Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
What is TDS/TCS
Why TDS
Your Role
Nature of Payments
Summary of Sections
Duties of Deductor and Consequences of
Default
TDS – Specific Provisions
Tax Collected at Source
Tax Deducted/Collected at Source
Advance Tax
Self Assessment Tax
Tax Collected After Regular Assessment
Others – Dividend Distribution Tax etc.
Tax Deducted at Source
In most of the Countries and Tax Literature
known as Withholding Tax
Tax deducted by Payer while making certain
payments to other persons (Payee)
Deductors are required to pay the tax so
deducted to the income tax department
within due dates
In the assessment, the payee can claim credit
of the tax deducted at source
Milton Friedman
Second World War – Introduced in USA
Time Value of Money
Salesman – Installment Buyers could be induced
to pay more because they looked not at total
debt but only the monthly payments
Added Psychological advantage – people may
pay with less resistance because they were
paying with money they had never seen
Think what will happen if you have to pay entire
tax after the end of F.Y.
Collect tax from small number of Payers rather
than large number of payees
Collect Tax from Payers who are within the
jurisdiction rather than Payees who may be
outside the Jurisdiction
Prevents Tax Evasion – Tax Evasion is
fundamental reason for expanding scope of TDS
- e.g. Contractors
Brings new Assessees to the Tax Net
Lower Cost of Collection – Making Other
institutions partners in tax collection
Maximisation of revenue collection while
Minimising the cost of collection.
For example, it should be easier to deduct tax
from all employees by one employer than for
the tax administration to collect from each
individual separately.
Collection of taxes at the source of
generation of income.
At the time of paying/ crediting of income /
payments.
Keeping a track of transactions resulting in
generation of income.
Ensure regular source of revenue to the
government.
Simple and convenient mode of collection of
tax.
The deductor shares the responsibility of tax
collection.
WHERE DO I FIT
IN THE SCHEME
OF THINGS OF
TDS CHARGES?
9
ASSISTANT COMMISSIONER OF
INCOME TAX (TDS)
– ACIT(TDS)
10
A sample TDS charge;
Ranges and officers CCIT/CIT (TDS)
may vary from place
to place
Addl/JCIT(TDS)
ACIT/DCIT(TDS) ITO(TDS)
11
Hierarchy
Legend
Capital
Major cities
Delhi-2
Chandigarh-2 Kanpur
Siliguri
Jaipur
Lucknow Guwahati
Ahmedabad
Patna India
Vadodara Bhopal
Kolkata Mumbai, Delhi and
Mumbai-2 Nagpur Bhubaneshwar
Chandigarh have 2
Hyderabad CsIT(TDS) each
Pune Vijayawada 26 charges in total
Panaji
Bengaluru Chennai
Kochi Coimbatore
12
WHAT AM I
SUPPOSED TO
DO IN A TDS
CIRCLE?
13
Broadly deal with:
TDS mismatch, rectification, grievance
handling etc. on TRACES portal
Pass orders U/s 201(1)/201(1A)
Conduct TDS Surveys
Issuance of certificates U/s 197
Refer Penalty & Prosecution proposals
U/s 271C & 276B/276BB
Capacity Building of Stake Holders
14
TDS Reconciliation Analysis and Correction
Enabling System. Click TRACES
Deductor to register on TRACES portal (TAN)
It enables viewing of challan status and annual
tax credit statements (Form 26AS)
It enables downloading of Form 16/16A.
It enables online correction of TDS statements.
PAN verification & Validation of certificates
issued u/s 197
Status of processing of TDS statements by
CPC(TDS).
15
The Centralized Processing Centre
(CPC)-TDS, located at Gaziabad, is
entrusted with the task of processing
the TDS statements filed u/s 200 by the
deductor and deals with other related
issues of TDS.
16
Sections 190 to 206CA in Chapter XVII
Casts a statutory obligation to deduct tax at
source – no order from tax officer is required
Section 190 – Legal basis for TDS
Section 191 – Safeguard for Revenue – If no
provision for TDS or where tax not deducted
– Tax is to be payable by Assessee Direct
- Explanation (w.e.f. 1.6.2003) – if person does
not deduct or pay after deduction, then
deemed to be assessee in default
Whatare the Payments which
necessitate Tax Deduction at
Source ??
Salary - 192
Interest on Securities - 193
Dividends - 194
Interest other than Interest on Securities – 194A
Lotteries and Cross-word Puzzles – 194B
Horse Race – 194BB
Contractors and Sub-Contractors – 194C
Insurance Commission – 194D
Non-resident Sportsmen and Sports
Associations – 194E
Deposit under NSS etc. – 194EE
Repurchase of Units – 194F
Commission on Sale of Lottery Tickets – 194G
Commission on Brokerage – 194H
Rent – 194-I
Fees for Professional or Technical Services –
194J
Income in respect of Units – 194K
Compensation on Acquisition of Capital Asset
– 194L
Compensation on Acquisition of Immovable
Properties – 194LA
Payment to Non-resident – Interest and ‘any
other sum chargeable to tax’ - 195
Units of non-residents – 196A
Income from Units (Non-residents) – 196B
Income from GDRs etc. (non-residents) –
196C
Income of FIIs from Securities – 196D
Section
When Introduced
Nature of Payment
Person Responsible for Deducting
Who is the Payee
Threshold Limit
Rate of Tax Deduction
Section Brief Des. Payer Payee Rate Threshold
193 Int. on Securities Any person All residents 10%, 20% No threshold
194A Interest Any Person, All residents 10%, 20% Rs. 5,000,
Ind/HUF: 44AB
Rs. 10,000
194B Lottery/X- Any person All persons 30% Rs. 15,000
word Puzzle
194BB Horse Race Any person All persons 30% Rs. 5,000
Section Brief Des. Payer Payee Rate Threshold
194C Contractors Any Person, All persons 1%: Ind./HUF Rs.30,000 and
Ind/HUF: 44AB 2%: Others Rs.1,00,000
yearly
aggregate
194D Ins. Comm. Any person All residents 10%, 20% Rs. 20,000
194J Fees for Prof./Tech. Any Person, All residents 10% Rs. 30,000
Services Ind/HUF: 44AB
194LA Com. Acq. Any person All residents 10% Rs. 100,000
Material not
Material supplied
supplied to
to contractor by
contractor by
customer
customer
TDS on invoice
TDS on Gross
value other than
Invoice Value
material
1. The payee, i.e., contractor must be resident in India within meaning of
Sec. 6 of the Income Tax Act.
2. Payment should be made by person specified (mentioned above).
3. Payment should be made for carrying out any work including supply of
labour for carrying out any work.
4. The payment should be made pursuant to a contract whether oral or
written between payer and payee.
5. The consideration of a contract in respect of which payment is made
should exceed Rs. 30,000.
