TAX DEDUCTED AT SOURCE

BASICS
UPDATE
&
PRACTICAL ISSUES
D R Venkatesh,
B.COM, LLB, FCA ,
Partner, MSSV & Co.,
Chartered Accountants
1
Bangalore
 BACKGROUND
PRESS RELEASE DATED MAY 21, 2009
NO 402/92/2006-MC(12 of 2009)
FY 2008-09 FY 2007-08 Remarks
(in Crores) (in Crores) (in Crores)

Direct Tax 3,38,212 3,12,202 26,010 increase, i.e. 8.33%

Corporate Tax 2,12,823 1,92,911 20,912 increase, i.e. 10.84%

Personal Income Tax 1,23,967 1,18,904 5,063 increase, i.e. 4.25%

(FBT, STT & BCTT)
FBT 7,997 7,116 881 increase, i.e. 12.28%

STT 5,408 8,577 3,169 decrease, i.e. 36.90%

Corporate TDS 61,683 45,450 16,233 increase, i.e. 35.71%

Non-Corporate TDS 68,786 59,145 9,641 increase, i.e. 16.38%

C.G. TDS 3,364 2,034 1,330 increase, i.e. 65.38%

Tax Collected by 31,242

way of Assessment
2
• Direct Tax Collection short by Rs 52,798 Crores, as against the
Budgeted Target of Rs 3,65,000 Crores.

• Direct Tax Collection only Rs 48,280 Crores during the FY 2007-08,

risen to over Rs 3,38,212 Crores, the increase is nearly SEVEN
times in 11 years time.

• TDS Collection is Rs 1,30,469 Crores out of the Direct Tax

Collection of Rs 3,38,212 Crores.

• Cost of Collection is 0.66% during the FY 2008-09

• Cost of Collection was 0.54% during the FY 2007-08

3
 Presentation
• Basics
• Update
• Practical Issues u/s 194 C, 194 I and 194 J
• Lower Deduction of Tax
• Annual Tax Statement
• Conclusion
4
 Basics
• Status of Deductor/Payer

o Any Person …….

o Tax Payer
o Agriculturist
o Charitable/ Educational Institutions

5
 Basics
• Individual / HUF

o Whose total sales, gross receipts or turnover

o Exceed the monetary limits specified under
clause (a) or clause (b) of Section 44AB
o During the financial year immediately
preceding financial year

6
 Basics

• Status of Recipient/Payee

o Rate of Deduction
o Applicability of Surcharge
o Government

7
 Basics

• Residential status of Recipient/Payee

o Resident
o Non resident

8
 Basics
• Nature of expenditure

o In the hands of the deductor – payment /

Debit may be towards
 Capital Expenditure

 Revenue Expenditure

 Personal Expenditure

9
 Basics
• When to deduct

o Payment

o Credit

10
 Basics
• Rate of Deduction

o Tax rate
o Surcharge
o Education Cess

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 Basics
• Remittance
• Deductor
o Government - On same day

o Others
 During the year payment

 Year end provisions

o With Special Permission

 Salaries – 15th June, 15th September, 15th March

 Interest, Insurance Commission, Commission or Brokerage u/s 194H –

15th July, 15th October, 15th January, 15th April

12
 UPDATE
• The Taxation law (Amendment) Act, 2006

• The Finance Act 2007

• The Finance Act 2008

• Circulars/Notifications

13
 UP DATE:
THE TAXATION LAWS (AMENDMENT) ACT, 2006

- ASSENT OF THE PRESIDENT ON THE 13TH JULY 2006

- THE GAZETTE OF INDIA ON 14TH JULY 2006
- Clause 8 – Amendment to Section 40(a)(ia) w.e.f
1.04.2006 - Rent, Royalty
- Clause 16 – Amendment to Section 194J- Royalty
- Any sum referred to in clause (va) of Section 28

14
 UP DATE:
Clause 15 – Amendment to Section 194I - Rent means any payment, by
what ever name called, under any lease, sublease, tenancy or any other
agreement or arrangement for the use of (either separately or together)
any:-

(a)Land ; or
(b)Building (including Factory Building) ; or
(c) Land appurtenant to a build (including Factory Building) ; or
(d)Machinery ; or (g) Furniture ; or
(e)Plant ; or (h) Fittings
(f) Equipment ;or

Whether or not any or all of the above are owned by the payee.

