all payments made for use of building, land, furniture etc. even if payment is made under sub-lease and such assets are not owned by payee. Therefore in this case Rent = (15,000 + 10,000) x 12 = Rs. 3,00,000; and TDS on such rent = 1,50,000 x 15% + 1,50,000 x 10% = Rs. 37500. (2) Any payment made in pursuance of any contract for consideration of more than Rs. 20,000 in case of . individual contract or Rs. 50,000 in aggregate during the previous year in case of each payee is subject to TDS under section 194C. The expression 'work' includes catering. So, TDS (rounded off)::: 12000 i.e. [6,00,000 x 2%] (the TDS rate was 2% even before 1-102009). (3) The whole sum is liable for tax deduction at Source in current year. However, the employee can claim relief u/ s 89 by furnishing information in prescribed form to the person liable to deduct tax at Source. (4) TV Channel is a liable to deduct Tax u/s 194B @ 30% on the prize money, as the amount exceeds Rs. 5,000. TDS = 10 lakh x 30% = Rs. 3,00,000. (5) Payment of rent to Central or State Government is not liable for TDS under section 194-1. (6) If the cameraman is an employee of TV. Company, provisions of section 192 will apply. But if he is a professional man, section 194-J will apply. Tax shall be deducted u/s 194-J @ 10% at the time of credit -of the Rs. 50,000, or on its payment, whichever is earlier. TDS u/ s 194-J = SO,OOO x 10% = Rs. 5,000. (7) The payer shall be liable to deduct tax at source under section 194G If payment or credit to any person stocking, distributing, purchasing or selling lottery tickets exceeds Rs. 1,000. Tax to be deducted by State Government = 20,000 x 10% = Rs. 2,000. (8) The amount of Rs. 1,500 p.m. i.e. Rs. 18,000 is fees for professional services. No tax is required to be deducted at source, as the amount of payment doesn't exceed Rs. 20,QOO. (9) Tax is required to be deducted under section 194J if the amount of payment in respect of

each kind of service exceeds Rs. 20,000 during the financial year. As the payment in respect of each kind of services doesn't exceed Rs.,20,OOO, no tax is required to be deducted at source. (10) Tax deductible at source under section 194-J = 50,000 x 1'0% = Rs. 5,000. (11) In case of payment free of tax, the amount has to be grossed up. Gross payment = Rs. 50,000 x 100 + (100 - rate of TDS i.e. 10) = 50,000 x 100 + 90 = Rs. 55,556. TDS =Rs. 55,556 x 10% = Rs. 5556 .. (12) Tax deductible at source = 10,00,000 x 10% = Rs. 1,00,000. . (lIllustration 3 -TDS under section 194-J : An individual practising as a chartered engineer is in receipt of fees from a company, which had retained him for purposes of valuation of properties. The total fee agreed upon between the parties was Rs. 50,000 and the engineer was also to be reimbursed of all expenses incurred by him to visit the various locations where properties are situated. The engineer was paid the following amounts by the company: 20th July 2010 Rs. 10,000 (Advance of fees) 10th July 2010 Rs. 20,000 (towards expenses incurred) 5th August 2010 Rs. 40,000 (balance of fees on completion of work) 10th August 2010 Rs. 25,000 (in total settlement of claim for reimbursement of expenses). Discuss the liability of the company in regard to tax deduction at source on these payments. Solution: The company is liable to deduct TDS @ 10% u/ s 194J on sum paid towards fees for professional services only if the aggregate amount of such fees exceeds Rs. 20,000. As per CBDT's clarifications, if the amount paid towards fees includes reimbursement of expenses, TDS shall be on the gross amount. However, there is difference between _ (a) claim of fees along with reimbursement of expenses in one bill and (b) claim of fees and reimbursement of expenses by way of separate bills. In case (a), the reimbursement will fall within the expression 'any sum by way of fees for professional services', however, in case (b), the reimbursement will not fall within the said expression. Thus, total fees = Rs. 10,000 + 40,000 = Rs. 50,000, on which TDS = 50,000 x 10%. = Rs. 5,000.

You might also like