6. If aggregate of the amount of such sums credited or paid or likely to be
credited or paid in the financial year exceeds Rs.1,00,000/-, TDS is
required to be deducted
7. Where advance payments are made, tax will have to be deducted if the
total payment is likely to exceed Rs. 30,000. viii. Where it was expected
that the total consideration would not exceed Rs. 30,000 but later on, it
was found that consideration would exceed Rs. 30,000, tax will have to
be deducted in respect of earlier payments also
The products of Hindustan Lever Ltd. were
manufactured by various concerns as per the
specifications provided by the Company
No TDS claiming that it is purchasing finished
goods from suppliers on a principal-to-
principal basis
HLL has purchased ‘finished goods’ as per its
accounts during F.Y. 2005-06
Survey Conducted
Detailed agreements between ‘suppliers’ and HLL
Specifications provided
Regular instructions by HLL
Provision for Regular Quality check
The products cannot be sold in the open market by the
suppliers – condition remain even if the products are
rejected by HLL
Department argued that HLL recorded purchase of
‘finished goods' but, in fact, had outsourced the
manufacturing of its branded products from third
parties – cosmetics, soaps, detergents etc.
A contractual arrangement – not a contract of sale.
Readymade clothes – outsourced to outside
parties
Prepared as per specifications
Whether TDS?
Depends on Agreements between the parties
The key provision is whether the same products
can be sold in market by the supplier
independently
Auto sector
Different parts are made as per specification
Large number of Small and Medium Enterprises
doing the ‘manufacturing’ on behalf of the Auto
Company e.g. Tata Motors
Whether tax needs to be deducted u/s 194C
Pharmaceuticals Products
The products are made by small number of
entities
Whether tax needs to be deducted?
Work shall include
manufacturing or supplying a product according to
requirement/specification of a customer by using
material purchased from such customer
does not include manufacturing or supplying a
product according to the requirement or specification
of a customer by using material purchased from a
third party
TDS on
▪ Invoice value excluding the value of material if such value is
mentioned separately in the invoice
▪ On the whole of invoice value if the value of material is not
separately mentioned
Mr. X, the proprietor of X & Co., gave an annual
maintenance contract (AMC) for maintenance of office
furniture to Mr. Y on a charge of Rs. 2,52,000. As per the
agreed terms, Mr. X has to make a payment of
Rs.2,00,000 in advance and the balance is to be paid at
the time of completion of the AMC. Mr. X intimated Mr.
Y that he will be deducting tax on the amount of
advance. However, Mr. Y argued that there was no need
to deduct tax at the time of payment of advance. Tax
was to be deducted only when the bill of the contract
work would be raised by him. Is the contention of Mr. Y
correct? 52
Solution:
As per section 194C, tax is to be deducted at the time of
credit of sum to the account of the contractor or at the time
of payment thereof in cash or by issuance of a cheque or
draft or by any other mode, whichever is earlier. Considering
the above provisions, advance of Rs. 2,00,000 will be liable
to TDS and the argument of Mr.Y is not correct.
Note: In the above case the provisions are discussed
considering a specific case of section 194C. The above
mentioned provisions (i.e., deduction of tax at the time of
payment or credit, whichever is earlier) will apply to all the
payments liable to TDS, viz., interest other than interest on
securities (section 194A), commission/brokerage (section53
194H), rent (section 194I), fees for professional/technical
XY Corporation, a partnership firm of Mr. X
and Mr. Y, gave a catering contract on the
occasion of celebration party on completion
on 25 years of their partnership to Mr. Z. The
total payment to be made for the catering
contract is Rs.5,84,000. Entire payment has to
be made in advance before commencement
of contract. Determine the TDS liability of the
firm. 54
Solution: As per section 194C tax is to be deducted as
follows: @ 1% when the contract payment is being
made or credit is being given to an individual or an
HUF and @ 2% when the contract payment is being
made or credit is being given to any person other than
an individual or an HUF.
In this case the contractor is Mr. Z, i.e., an individual.
Hence, TDS would apply @ 1%. Total payment to be
made is Rs. 5,84,000, TDS @ 1% will come to Rs.
5,840.
Suppose in the above case the contract is given to Z
Pvt. Ltd. instead of Mr. Z, then the amount of TDS
would come to Rs. 11,680, being @ 2% on Rs.
5,84,000. 55
Mr. Kumar is running a garment factory. His turnover
for the previous year 2016-17 was Rs. 2,52,00,000.
During the year, he gave a contract to construct his
residential bungalow. The contract payment to be
made for construction of the bungalow was Rs.
2,52,000. Mr. Kumar intimated to the contractor that
he will be deducting tax @ 1% from the contract
payment. The contractor argued that the provisions of
section 194C do not apply in case of contract
payments made by an individual/ HUF for his/its
personal purposes. Is the contention of the contractor
correct? 56
Solution
As per section 194C an individual or HUF will not
be liable to deduct tax on the sum credited or
paid to the account of the contractor where such
sum is credited or paid exclusively for personal
purposes of such an individual or any member of
HUF. In this case, the contract payments were
made towards construction of personal
residential bungalow of Mr. Kumar and, hence,
there was no requirement of deduction of tax at
source. Thus, the argument of the contractor
was correct. 57
Mr. Raja is running a garment factory and his turnover
for the previous year 2011-12 was Rs. 2,52,00,000.
During the previous year 2012-13, he gave an annual
maintenance contract to SM Pvt. Ltd. for the
maintenance of the furniture of factory. The annual
contract payments will amount to Rs. 1,84,000. He
informed the director of the company that he will be
deducting tax at source from the contract payments
@ 2%. The director argued that an individual making
contract payment has to deduct tax @ 1% and not @
2%. The rate of 2% applies only if the person making
the payment is other than an individual. Is the
contention of the director correct? 58
Solution
As per section 194C, in respect of contract
payments to be made to any individual or a
HUF (and not by an individual or HUF) will be
liable to TDS @ 1%. In other words, the rate
of 1% will apply only in a case where the
payee is an individual/HUF. In this case the
payee is a company and TDS will be deducted
@ 2% and not @ 1%. Thus, the contention of
the director is incorrect. 59
Mr. Kumar, the proprietor of Kumar & Co., gave an
annual maintenance contract for maintenance of
office furniture to Mr. Soham. As per the agreed
terms, the payment to be made to Mr. Soham was as
follows: Rs. 44,000 to be paid in October, 2012. Rs.
30,800 to be paid in February, 2013. Mr. Kumar
intimated to Mr. Soham that at the time of payment
in the month of February, he would be deducting tax
@ 1% from the payment to be made to him. However,
Mr. Soham argued that payment made to him would
not attract TDS, since the total payment would not
exceed Rs. 1,00,000. Is the contention of Mr. Soham
correct?
Solution
As per section 194C, no TDS will apply if
single payment does not exceed Rs. 30,000
and the aggregate payment made during the
year does not exceed Rs.1,00,000. In this case
both the payments exceed Rs. 30,000 and,
hence, would attract TDS. The argument of
Mr. Soham is not correct. Moreover, Mr.
Kumar will have to deduct tax in October,
2012 also
KK, a partnership firm of Mr. Kumar and Mr. Kapoor,
gave a work contract to Mr. Shan for manufacturing
the goods as per their specifications. The raw-
materials required for manufacturing the goods were
to be acquired by Mr. Shan on his own account from
the market. The total contract payment was agreed at
Rs. 5,52,000. KK intimated to Mr. Shan to produce his
PAN, since they would be deducting tax @ 1% from
the contract payments. The contractor argued that
there was no need to deduct tax in respect of contract
of manufacturing of goods, since it was a contract of
sale of goods and not a contract for any work or
service. Is the contention of Mr. Shan correct?