15
THE FINANCE ACT 2007
 Section 194A
- w.e.f 1.06.2007
- Rs.5000 to Rs.10000
- Rs.10000 – Co-operative Society
engaged in carrying on the business
of banking
- Rs.10000 – On any deposit with Post Office
under any scheme framed by Central
Government and notified by it in this behalf
- Rs. 5000 in any other case.
 Section 194C
- 194 C (1) – Substituted
- (a), to (j) - old
- (k) – New sub section
- Any individual or a HUF . . . . . . . . . . .
16
 Section 194 H
- w.e.f 01.06.2007
- 5% to 10%
- Insertion of proviso – No deduction
Any commission or brokerage payable by BSNL or
MTNL to their public call office franchises

 Section 194 I
- w.e.f. 01.06.2007
- (a) 10% for use of any machinery or
plant or equipment
- (b) 15% land or building or furniture
or fittings
Payee – individual or HUF
- (c) 20% land or building or furniture
or fittings
Payee – other than individual or HUF

17
 Section 194J
- w.e.f 1.06.2007
- 5% to 10%

 Section 201(1A)
- 12% per annum to 1% for every
month or part of a month

18
The Finance Act 2008
– Amendment to Sec 199
– Amendment to Sec 203
– Amendment to Sec 40(a)(ia)

19
 Amendment to Sec 40(a)(ia)

Has not been paid-

[A] In a case where the tax was deductible and

was so deducted during the last month of the
previous year, on or before the due date specified
in sub - section[1] of section 139; or

[B] In any other case, on or before the last day of

the previous year;

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Circulars/Notifications
• Circular No. 4/2008, Dated April 28, 2008
• Circular No. 275/73/2007, Dated June 30, 2008
• NotificationNo.88/2008/F.NO.275/43/2008-IT[B], Dated
August 21, 2008
• Notification No. 28/2009, Dated March 16, 2009
• Notification No. 30/2009, Dated March 25, 2009
• Notification No. 31/2009, Dated March 25, 2009
• Notification No. 142/22/2008, TPL Circular No.
02/2009, Dated May 21,2009
21
Circulars/Notifications

• Circular No. 4/2008 dated April 28, 2008

• Clarification regarding service tax should be
excluded for TDS u/s 194I

• Clarificatory Circular No. 275/73/2007 dated June 30,

2008
• Clarification regarding service tax should be
included for TDS u/s 194J

22
U/s 194I U/s 194J

Rent Rs. 100,000 Fees Rs. 100,000

Service Tax Rs. 10,300 Service Tax Rs. 10,300

Total Rs. 110,300 Total Rs. 110,300

TDS on Rs. 100,000 TDS on Rs. 110,300

23
Any income by way of Any sum by way of
• 194A • 194C
• 194B • 194J
• 194BB • 194L
• 194D • 194LA
• 194E
• 194G
• 194H
• 194I

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Circulars/Notifications
• NotificationNo.88/2008/F.NO.275/43/2008-IT[B]
Professional includes for Section 194J
• Sports Persons
• Umpires and Trainers
• Team Physicians and Physiotherapists
• Event Managers
• Commentators
• Anchors and
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• Sports Columnists
Circulars/Notifications
• Notification No.28/2009
– Income Tax (Sixth Amendment) Rules, 2009
– W.e.f April 1, 2009
– New Rule 37BA, 37I
– Credit for tax deducted at source for the purpose of
sec 199(3)
– On the basis of information relating to deduction of
tax furnished by the deductor to the income tax
authority or the person authorized by such authority
– TDS amount
– Assessment Year

26
Circulars/Notifications
• Notification No.30/2009
– Income Tax (Seventh Amendment) Rules, 2009
– W.e.f July 1, 2009
– New Rules 37BB
– Furnishing of information u/s 195(6)
– Form No. 15CA – Information shall be furnished
electronically to the website designated by the IT
Department prior to remitting the payment
– Form No. 15CB – Certificate of Accountant

27
Circulars/Notifications
• Notification No.31/2009
– Income Tax (Eight Amendment) Rules, 2009
– W.e.f April 1, 2009
– New Rules 30, 31, 31A, 37CA, 37D
– New Forms 16, 16A, 17, 24C

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Rule 30 :

Time schedule for remittance of TDS

– No change

• Within two months from the end of the month in which

amount is credited by the payer to the account of the
payee
• Any other case, within one week from the end of the
month

