TAX3
Unit 6Tax Deduction at Source Q1) What is TDS? Who can deduct TDS?A1) Section 192 of the Income Tax Act, 1961 deals with tax deducted at source (TDS) on salary. Your employer will deduct TDS from the salary payable to you. The salary you receive from your employer is categorised in ‘Income’ under the head ‘Salary’ and he/she will be responsible for deducting TDS on an average rate of income tax based on the current slab rate during the relevant financial year by considering your estimated income.The TDS deducted u/s 192 is reflected in Form 16, which is issued by the taxpayer at the end of the financial year.The following employers can deduct TDS:Companies (Private or Public) Individuals HUF Trusts Partnership firms Co-operative societies All these employers are required to deduct TDS at a specific time period and deposit it to the government.According to section 192 of the income tax act, there must be an employer-employee relationship for the deduction of tax at source.The employer’s status such as HUF, firms or company is irrelevant for the deduction of tax at source under this section. Moreover, the number of employees employed by the employer does not matter while calculating and deducting TDS. Q2) When is TDS Deducted under section 192?A2) Under Section 192, TDS is deducted at the time of actual payment of salary and not during the accrual of salary. Tax will also be deducted if your employer pays salary in advance to you or you receive arrears from him.In case your estimated salary is not more than the basic exemption limit, TDS will not be deducted. This rule is applicable even to those who do not have a PAN.The table below shows the basic exemption limit as per the age that does not require TDS to be deducted:Age Minimum incomeResident in India below 60 years Rs 2.5 lakhSenior Citizens between 60 years and below 80 years Rs 3 lakhSuper Senior Citizens above 80 years Rs 5 lakhTime limit to deposit the tax under section 192If the TDS is deducted by any government employer – It has to be deposited on the same day.If the TDS is deducted by any employer other than the government –a. If the salary is credited and TDS is deducted in the month of March – On or before 30 Aprilb. If the salary is credited and TDS is deducted in any month other than March- Within seven days from the end of the month in which the deduction is made. Q3) What is Section 194A? When does TDS under Section 194A need to be deducted?A3) Section 194A deals with deduction of TDS on interest other than interest on securities like Interest on Fixed Deposits, Interest on Loans and Advances other than banks.This Section is only applicable to a resident. Thus, the provisions of section 194A are not applicable in case of payment of interest to a non-resident.Payments made to non-residents are also covered under TDS mechanism. However, tax in such a case is to be deducted as per Section 195.The Payer/Deductor shall deduct TDS if the amount of such interest paid or credited OR is likely to be paid or credited in a financial year, Exceed 40,000 where the payer is Banking company or any bank or a banking institution Co-operative society engaged in the business of banking Post office (on deposit under scheme framed and notified by Central Government). b. 5,000 in any other case.From FY 2018-19 onwards no TDS will be deducted on interest earned upto INR 50,000 by senior citizens. The interest amount should be earned from the following:Deposits with banks; Deposits with post offices Fixed deposit schemes Recurring deposit schemes Q4) When is Tax deducted at NIL rate or lower rate?A4) This happens under the following scenarios:When a declaration is submitted in form 15G/15H u/s 197A If a declaration is submitted under Section 197A by the recipient to the payer along with his/her PAN, then no tax is deductible if the following conditions are satisfied: Recipient is a person other than a company OR firm Tax on total income of the previous year (PY) is NIL Total income does not exceed the exemption limit (i.e. for AY 2020-21, Rs.2,50,000 or Rs.3,00,000 or Rs.5,00,000, as applicable). This condition is NOT applicable if the recipient is a resident senior citizen. Such a declaration shall be given in duplicate form 15G (15H for senior citizens). In case of Senior Citizens Saving Scheme, 2004 (SCSS), investors can submit the declaration. Nominees of investors of SCSS can also produce the declaration at the time of payment after the death of the depositor. On submission of declaration to the bank, bank shall not deduct tax (subject to the conditions) on payment of interest. 