Solution
The definition of work as given in section 194C includes the
activity of manufacturing/ supplying any product according to
the requirement or specification of a customer by using material
purchased from such customer. However, work will not include
the activity of manufacturing/supplying any product according
to the requirement or specification of a customer by using
material purchased from a person, other than such customer.
Thus, the activity of manufacturing/supplying of any product as
per the requirement of other person will be liable to TDS, if such
product is manufactured from the raw-materials provided by the
person giving the contract. If such product is manufactured from
raw materials purchased from a person other than such
customer, then the activity will not be liable to TDS.
In the above case the goods were to be
manufactured from the raw-materials
acquired by Mr. Shan from person other than
SM Corporation (i.e., person other than the
customer), hence, the activity would not be
liable to TDS. Thus, the argument of the
contractor is correct.
Provisions of Sec. 194C are applicable only in
relation to ‗works contracts‘ and ‗labour
contracts‘ but do not cover ‗contract for sale or
mere supply of goods‘.
Neither Income Tax Act nor Income Tax Rules
specifies the difference between the contract for
sale and works contract; so there is no standard
criteria to determine whether a contract is of
contract for sale or a contract for work and
labour.?
One of the criteria to differentiate between ‘contract for
sale‘ and ‘work contract‘ is to determine the ownership
regarding goods in question. In case of works contract,
even though a part or whole of the materials used belongs
to the contractor, yet the property in the thing produced
will be the performance whereas in the case of contract for
sale the things produced generally are the sole property of
the party who has performed the work before its delivery
and such person and the property therein passes only under
the contract relating thereto to other party for price.
Mere transfer of property in goods used in the performance
of a contract is not sufficient. To constitute a sale there
must be an agreement expressed or implied relating to sale
of goods and completion of the agreement by passing of
title in the very goods constructed to be sold.
Who is liable to deduct
Any person responsible for paying any sum
chargeable under the head ‘Salaries’
In other words every employer is liable to deduct
tax at source
Thus, even Individuals/HUF are required to deduct
When to deduct
At the time of payment of salary
When only provision for salary made – no need to
deduct
Estimated Income and Rate of Deduction
At the beginning of year, the employer needs to
estimate the salary income for entire year
Compute the tax on the basis of rates in force
applying the slab of income – average rate of tax
Divide it by 12 and deduct the amount every month
Estimated income may be revised periodically on the
basis of new information, or new facts and
circumstances – new installments may be determined
Salary includes wages, fees, commissions, perquisites,
profits in lieu of, or, in addition to salary, advance of salary,
annuity or pension, gratuity, payments in respect of
encashment of leave etc.
Includes the annual accretion to the employees account in a
recognized provident fund to the extent it is chargeable to
tax under rule 6 of Part A of the Fourth Schedule of the Act.
Contributions made by the employer to the account of the
employee in a recognized provident fund in excess of 12 per
cent of the salary of the employee, along with interest
applicable, is included
Any contribution made, in excess of 10 per cent, by the
Central Government or any other employer to the account
of the employee under the New Pension Scheme is also
included
Includes Perquisites – section 17(2)
Value of rent-free accommodation / concessions
Personal attendants
Gas, Electricity and Water
Free or concessional education
Interest-free or concessional loan
Use of assets/transfer of assets
For the purposes of TDS –classified as monetary
and non-monetary perquisites
Includes Profits in lieu of salary – section 17(3)
CBDT’s Annual Circular on TDS – gives guidelines for
deduction from salary
Exemptions to be considered while computing ‘Salary’
liable for TDS
10(5): Leave Travel Allowance
10(10): Death cum retirement gratuity
10(10A): Pension
10(10AA): Leave encashment
10(10B): Retrenchment Compensation
10(10C): Compensation for VRS
10(10D): Sums received under Life Insurance Policy
10(11): Payment from Provident Fund
Exemptions to be considered while computing ‘Salary’
liable for TDS (contd.)
10(13A): HRA
10(14): Special Allowance for Performance of Duties as per
Rule 2BB
10(15)(iv)(i): Interest on deposit scheme for retiring
Government Employees
10(18): Pension to Gallantry awards winners
Exemptions specifically provided under section 17 e.g.
medical treatment provided to an employee or any
member of his family, in any hospital maintained by the
employer or reimbursement of medical expenses upto Rs.
15,000
Deductions under section 16
Entertainment Allowance – 16(ii)
Tax on Employment – 16(iii)
Standard Deduction omitted with effect from
Finance Act, 2005
Deductions under Chapter-VIA
Section 80C
Section 80CCA: National Saving Scheme or deferred annuity
plan
Section 80CCB: Equity linked saving scheme
Section 80CCC: Pension Funds
Section 80CCD: Pension Scheme of Central Government
Section 80D: Medical Insurance
Section 80DD: Medical treatment of handicapped
Section 80E: Repayment of loan for higher education
Section 80GG: House Rent Paid
Section 80RRA: Remuneration in Foreign Currency
Section 80U: Persons suffering from disability
Deductions under Chapter-VIA
Section 80G deduction not allowed by DDOs
However, on due verification 100% deduction may
be allowed in case of certain specific funds only
such as National Defence Fund or The Prime
Ministers National Relief Fund and 50% deduction
on Jawaharlal Memorial Fund etc.
The Drawing and Disbursing Officers should satisfy
themselves about the actual
deposits/subscriptions/payments made by the employees,
by calling for such particulars/information as they deem
necessary before allowing the aforesaid deductions. In case
the DDO is not satisfied about the genuineness of the
employees claim regarding any
deposit/subscription/payment made by the employee, he
should not allow the same, and the employee would be free
to claim the deduction/rebate on such amount by filing his
return of income and furnishing the necessary proof etc.,
therewith, to the satisfaction of the Assessing Officer.
A number of Examples are given in the Circular issued by the
CBDT
Section 192(1A) and 192(1B)
Employers have been given option to pay the tax on
non-monetary perquisites without deduction of tax at
source
The employer will have to pay such tax at the time
when such tax was otherwise deductible i.e. at the
time of payment of income chargeable under the
head Salaries to the employee.
Tax shall be determined at the average rate of
income-tax computed on the basis of rates in force on
the salary income including non-monetary perquisites
No Grossing up – Section 10(10CC)
Example: Salary of a male employee (below 65 years) for the
year inclusive of all perquisites is Rs. 4,50,000, out of which,
Rs. 50,000 is on account of non-monetary perquisites and the
employer opts to pay the tax on such perquisites
Steps :
Income chargeable under the head Salaries inclusive of all
perquisites: Rs. 4,50,000
Tax on total salaries (including Cess): Rs. 46,350
Average rate of tax [(46,350/4,50,000) 100]: 10.3%
Tax payable on Rs. 50,000 (10.3% of 50,000):Rs. 5,150
Amount required to be deposited each month:
(5,150/12) Rs. 430
Assessee employed simultaneously under more than
one employer
Or employed successively under more than one
employer
Assessee can choose one Employer
Furnish particulars to the chosen employer about his
salary etc. received from other employers in Form 12B
Form 12B includes particulars of Perquisites received
Employer has to aggregate the income, apply the rates
and make the deduction
Applicable to Employees of Govt. and semi-Govt.
institutions
If the employees receives arrears of salary or profits
in lieu of salary of earlier years
192(2A) read with 89(1): If the tax rate is lower for
the earlier years for which payment is made, he may
furnish to the payer, in Form 10E, to claim the relief
Section 192 (2B)
At the option of the assessee
If any income other than Salary Income –
information may be given to the employer
Rule 26B with a Verification – I ------ declare
Employer cannot take losses under consideration
other than loss under the head House Property
Section 192 (2C)
Employers are required to submit a statement of
Perquisites or Profits in lieu of Salary to the
Employees
Rule 26A and Form No. 12BA
Section 192(3): During the Financial Year, TDS
amount can be adjusted
Section 192(4): Trustees of a recognized Provident
Fund making payments of accumulated balance
where Rule 9(1) of Part A of Fourth Schedule applies
need to deduct
Section 192(5): Contribution made by an employer
to approved superannuation fund are paid to
employees in circumstances other than section
10(13) – tax needs to be deducted – Rule 6 of Part B
of Fourth Schedule
If the salary is paid in foreign currency?