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Rule 30 :
• Special cases – prior approval of the Joint
Commissioner
– Quarterly payment of amount on 15th June, 15th
September, 15th December and 15th March -
salaries
– Quarterly payment of amount on 15th July, 15th
October, 15th January and 15th April – Interest,
Insurance Commission, commission or brokerage
u/s 194H
• Rule 30(4) - Payment of tax under chapter XVII- B
– Electronically furnish an income tax challan in
Form No. 17
• Rule 30(5) – electronically remitted by way of
– Internet banking facility
– Credit or Debit card 30
Rule 31
• Rule 31(1) – TDS Certificate
– Form No. 16
– Form No. 16A
• Rule 31(2) – Time schedule for furnishing TDS
Certificate
– Within one week
– Within one month
– Within fourteen days
– Within one month
• Rule 31(3) – Duplicate Certificate
• Rule 31(4) – Duplicate Certificate
– Obtain indemnity bond from deductee
– Get a payment certified by the AO designated in this
behalf by the chief commissioner or commissioner
31
Rule 31A
• Quarterly Statement of Deductions of Tax or Collection
of Tax
– Form No. 24C – TDS Compliance Statement
– Form No. 24Q – Salaries
– Form No. 27Q – Other Cases – Deductees other than
company being non-residents or a foreign company
– Form No. 26Q – Other Cases – others
– Form No. 27EQ – Collection of Taxes

32
 Form 16, Form 16A and Form 27D has been
modified with similar changes and have the same
structure
• Additional changes made applicable to the above 3 forms are:
– Whether Original/Duplicate/Amended
– TDS Certificate Number
– Unique Transaction Number (UTN) has to be mentioned i.e.
provided by IT Department, along with Gross amount paid
and TDS amount.

• Removal from old form:

– Details of Tax Deducted and Deposited into Central
Government account
– PAN of the Deductor

33
TDS Challan – Form No. 17
• TDS remittance challan – challan No. 281 is replaced by
Form No. 17 and the remittance is to be done
electronically (either by way of internet banking or
through Debit/ Credit Cards)

• Additional Requirements as per Form No. 17

– PAN of the Deductor
– Challan is section Independent. Deductor can
prepare a single challan at the end of the month for
all his TDS deductions (Including Salaries and Non
Salaries).
– Due date of deposit of TDS is same as per old
provision.
– Deductor has to provide deductee wise PAN, Name
and TDS amount. 34
 TDS/TCS Compliance Statement –
Form No. 24C
• It is to be filed by all assesses who have been allotted
TAN.
• Section wise (all), 3 months separate information, are to
be filed electronically to the DGIT or the person
authorized by the DGIT on quarterly basis.
• It contain information of Total Payment, Total amount
eligible for deduction, Total amount considered for TDS at
full rate, Amount of TDS at full rate, Total amount
considered for TDS at lesser rate, Amount of TDS at lesser
rate, Total TDS.
• The due dates for delivering the Form 24C i.e. 15th July.
15th October, 15th January for first 3 quarters of financial
year and 15th June following the last quarter of the
financial year. 35
TDS/TCS Compliance Statement – Form
No. 24C
• SCH COM-1 Details of TDS compliance in the month of
___ ____
• SCH COM-2 Details of TDS compliance in the month of
___ ____
• SCH COM-3 Details of TDS compliance in the month of
___ ____
• SCH PAY Details of payment of tax deducted or
collected at source
• At a glance the preliminary structure of Form 24C is
similar to Income Tax Return especially the deductor
details

36
Unique Transaction Number [UTN]
• The Deductee records under that challan have to
be entered online [if less than 10] or have to be
uploaded through a file.
• On successful payment, an acknowledgement
would be generated in Form 17 format, which
validates [Yes/No] for each PAN of the deductee
and generates a Unique Transaction Number [UTN]
for each deductee record.
• It is a common link between Challan, TDS
certificate and eTDS Statement and will be
provided by the I.T. department.