2. When an application is submitted in Form 13 under Section 197As per provisions of Section 197, the recipient can apply in Form no.13 to the Assessing Officer to get a certificate authorizing the payer to deduct tax at lower rate (or deduct no tax, if certain conditions are satisfied). There is no time limit for application and it can be filed at any time before actual deduction of tax. If the recipient does not have PAN, he cannot apply for the certificate. The certificate shall be issued, directly to the person responsible for paying income, on a plain paper, under an advice to the applicant. The certificate cannot be issued with retrospective effect. The recipient may furnish copy of such certificate to the person responsible for paying the income for lower/no deduction of tax at source. Q5) What is the rate of TDS?A5) Following are the applicable rates of taxes:10% when the PAN is furnished (the rate is 7.5% for interest credited from 14 May 2020 until 31 March 2021 as a COVID-19 relief measure);20% if the PAN is not provided.No surcharge, education cess or SHEC shall be added to the above rates. Hence, tax will be deducted at source at the basic rate. Q6) What is the time limit for depositing TDS ?A6) Tax Deducted during the month of April to February is to be deposited on or before the 7th of next month. Tax Deducted in the month of March is to be deposited on or before 30th April.For example, tax deducted on 25 April is to be deposited on or before 7th May and tax deducted on 15 March is to be deposited on or before 30 April. Q7) What is Section 194C?A7) Section 194C states that any person responsible for paying any sum to the resident contractor for carrying out any work (including the supply of labor), in pursuance of a contract between the contractor and the following:a. The Central Government or any State Governmentb. Any local authorityc. Any corporation established by or under a Central, State or Provisional Actd. Any companye. Any co-operative societyf. Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for bothg. Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of Indiah. Any trusti. Any university or deemed universityj. Any firm Q8) What is a Sub-Contractor as per Section 194C? What is TDS to Sub-Contractor?A8) A “sub-contractor” would mean any person:a. Who enters into a contract with the contractor for carrying out, orb. For the supply of labor for carrying out the whole or part of the work undertaken by the contractor under a contract with any of the authorities orc. For the supply of, whether wholly or partly, any labor which the contractor has undertaken to supply in terms of his contract with any of the authorities mentioned under this section.As per the provisions of Income Tax Act, any person (being a contractor and not being an individual or a Hindu Undivided Family):a. responsible for paying any sum to any residentb. in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labor for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labor which the contractor has undertaken to supply shall,at the time of credit of such sum to the account of the sub-contractor 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 c. deduct the amount equal to 1 % of the sum as income-tax on income comprised therein. The rate is 0.75% for transactions from 14 May 2020 until 31 March 2021. Q9) Where is the Payment made to Sub-contractors, what Conditions must be Satisfied? When does TDS under Section 194C need to be deducted?A9) a. Payment is made to a sub-contractor who is resident within the meaning of Section 6 of the Income Tax Act, 1961 b. Payment is made by a resident contractor, not being an individual or a HUF c. Payment is made to carry out any work, including the supply of labor d. The amount of consideration of the contract in respect to which payment is made should not be less than Rs. 30,000 e. The sum should be credited or paid by the contractor in respect of a contract undertaken by him with the specified bodiesThe person responsible for making payment to resident contractor/sub-contractor should deduct TDS,a. either at the time of crediting such sum to the account to the payee orb. at the time of payment thereof in cash orc. by an issue of a cheque or by any other mode, whichever is earlier.Where any sum is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such amount, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Thus, the tax has to be deducted even if the amount payable to resident contractor/subcontractor is transferred to suspense account by the payer in his books. Q10) What are the Exceptions to TDS on Payment to Contractor? Under what circumstances TDS u/s 194C is not deductible?A10) A. Deduction of TDS in case of composite contracti. Where materials are supplied by the government, the question is whether deduction will be made with reference to gross payment to the contractor or the net payment, i.e., gross payment minus deductions, if any,ii. On account of materials supplied by the government, will have to be decided in the light of the terms of the particular contract and the conduct of parties thereto.iii. Where the contractor has undertaken to construct a building or a dam, and the government or other specified person has undertaken to supply all or any of the materials necessary for the work at the stipulated prices, the deduction will be related to the gross payment without excluding any adjustments on account of the cost of materials.iv. Where the contractor has undertaken only to provide the labour for the work, the ownership of the materials supplied remaining at all times with the government or another specified person, the sum payable to the contractor in respect of the contract will only be the amount paid for such labour or services and will, thus, not include the price of the materials