The value in Rupees of such salary shall be
calculated at the prescribed rate of exchange
Prescribed in Rule 26 - Rate of exchange to be
adopted for converting the foreign currency
payment into Rupee equivalent is the telegraphic
transfer rate adopted by the SBI on the date on
which tax is required to be deducted
Who is liable to deduct
Every person other than individual and HUF
Individuals and HUFs liable for tax audit also required
to deduct tax at source
Who is the Payee
Every resident after 1.6.2003
Prior to 1.6.2003 payee was “any person”
Rent paid to non-residents governed by section 195
To be deducted at the time of payment or credit
whichever is earlier
Tax needs to be deducted on payment of rent
if the payment during the year likely to
exceed Rs. 2,40,000
Rate of Deduction
Payments made in respect of rent paid for
use of plants, machinery and equipments –
2%
Rent paid for Land, building, furniture and
fittings – 10%
Rent defined (prior to 13.7.2006) as
“Rent” means any payment, by whatever name
called, under any lease, sub-lease, tenancy or any
other agreement or arrangements for the use of
any land or any building (including factory
building), together with furniture, fittings and the
land appurtenant thereto, whether or not such
building is owned by the payee
Rent defined after 13.7.2006 as
“Rent” means any payment, by whatever name called,
under any lease, sub-lease, tenancy or any other
agreement or arrangements for the use of (either
separately or together) any,-
▪ Land; or
▪ building (including factory building); or
▪ land appurtenant to a building including factory building); or
▪ machinery; or
▪ plant; or
▪ equipment; or
▪ furniture; or
▪ fittings,
whether or not all or above are owned by the payee.
Definition of rent u/s 194-I is different from
annual value u/s 22 where one has to be owner
For attracting section 194-I, the payee need not
be the owner of land, building, furniture etc.
The amended section covers leases or even sub-
leases either by the owners or even by the
lessees and is thus extended to cover all items
Income from sub-tenancy – may be income from
other sources but still attracts 194-I
Varun & Co. is a proprietorship of Mr. Varun
(turnover during the preceding year was Rs.
1,84,00,000). For the previous year 2012-13, the
firm has to pay Rs. 6,48,000 towards rent of office
building. The accountants of the firm intimated
the landlord that the firm will be deducting tax
from the rent @ 10%. The landlord argued that as
per section 194I there is no requirement to deduct
tax from rent of office building. TDS is applicable
only on rent of factory building. Is the contention
of landlord correct?
As per section 194I, tax is to be deducted on any
amount paid towards rent. For the purpose of section
194I, rent means any payment, by whatever name
called, under any lease, sublease, tenancy or any
other agreement or arrangement for the use of (either
separately or together) any : Land, Building (including
factory building), Land appurtenant to a building
(including factory building), Machinery, Plant
Equipment, Furniture, Fittings.The above items may
or may not be owned by the payee. Thus, tax is to be
deducted in respect of rent for office building also.
Hence, the argument of the landlord is not correct.
Varun & Co. is a proprietorship of Mr. Varun (turnover
during the preceding year was Rs. 1,84,00,000). For
the previous year 2012-13, the firm has to pay Rs.
2,52,000 towards rent of the machineries. The
machineries are taken on rent from Mr. Kumar, who,
in turn, has taken the same on rent from Mr. Raja. The
accountant of the firm intimated to Mr. Kumar that
the firm will be deducting tax from the rent @ 2%. Mr.
Kumar argued that as per section 194I there is no
requirement to deduct tax from rent, if the payee is
not the owner of the machineries. TDS is applicable
only if the rented property is owned by the person
from whom the property is rented. Is the contention
of Mr. Kumar correct?
It is specified in section 194I that the rented
property may or may not be owned by the
person from whom the property is taken on
rent. Hence, in this case the firm has to
deduct tax from the rent to be paid to Mr.
Kumar. The argument of Mr. Kumar is not
correct.
XY Corporation is a partnership firm. For the
previous year 2012-13, the firm has to pay
Rs.2,52,000 towards rent of its office
building. The accountant of the firm
intimated to the landlord that the firm would
be deducting tax from rent @ 2%. The
landlord argued that as per section 194I, tax is
to be deducted @ 1% if the person to whom
rent is to be paid is an individual. Is the
contention of the landlord correct?
As per section 194I in respect of rent of land
or building or furniture or fittings tax is to be
deducted @ 10%. Thus, in the above case
accountant as well as the land lord, both were
incorrect. In this case tax will have to be
deducted @ 10%.
Mr. Raja is running a proprietary business under the
name of Raja& Co. (turnover during the preceding
year was Rs. 184,52,000). For the previous year 2012-
13, he has to pay rent of office building of Rs. 2,52,000
to Mr. Shivam. In addition to rent of Rs. 2,52,000, he
has to pay a non-refundable deposit of Rs. 3,84,000.
He informed Mr. Shivam that he would be deducting
tax @ 10% from rent and deposit. Mr. Shivam argued
that there was no requirement of deducting tax in
respect of non-refundable deposit and TDS would
apply only in respect of refundable deposits. Is the
contention of Mr. Shivam correct?
The contention of Mr. Shivam is not correct.
In respect of refundable deposits no TDS will
apply. TDS will apply only in respect of non-
refundable deposits. Hence, Mr. Raja is
required to deduct tax @ 10% from rent as
well as from non-refundable deposits.