37
 Circular No. 02/2009 Dated May 21, 2009
• TDS or TCS effected on or after April 1, 2009, but
not later than May 31, 2009:
Fill-up Form No. 17 – between July 1, 2009 to
July 15, 2009
• Return of Income in Form No. ITR 1 to ITR 8 for
the AY 2009-10
Quoting of relevant UTN for every TDS or TCS
• Deductions or collections made before April 1,
2009

38
 Practical issues

• General

• Specific

39
Issues - General
• Mr.X a practicing CA who is subject to Tax Audit u/s 44AB for
the year ending 31.03.2009 having the following
transactions during the financial year 2009 - 2010:

1. Constructed a house for self occupation & he is making

payment to contractor Rs.10,00,000/-

2. Borrowed funds from friends Rs.10,00,000/-

on which he wants to pay interest

Examine the applicability of TDS

40
 Issues - General

The entries passed in books of accounts for MIS

purposes.

Examine the applicability of chapter

XVII - B

41
Issues – General

• Excess/Short deduction

• Excess/Short Remittance - Adjustment

- With in the quarter.

- With in the financial year

• Refund of Excess tax remitted

42
 Issues - General
• Defaults

o Non deduction
o Short deduction
o Non remittance
o Short remittance
o Delay in remittance

43
 Issues - General
• Consequences

o Interest
o Penalty
o Prosecution
o Amount not deductible

44
 Issues - General
 Disallowance u/s 40(a)(ia) & Form No 3CD
o In the case of

 non deduction

 short deduction

 non remittance

 short remittance

 delay in remittance

45
 Issues - General
 Compute the Disallowance u/s 40(a)(ia) for the AY
2009-10
 Internal Audit Fee for the FY 2008-09 Paid every month with
out deduction of tax.

 TDS made during March 2009 (Including earlier months) and

remitted to Govt.

- On or before March 31, 2009

- On July 25, 2009 or September 25, 2009

 Internal Audit Fee for the FY 2008-09 Paid every month with
deduction of tax but not remitted to Government.
 Remitted before March 31, 2009

 Remitted on July 25, 2009 or September 25, 2009

46
 Issues - General

• M/s X Private Limited paid statutory audit fee of

Rs.1,00,000/- in cash during the accounting year
2008 – 2009 with out deduction of tax at source.

• For Assessment year 2009–10, Examine the

disallowance u/s 40(a)(ia) and u/s 40A(3) ?

47
 Issues - General
• The Assessee has received the transport advance of Rs.10
Crore from X Limited. X Limited has deducted the TDS U/s
194C on 10Crores while making the advance payment. The
Assessee couldn't complete the contract work to the extent of
Rs.6Crores and the same has been returned to X Limited.
The Assessee has credited Rs.10Crores as income debited
Rs.6Crores to as Fright Charges refund account in the P&L A/c.
The assessing officer disallowed Rs 6Corores u/s 40a(ia) since
the assessee has not deducted the tax at source. Discuss

48
 Issues - General
• Assessment completed U/s 143(3) for the
Assessment Year 2005 – 2006, 2006 – 2007 &
2007 – 2008. The Assessing officer verified the
books of accounts and all the records & no
observations regarding noncompliance of
provisions of Chapter XVII – B is noted in the
said order.

Survey officials of TDS Circle observed that for

the above years the assessee has violated the
TDS provisions and propose to invoke Section
40(a)(ia). examine 49
 Issues - General
 Time limit for verifying the TDS returns
and demanding interest u/s 201(1A)?
 Interest paid u/s 201(1A) – is it a
deductible expenditure?

50
 Issues – Specific
• U/s 194C
o Contract between the contractor and
specified entity
o Each contract less than Rs. 20,000
o Total payment in financial year Rs. 50,000
o Sub contractor – individual – not owned
more than 2 lorries

51
 Issues – Specific

• Incentive paid to a Contractor

• Liquidated damages recovered from

contractor

52
 Issues – Specific

• Transport contract
• Vehicle hire charges

- Section 194C or Section 194I

53
 Issues – Specific

• Reimbursement of expenses to
agent

- Loading and unloading charges

- Freight/transportation charges

54
 Issues – Specific
• M/s A limited has given turnkey project to B Limited for
setting the data centre in their premises for 3 Crore
plus applicable taxes. B Limited raised the invoice
which is as follows:
____________________________________________________________________________________
Invoice
Towards setting data centre - 3,00,00,000
Add: VAT @12.5%(on 75% of the value) - 28,12,500
Add: Service Tax @12.36% (33% of the value) - 12,23,640
-----------------
3,40,36,140
-----------------
_____________________________________________________________________________________________________________________________ _______