100
Who is liable to deduct
Every person
▪ Includes Individuals/HUFs also
▪ Includes residents and non-residents
Who is the Payee
Every resident
When to make deduction
The earlier of
▪ Credit of interest payable to the account of the payee, or
▪ Payment in cash or by issue of cheque/draft/any other mode, or
▪ To any other account in the books of accounts of the payer –
deeming provision in Explanation to section 193)
101
Payments covered
Interest on Securities
Defined in Section 2(28B) to mean
▪ Interest on any security of the Central or State Government
▪ Interest on debentures or other securities for money issued
by or on behalf of a local authority or a company or a
statutory corporation
▪ ‘Securities’ are instruments indicating secured liability
Upto 1.4.89, ‘Interest on Securities’ was a separate
head of income under section 14 (Deleted sections 18
to 21)
102
Rate of Deduction
‘Rates in Force’ – Part II
Payee Rate
(a) Resident person other than a company
(i) Interest on debentures or securities issued by 10%
a local authority or corporation established
under a Central/State/Provincial Act
(ii) Interest on listed debentures 10%
(iii) Interest on other debentures/securities 20%
(b) Domestic Company 20%
103
Exemptions
Clause (i): National Defence Bonds, 1972
Clause (ia): National Defence Loan, 1968 and 1972
Clause (ib): National Development Bonds
Clause (iia): NSC (IV Issue)
Clause (iib): Notified debentures issued by PSUs/Co-
operative society etc. – About 200 Notifications issued
till date – most recent ones are NHAI Bonds, IDBI
Flexibonds etc. – ITA Section of CBDT issues
Notifications
Clause (iii) – Gold Bond, 1977 and 1980 – interest less
than Rs. 10,000 during the year
104
Exemptions (continued)
Clause (iiia): Omitted w.e.f 1.6.97
▪ Notified securities of Central/State Government
▪ Number of notifications issued e.g. exempting securities
issued by nationalized banks etc.
Clause (iv): w.e.f. 1.6.97
▪ Exempts all securities of central and State Governments
▪ Proviso w.e.f. 1.6.2007 – Payment of interest in excess of Rs.
10,000 on 8% (savings) taxable bonds, 2003 not exempt
Clause (v): Listed debentures issued by a company if
interest does not exceed Rs.5,൦00
105
Exemptions (continued)
Clause (vi), (vii), (viii): Interest payable to
LIC/GIC/Other insurer in which it has full benficial
interest
Clause (ix)
▪ Inserted through Finance Act, 2008 - “To facilitate
development of the corporate bond market”
▪ Interest payable on any security issued by a company,
where the security is in dematerialized form and listed
on a stock exchange
▪ No limit of Rs.5,൦00 as in clause (v)
106
TDS on Income from Zero Coupon/Deep
Discount Bonds
Tax treatment explained in Circular N0. 2 of 2002 dated 15.2.02
TDS clarified in Circular No. 4 of 2004 dated 13.5.04
▪ TDS u/s 193/195 only at the time of redemption of the bonds
▪ Irrespective of the fact that the bondholder declared income
on accrual basis from year to year
▪ If declared on accrual basis, TDS could be lower
▪ In this case, he has to make application u/s 197 giving
evidence of income offered by him or the previous owners in
different years
▪ Individuals can file declaration in 15H
107
Since assessee could not have identified
identity of payees at point of time when
provision for ‘interest accrued but not due’
was made since the bonds were freely
transferrable, assessee did not have any
liability to deduct tax at source – IDBI vs. ITO
(2006) 10 SOT 497
Tribunal ruled that if the identity of lenders known
– Explanation to section 193 would be applicable
108
Who is to deduct tax
Principal Officer of
▪ An Indian company or
▪ A company which has made arrangements for declaration
and payment of dividend in India
Income/Payments covered
▪ Dividends
▪ Including 2(22)(a) to (e)
No TDS if payment is (i) a resident shareholder, (ii)
paid by account payee cheque and (iii) amount less
than Rs. 2,500
No TDS if payments to LIC/GIC/Other insurers
109
Rate of Deduction
Payee: resident other than company – 20%
Payee: Domestic company: 20%
No deduction in respect of dividends referred to
in section 115-O
Explanation to Chapter XII-D: Dividends shall
have the same meaning as in s. 2(22) but shall
not include 2(22)(e)
Thus, TDS only on ‘deemed dividend’ u/s
2(22)(e)!
110
Who is to deduct tax
Any person other then individuals and HUF (not subject to tax audit)
Payments covered
Interest other than ‘Interest on Securities’
Interest defined in section 2(28A) to mean interest payable in any
manner in respect of any moneys borrowed or debt incurred
(including a deposit, claim or other rights or obligation) and includes
any service fee or other charges in respect of the moneys borrowed or
debt incurred or in respect of any credit facility which has not been
utilized
“Interest on Securities” in Section 193 is a sub-set of “Interest”
111
Rate of Deduction
Payee: Resident other than company – 20%
Payee: Domestic company: 20%
When to make deduction
The earlier of
▪ Credit of interest payable to the account of the payee, or
▪ Payment in cash or by issue of cheque/draft/any other mode,
or
▪ To any other account in the books of accounts of the payer –
deeming provision in Explanation to section 194A(1)
▪ Again same as section 193
112
Exemptions
Clause 3(i): Time deposits i.e. fixed deposits
▪ Rs.40,000 in case of fixed deposits with banks, co-
operative banks, post office deposits
▪ Rs. 5,000 in other cases
▪ Rs.40,000 or Rs. 5,000 to be computed with respect to
income credited/paid in a branch of the bank etc.
▪ Rs.40,000 or Rs. 5,000 shall be computed with reference
to the income credited or paid by the banking company
or the co-operative society or the public company has
adopted core banking solutions
113
Exemptions (continued)
Clause 3(iii): Income paid/credited to
▪ Banking company to which Banking Regulation Act, 1949
applies or co-operative society (what about foreign banks
such as Standard Chartered Bank)
▪ Financial corporation established under Central/State Act
▪ LIC
▪ UTI
▪ Company/co-operative society in the business of insurance
▪ Notified institutions etc. – About 80 institutions have been
notified such as Power Finance Corporation Ltd.
114
Exemptions (continued)
Clause 3(iv): Interest paid by a firm to its partner
Clause 3(v): Interest paid by a co-operative society to
its member or to another co-operative society
Clause 3(vi): Interest paid in respect of deposits made
to a Notified Scheme – About 10-15 schemes notified
– mostly Post Office Schemes such as NSCs, P.O.
Recurring deposit schemes etc.
Clause 3(vii): Deposits (other than time deposits) with
a banking company e.g. interest on savings account
115
Exemptions (continued)
Clause 3(viia): Deposits with co-operative society
other than time deposits
Clause 3(viii): Refunds given by Tax Department –
what happens in the case of refunds granted to a
foreign company?
Clause 3(ix): Interest on compensation awarded by
Motor Accidents claims tribunal
Clause 3(x): Income payable by Infrastructure
company/fund/PSU in relation to zero coupon bonds
Section 194A(4): TDS can be
increased/decreased for adjustment purposes
116
Circular No. 4 of 2002 dated 28.6.2002
In case of those funds or authorities or bodies whose
income is unconditionally exempt under section 10
and who are not statutorily required to file return of
income under section 139, there would be no
requirement for TDS as their income is anyway
exempt
In other case – TDS is required
Thus, if interest paid to educational
institutions/charitable trusts whose income exempt
u/s 10(23C)/11 – TDS must be done – However, it is
possible to make application u/s 197 and get relief
from A.O.
117
Who is to deduct tax
Any person responsible for paying winnings from
Lotteries etc.
Type of Income/Payment
Winnings from Lotteries or Crossword Puzzles
Card Game or any other game of any sort
(inserted with effect from 1.6.2001)
Exemption limit Rs. 1൦,000
Rate of Deduction – ‘Rates in Force’ – 30%
plus surcharge/education cess in all cases
118
Contest for Election forecast/World cup
forecast – no TDS as dominant factor in the
contest is skill/knowledge – ITO vs.
Malayalam Manorama 94 ITD 195 (Cochin)
Purchase of Refrigerators with scratch card –
held to be lottery – 105 ITD 692 (Chd) –
contrary view by some tribunals –
predominant purpose was promotion for sale
of goods – ‘lottery’ is just incidental
Payment in kind also covered
119
If partly in kind and partly in cash and the cash
component is sufficient to meet the TDS liability
– the payer must deduct tax before making the
payment
If payment in kind or partly in cash and partly in
kind and the cash component is not sufficient to
meet the TDS liability – the person responsible
for paying should ensure that before releasing
the winnings tax has been paid in respect of the
winnings
120
Who is to deduct tax
Any person being a bookmaker or to whom a
licence for betting has been granted
Type of Income/Payment
Winnings from Horse Races
Exemption limit Rs.10,000
Applicable to every race separately
Rate of Deduction – ‘Rates in Force’ – 30%
plus surcharge/education cess in all cases
121
A person has placed 3 bets @100 each on
different horses in a particular race and has
won an amount of Rs. 16,000 on one of them.
What will be the amount of winnings subject
to TDS?
The gross winnings less the amount paid for that
bet only i.e. Rs. 100, that is, Rs. 15,900 shall be
subjected to TDS. Thus, the losses on other horses
or on other races cannot be adjusted against the
winnings – Circular 240 dated 17.5.78
122
Who is to deduct tax
Every person responsible for paying income
referred to in the section
Type of Income/Payment
Income by way of remuneration or reward,
whether by way of commission or otherwise for
soliciting or procuring insurance business
Including business relating to the continuance,
renewal or revival of policies of insurance
123
Who is the Payee
Every resident receiving the above kinds of
income
Rate of Deduction
Rates in Force
▪ If payee is domestic company: 20%
▪ If payee is ‘any other person’: 10%
Exemption Limit
Rs. 15,000
124
Who is to deduct tax
Every person responsible for paying income referred
to in the section
Type of Income/Payment – Section 115BBA
Income by way of, or from
▪ Participation in India in any sport or game (other than income
from lotteries, crossword puzzles, races including horse races,
card games etc. – s. 115BB)
▪ Advertisement
▪ Contribution of Articles relating to any game or sport in India
in newspapers, magazines or journals
Type of payee in these cases are non-resident
sportsmen and athletes who are not citizens of India
125
Type of Income/Payment – Section 115BBA
Amount guaranteed to be paid or payable in relation
to any sports or game (other than income from
lotteries, crossword puzzles, races including horse
races, card games etc.) played in India
Type of payee in these cases are non-resident sports
association or institutions
Exemptions
No exemptions are available
Rate of deduction: 20% - provided in the section
itself.
126
Who is to deduct tax
Every person responsible for paying income
referred to in the section
Type of Income/payment
Withdrawal of whole or part of the amount
standing to the credit of National Savings Account
in respect of which deduction has been allowed
u/s 80CCA(1) and interest accrued thereon
Type of Payee
Any person
127
Exemptions
Aggregate amount during the year less than Rs.
2,500
No deduction on payments to heirs of the
depositor
Rate of deduction
10% - provided in the section itself
Sunset clause in Section 80CCA with effect
from 1.4.1992 – why continuing with the
section?
128
Who is to deduct tax
Every person responsible for paying income referred
to in the section
Type of Income/payment
Any amount invested by an assessee in units issued
under the Unit Linked Savings Scheme of S. 80-CCB in
respect of which deduction has been allowed to him –
which is being returned to him in whole or in part by
way of repurchase of such units or on termination of
the plan by Trust or Fund
129
Type of Payee
Any person who has invested the amount under
above-referred scheme and who has availed of
deduction u/s 80CCB
Exemptions
No exemptions available
Rate of deduction
20% - provided in the section itself
Sunset clause in Section 80CCB with effect
from 1.4.92
130
Who is to deduct tax
Every person responsible for paying income referred
to in the section
Type of Income/Payment
Any income by way of commission, remuneration or
prize of lottery tickets (including bonus payable on
winning lottery tickets)
Type of Payee
Any person who is or has been stocking, distributing,
purchasing or selling lottery tickets; receiving above
types of income
131
Exemptions
Rs. 15,000
Rate of Deduction
5% - provided in the section itself
132
Who is to deduct tax
Any person other then individuals and HUF (not
subject to tax audit)
Type of Income/Payment
Income by way of commission (not being
insurance commission) or brokerage
133
Rate of Deduction
5% - provided in the Section itself
Exemption
Rs. 15,000 during the FinancialYear
Nodeduction on commission payable by
MTNL/BSNL to PCO franchisees – w.e.f. 1.6.2007
134
Who is to deduct tax
Any person other then individuals and HUF (not
subject to tax audit)
Type of Income/Payment
Any sum by way of
▪ Fees for professional services (defined in Exp. (a))
▪ Fees for technical services
▪ Royalty (w.e.f. 13.7.2006)
▪ Any sum referred to in section 28(va) i.e. non-compete
fees or fees for a negative covenant (w.e.f. 13.7.2006)
135
Type of Payee
Any person who is resident in India
Exemptions
No deduction if amount paid/credit or likely to be
paid/credited during the F.Y. does not exceed Rs.
30,000 for each of the services mentioned
No deduction if the individual/HUF paying fees for
professional services/technical services exclusively for
the personal purposes
Rate of Deduction
10% - provided in the section itself
136
Professional services
Legal
Medical
Engineering or Architectural
Profession of Accountancy
Technical Consultancy
Interior Decoration
Advertising
Professions notified u/s 44AA
▪ Profession of Authorized Representative (S.O. 17(E) dated 12.1.77)
▪ Profession of Film Artist (S.O. 17(E) dt. 12.1.77) – defined in Rule 6F
▪ Profession of Company Secretary (S.O. 2675 dated 25.9.92)
137
Fees for Technical Services
Same meaning as in Explanation 2 to section 9(1)(vii)
Means consideration (including any lump sum
consideration) for the rendering of any managerial,
technical or consultancy services (including the
provision of services of technical or other personnel)
but does not include consideration for any
construction, mining or like project undertaken by the
recipient or consideration which will be chargeable
under the head ‘Salaries’
138
Royalty
Same meaning as in Explanation 2 to section 9(1)(vi)
Means consideration (including any lump sum
consideration) but excluding any consideration
chargeable under the head ‘Capital Gains’ for
▪ transfer of all or any rights (including the granting of a
license) in respect of a patent, invention, model, design,
secret formula or process or trademark or similar property
▪ the imparting of any information concerning the working of,
or the use of, a patent, invention, model, design, secret
formula or process or trademark or similar property
139
▪ the use of any patent, invention, model, design, secret
formula or process or trademark or similar property
▪ the imparting of any information concerning technical,
industrial, commercial or scientific knowledge, experience or
skill
▪ the use or right to use any industrial, commercial or scientific
equipment other than section 44BB
▪ the transfer of all or any rights (including the granting of a
license) in respect of any copyright, literary, artistic or
scientific work including films or video tapes for use in
connection with television or tapes for use in connection with
radio broadcasting but not including consideration for the
sale, distribution or exhibition of cinematographic film
▪ the rendering of any services in connection with the above-
mentioned activities
140
An Indian Pharma Company has entered into an
agreement with a UK Pharma Company to share
its product and receives Royalty from UK
Company.