Issue – 1 : M/s A Limited propose to deduct the Tax on 33% of

contract value.
Issue – 2 : Whether TDS should be made including Service Tax
and VAT?
55
 Issues – Specific
• X Limited entrusted the construction work to C Limited. As
per the arrangement, construction materials is supplied by X
Limited to maintain the quality. X Limited deducted the
amount towards supply of material from gross contract price.
The details are as follows:
Contract Price (Gross) Rs.100 Lakhs
Less: Amount deducted towards supply
of material Rs.70 Lakhs
-------------
Net amount paid to C Ltd Rs.30 Lakhs
-------------
X Limited deducted TDS U/s 194C on Rs.100 Lakhs.
- Discuss the accounting entries to be passed in the books
of accounts in both the companies to avoid the probable
56
TDS issues.
 Issues – Specific
• Rent
o Advance Rent of Rs. 5 Lakhs paid for next 5
Financial years on 30.06.2008
o Rent of Rs.5 lakhs paid to 5 co-owners
o Warehousing Charges
o Cooling Charges paid to cold storage owners

57
 Issues – Specific
• M/s King fisher Airlines paid landing fee and parking fee
of Rs.10 Crores to Airport authorities during the
accounting year 2008 - 09. M/s Kingfisher Airlines
proposes to deduct tax at source:-
- 194C or 194I ?
• Rent paid to owner as a percentage of sales.
• Tenants in a commercial complex following payments
are made to the owner:-
- Rent
- Maintenance charges
- Power & Water charges re-imbursements.
58
 Issues – Specific
• M/s X Limited has paid interest free refundable
deposit of Rs.100 lakhs to M/s Y Limited. M/s Y
Limited allowed M/s X limited to use the building
without rent. Assessing Officer observed that this
arrangement is only to avoid the TDS and he
propose to invoke the provisions of Section 194A
in the case of M/s Y Limited and Section 194I in
the case of M/s X Limited.

59
 Issues – Specific
• Fees for professional services

o Is TDS to be effected u/s 194J on the gross

amount of bill including service tax and
reimbursement of expenses or the fees only?

60
 Issues – Specific

Audit Fee Rs. 1,00,000

Service Tax & Cess Rs. 10,300
Reimbursement of expenses Rs. 50,000

Total Rs. 1,60,300

61
 Issues – Specific

• M/s Specialty Hospital Private Limited makes

payment to consulting doctors by collecting
amount from patients . It retains 20% of the fee
collected as its service charges and pays 80% to
the consulting doctors.

- TDS U/s 192 or 194J?

- TDS on 80% or 100%

62
 LOWER DEDUCTION OF TAX
• Section 197
• Payments Covered:
- Section 192 - Section 194J
- Section 193 - Section 194K
- Section 194 - Section 194LA
- Section 194A - Section 195
- Section 194C
- Section 194D
- Section 194G
- Section 194H
- Section 194I

• Form No 13

63
 ANNUAL TAX STATEMENT
• Form No. 26AS
• Section 203AA
• Rule 37AB
• Statement issued on behalf of Income Tax Department
• Details of Tax indicated based on the data submitted by the
deductor
• Due Date for sending this statement is July 31 every year
• Form 26AS consists of:
- General Information
- Part A : Details of TDS
- Part B : Details of TCS
- Part C : Details of Tax Paid, other than TDS/TCS

64
 Conclusion
• Remittance without deduction

Transportation Rs. 100L

Charges

TDS @ 2.266% Rs. 2.266L

Total Rs. 102.266L

65
 Conclusion
• Remittance in advance

• Duty / Responsibility under chapter

XVII – B cannot be bypassed

66
 Conclusion
• Method of accounting

o Cash Basis
o Mercantile Basis
o Compliance Basis

67
 Conclusion
GOLDEN PRINCIPLES

• Applicability
• Rate
• Deduction & Remittance
• Planning

68
 Tips

for

Better and clear understanding

of

provisions of chapter XVII B

are
69
Step 1 :

Read, Read and Read until you are

clear about the provisions (Sections &
rules)

Step 2 :

Read circulars and notifications

70
Step 3 :

Read case laws of Supreme Court, High

Court, ITAT…

Step 4 :

Advise accordingly
71
 Finally
Deduct and remit Without failure

Avoid – interest, With due care

penalty, prosecution
and disallowance

File TDS returns & Issue Within time

the forms

72
Then…
THE
DEDUCTOR
DEDUCTEE
WILL
SMILE FOREVER

73
Thank You

74