Whether UK Company is required to deduct tax
at source before making payments to Indian
Company?
A Foreign Company has employed a lawyer to
present its case before High Court. Whether it
needs to deduct tax at source? – Circular 726
dated 18.10.1995 read with Circular 766 dated
24.4.1998
141
Inserted w.e.f. 1.10.2004
Who is to deduct tax
Every person responsible for paying income referred to in
the section
Type of Income/Payment
Any sum, being in the nature of compensation or
enhanced compensation or consideration or enhanced
consideration on account of compulsory acquisition, under
any law for the time being in force, of any immovable
property other than agricultural land
Immovable property means land or any building or part of
a building
142
Type of Payee
Every person resident in India
Exemptions
No deduction if the compensation is less than Rs. 2,50,000
Rate of Deduction
10% - provided in the section itself
No TDS – on payment made in respect of any award
or agreement which has been exempted from levy of
income-tax under section 96 of the Right to Fair
Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013
143
Sunset clause w.e.f. 1.4.2003
10(33)/10(35)
144
No specific sunset clause
But not applicable in view of section 10(33)
and 10(35)
145
Who is to deduct tax
Any person
Type of Income/Payment
In respect of bonds/shares referred to in section
115AC
▪ Income by way of interest or dividends (other than
dividends referred to in section 115-O)
▪ Long Term Capital Gains
Type of Payee
Any non-resident person
146
Rate of tax
10% - provided in the section itself
Exemption
No exemption
Section 47(viiia) provides that transfer of a capital
asset, being bonds or GDRs referred to in section
115AC is not regarded as transfer provided the
transfer is made outside India from one non-
resident to another non-resident
147
Who is to deduct tax
Any person
Type of Income/Payment
Income in respect of Securities (other than units
referred to in section 115AB) listed on a recognized
stock exchange in India and not being dividends
referred to in section 115-O
Type of Payee
FIIs
Rate of Deduction – 20% provided in the section
itself
No deduction on income by way of Capital Gains
148
A seller at the time of debiting the
amount payable by the buyer to the
account of the buyer or at the time of
receipt of such amount, whichever is
earlier, collect a sum equal to the
prescribed percentage as income-tax
Nature of Goods Percentage/Rate of
Tax
Alcoholic liquor 1%
Timber obtained under forest lease 2.5%
Timber obtained without forest lease 2.5%
Tendu Leaves 5%
Other forest produce, excluding Tendu leaves 2.5%
and Timber
Scrap 1%
Mining being coal or lignite or iron ore 1%
s.206c (1F) – inserted w.e.f. 1.6.2016
Motor Vehicle value exceeding ten lakh
rupees
1% TCS
‘Buyer’ means a person who obtains in any
sale, by way of auction, tender or any other
mode, goods of the nature specified in the
Table or the right to receive any such goods
but does not include
PSU, Central/State Government, Embassy/High
Commission/Legation/Commission/Consulate/Tra
de Representation of a Foreign Govt., Club
Purchased for personal consumption
‘Seller’ means
Central/State Government
Local Authority
Corporation/Authority established under
Central/State/Provincial Act
Company
Firm
Co-operative society
Individuals/HUF subject to tax audit
Country Liquor
Seller – State Govt.
Buyer – License Holder
If the contract is for Rs. 1,00,000 then Govt.
has to collect 1,00,000 + 1%, i.e., Rs. 1,01,000
Seller (State Govt. in this case) would be
required to pay Rs. 1,000 to the Income Tax
Department
If buyer (e.g. manufacturer of Bidis) gives a
declaration that ‘goods’ are to be utilized for
the purposes of manufacturing, processing or
producing articles or things and not for
trading purposes – no TCS
Statement in Form 27C
Statement needs to be sent to the tax
department by Sellers (e.g. State Govt.)
Applicable with effect from 1st October, 2004
Every person, who grants a lease or a license or
enters into a contract or otherwise transfers any
right or interest either in whole or in part in any
parking lot or toll plaza or mine or quarry to
another person (other than a PSU) for the use of
such parking lot, toll plaza or mine or quarry for
the purpose of business
Collect tax at source at the time of receipt of the
amount or debiting the amount payable to the
account of the licensee or lessee, whichever is
earlier
Nature of contract or license or lease etc. Percentage
Parking Lot 2%
Toll Plaza 2%
190
CAN DO THE FOLLOWING:
The I.T Authority may place marks of
identification on the books of account or
other documents inspected by him and take
extracts and copies thereof.
may also record the statement of any person
which may be useful for any proceeding
under the Act.
191
CAN’T DO THE FOLLOWING:
192
193
Department conducted a survey on the
premises of KINGFISHER AIRLINES
BANGLORE
It was found that Tax was deducted at
source from the salary to its employees
but
the company failed to remit the same to
the Government
194
Assessing Officer passed an order
under section 201(1) and 201(1A)
treating the company as an
‘assessee in default’
Levied interest and raised the
demand
195
Assessee went in further appeal
CIT(A) dismissed the appeal of the
assessee.
Assessee files further appeal in the ITAT
ITAT sets aside the case to the AO for
further consideration.
196
During this time, the Dept. filed complaints
against the petitioners for the offences
punishable under sections 276B and 278B in
the Special Court (Economic Offences),
Bengaluru.
The Special Court took cognizance of the
offences and registered the cases and issued
summons.
197
Assessee filed a WRIT before Karnataka High
Court
High Court dismissed the appeal and held as
under:
The pendency of proceedings under section
201(1) and 201(1A) cannot act as a bar to the
institution and continuance of criminal
prosecution for offences punishable under
section 276B.
198
Assessee filed a SLP (Special Leave
Petition) before the Supreme Court
which was also dismissed.
Subsequently, the assessee has fled
the country and is residing in U.K
199
The Special Court (Economic Offences),
Bengaluru has issued a Non-Bailable Warrant
(NBW) against the assessee.
On the behest of the Dept., an Extradition
Request has been obtained from the Court.
The proposal of Extradition request and the
service of NBW is currently with CBDT and
will be forwarded through MINISTRY OF
EXTERNAL AFFAIRS.
200
CPC (TDS) – Centralized Processing Centre
(TDS) at Gaziabad provides useful
reports/inputs to field officers that may be
used for identifying survey cases
Trend of TDS payment in contrast to other
deductors in similar business
Tax Evasion Petitions (TEPs) related to non-
deduction of TDS
201
Cases reported by the Assessing Officer with
huge disallowance u/s 40(a)(ia) of the Act
Habitual late filers or non-filers of TDS
Statement
Analysis of newspaper reports/information
available through Internet
Analysis of case laws decided in favor of
Revenue
202
203
Royalty
Fees for Technical Services
Interest
Dividend
Capital Gains
Salary paid to non-residents
Payments to Artists/Sportspersons
Payments to foreign companies for logistics
Import of Equipments – Interest paid on credits
Payments to lawyers and other professionals
204
Section 195(1): Any person responsible for paying to a
non-resident, not being a company, or to a foreign
company, any interest or any other sum chargeable
under the provisions of this Act (not being income
chargeable under the head Salaries) 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 the issue of a
cheque or draft or by any other mode, whichever is
earlier, deduct income-tax thereon at the rates in force
205
Person responsible for paying to a non-resident, any sum chargeable
to tax under the Act is required to deduct tax at source at the rates in
force
Does not apply to income under the head ‘Salaries’
Tax is to be deducted at the time of credit to the account of the
payee or payment, whichever is earlier
In the case of payments by banks etc. deduction only at the time of
payment in cash / through cheque
Rates in force means the rate of tax specified in the Finance Act or
the DTAA, whichever is more beneficial.
TDS Rate for payments to NRIs
Interestof
Nature Income
Income 20% of TDS
Rate
STCG (111A) 15%
LTCG (Other than 10(33), 10(36), 10(38)) 20%
Royalty/FTS after 1.6.2005
Interest 10%
20%
Lotteries/Crossword puzzles/Card Games etc.
Royalty/FTS after 1.6.2005 30%
10%
Horse Races
Lotteries/Crossword puzzles/Card Games etc. 30%
30%
Any Other
Horse RacesIncome 30%
30%
Any Other Income 40%
215
If no tax is deducted, the ‘revenue’ may not become aware that tax is
payable by the non-resident and thus these provisions also serves the
purpose of avoiding tax evasion.
The provisions of section 195 are for tentative deduction and the payee
can furnish a return of income. Detailed scrutiny is made at the time of
regular assessment and if it is held at the time of regular assessment that
no tax or lower tax is payable by the non-resident, refund can always be
granted.
The tax deducted at source by the payer will be given credit at the time
of regular assessment of the payee. The return of income may be filed by
the payee or by the payer as representative assessee/agent of the payee.
216
Foreign Company engaged in Construction Activity
Receives Rs. 100,000 from Indian Company
Likely Profit Rs. 10,000
What would be rate of withholding?
Any Other Income?
40% on Gross Basis?
The Assessing Officer has been given wide discretion to determine the
income chargeable to tax at withholding stage
The A.O. has discretion to determine the appropriate portion of sum
chargeable and not the rate of tax
Compare section 195 to TDS Provisions for payments to residents
194C, 194-H, 194-I, 194J etc. where rate of withholding is fixed
Section 195 gives discretion to the A.O.
Domestic Contractors – withholding rate is 2% corresponding to
6.67% presumptive rate (2% divided by 30%)
Foreign Contractor – The A.O. determines the income likely to be
chargeable to tax
Upto 1997 no remittance was allowed by authorized
dealers unless a NOC is obtained by the persons
responsible for making payments to non-residents
Circular 759 dated 18.11.97 – Remittance allowed on the
basis of Certificate by a Chartered Accountant (CA
Certificate)
Circular revised and restated in Circular No. 10 of 2002
dated 9.10.2002
Supplemented by RBI through instructions issued to
Authorized Dealers
219
Chartered Accountant certifies that income payable to
non-residents is chargeable to tax at a particular rate or
not chargeable to tax
CA is supposed to examine the provisions of the Act and
the treaties to arrive at the rate of tax
An undertaking is also given by the payer
“In case it is found that the tax actually payable on account of
remittance made, has either not been paid or has not been paid in full,
I/We undertake to pay the said amount of tax, along with the interest
found due, in accordance with the Income-tax Act”
221
Large number of CA Certificates
Enabling provision for computerization of these CA
Certificates – section 195(6)
Rule 37BB read with Circular 4 of 2009 (dt. 29.6.2009)
The details of remittance to be filed electronically to NSDL in Form
No. 15CA – A printout needs to be taken
C.A. Certificate to be given in Form No. 15CB
Both Form 15CA and 15CB to be submitted to the authorized
dealer/RBI who will allow the remittance
Income Tax Department to select some cases for further scrutiny on
the basis of risk analysis
222
223
Plain reading of section 195(1) – payer is a person which
will include non-residents
Taxes needs to be deducted by non-residents also if the
income is chargeable to tax in India
P. No. 13 of 1995 (1997) 228 ITR 487 (AAR)
AAR No. 250 of 1995 (White Consolidated Industries In Re)
CIT vs. Vijay Ship Breaking (261 ITR 113)
STAR Ltd. (99 ITD 91)
Babcock Power (81 ITD 29)
Whether contextual interpretation?
How the non-resident would know that he is required to
deduct tax at source? Impossible Burden on him?
224
Purchase of an immovable property by a resident from a
non-resident
Before making payment – tax has to be deducted
Rate 20% on gross basis
Application to A.O. u/s 195
A.O. will determine the cost of acquisition and then
determine the capital gains chargeable to tax – will also
give roll over benefits u/s 54, 54F, 54EC
A.O. will finally determine the rate of withholding
225
Decision under section 195 (2) should not be treated
as a conclusion in the determination of income in
the case of a foreign company
CIT vs. TELCO [2000] 245 ITR 823 (Bom.)
CIT vs. Elbee Services P. Ltd. [2001] 247 ITR 109 (Bom.)
Dodsal Pvt. Ltd. Vs. CIT [2003] 260 ITR 507 (Bom.)
DCIT vs. Arthur Andersen ITA No. 9125/Mum/1995 dated
29-07-2003 (ITAT, Mumbai)
Appeal against an order u/s 195(2) can be filed only
after payment of tax since as per section 248 appeal
can be filed 30 days after payment of tax – thus if
the tax determined u/s 195(2) not paid – no appeal
226
Where under an agreement, tax is to be borne by the payer,
then for the purposes of deduction of tax income shall be
increased to such an extent that after deduction of tax at the
specified rates, the amount would become equal to the net
amount payable under the agreement
Example:
Amount Payable Rs. 1,00,000
Rate of TDS: 20%- TDS to be borne by the payer
Whether tax deductible would be Rs. 20,000 or Rs. 25,000
227
Payee makes an application
The A.O. issues a certificate for deduction of tax at
lower rate or for no deduction of tax at source
Applicable to residents as well as non-residents
Rule 28AA/28AB prescribes the conditions
AO to issue certificate indicating the rate or rates of tax, which
is higher of the following:
Average rate determined on the basis of advance tax
Average of the average rates of tax paid by the assessee in the
last three years
The certificate is issued to the specified payer
228
195(2) 197
Payer makes the application Payee makes the application
A.O. determines the appropriate A.O. determines the rate of tax which can
proportion of sum chargeable to be NIL or greater than NIL
tax
No rules – discretion of A.O. Rule in I-T Rules
Appealable under section 248 – Not Appealable – Only recourse is section
After 1.6.2007 appealable only if 264 followed by Writ
the tax is to be borne by the
payer as per the agreement
(grossing up situation)
229
195(2) 195(3)
Payer makes the application Payee makes the application
A.O. determines the appropriate The amount may be taxable but the
proportion of sum chargeable to tax A.O. may still issue ‘NIL’ certificate if
conditions are satisfied
Final rate can be NIL or greater than NIL Only NIL Certificate can be given
No rules – discretion of A.O. Rule 29B
No such condition prescribed in Act – Certificate remains in force till it is
A.O. has to specify the period cancelled by the A.O.
Appealable under section 248 – After Not Appealable – Only recourse is
1.6.2007 appealable only if the tax is to section 264 followed by Writ
be borne by the payer as per the
agreement (grossing up situation)
230
231