supplied by the government or other specified persons.Thus, the rate of TDS from payments made by the government or other specified persons to any contractor will be 2% or 1% of the gross payment or, as the case may be, the net payment, depending on the terms of the contract. The rate is 1.5% or 0.75% for transactions from 14 May 2020 until 31 March 2021.B. Deduction, when the party supplies materials to the contractori. When materials are supplied no deduction is possible. Consequently, no TDS is required to be made. However, when payment is made either in cash or in kind to contractor/sub-contractor tax is required to be deducted.No tax is required to be deducted in the following cases:a. Where the sum paid or credited in pursuance of any contract does not exceed Rs. 30,000, or b. where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000 the person responsible for paying such sums will not deduct TDS under this section c. Individual or HUF not to deduct tax if the payment or amount credited to the contractor is for personal usei. No individual or HUF shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for the personal purpose of such individual or any member of HUFii. No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his PAN, to the person paying or crediting such amount Q11) What is Section 194H? When does TDS under Section 194H need to be deducted?A11) Section 194H is for income tax deducted on any income by way of commission or brokerage, by any person responsible for paying to a resident.Individuals and Hindu Undivided Family who were covered under section 44AB are also required to deduct TDS. From FY 2020-21, individual and HUF whose turnover from business is above Rs 1 crore or gross receipts from profession are above Rs 50 lakh are also required to deduct TDS.Section 194H does not include insurance commission referred to in section 194D.TDS under Section 194H will be deducted at the time of credit of such income to the account of the payee or to any other account.Whether called suspense account or by any other name at the time of payment, of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier. Q12) What do you mean by Commission and Brokerage?A12) Commission or brokerage includes any paymentreceived or receivable, directly or indirectly, OR by a person acting on behalf of another person TDS on commission or brokerage includes,for services rendered (not being professional services), or for any services in the course of buying or selling of goods, or in relation to any transaction relating to any asset, valuable article or thing, except securities Exceptions to Commission/BrokeragePeople are under the presumption that Presumptive Taxation is applicable to Income from the commission but technically it is not correct. Q13) What is Section 194I? What is the Reason for Introduction of TDS u/s 194I?A13) The person (not being an Individual or HUF) who is responsible for paying of rent is liable to deduct tax at source.TDS threshold for deduction of tax on rent is Rs 2,40,000 for the FY 2020-21. The threshold limit was Rs. 1,80,000 until FY 2018-19.Also, individuals and/or HUFs who are subject to tax audit are also under an obligation to deduct the tax at source.The Finance Act, 1994 inserted the Section 194I, regarding deduction of tax from rentThe government introduced the provision to cover the income by way of rent under tax deduction at sourceIn other countries as well, such income is subject to deduction of income tax at source. Q14) What Payment is Covered u/s 194I?A14) Income from letting out of factory buildingWhere a factory building is let out, the rent received generally is income from business in the hands of the lessor or the owner of the factory. Only in a few cases, it is income from property in the lessor’s hands.But such payment also, which is business income in the hands of the lessor and for which he will necessarily be paying advance tax and finally be returning the rental income, will be subject to tax deduction at source or TDS.This is an unnecessary burden on both taxpayer and the tax administrator because the collection of tax will take place as TDS from the lessor without much delay.Rent includes service chargesService charges payable to business centres are covered under the definition of rent, as they cover payments by whatever named called.TDS requirement where building and furniture, etc., let out by separate personsIn the case where a building is let out by one person and furniture and fixtures are let out by another person, then the payee is required to deduct tax under Sec. 194I only from the rent paid/credited for the hire of building.TDS requirement where rent not payable on monthly basisSec. 194I does not mandate that the tax deduction should be made on a month-to-month basis.Therefore, if the crediting of the rent is done on a quarterly basis, the deduction at source will have to be made on a quarterly basis only. Where the rent is paid on a yearly basis, deduction also will have to be made once a year on the basis of the actual payment or credit.Charges regarding cold storage facilityIn the case of cold storage where milk, ice cream, and vegetables, are stored, the payment may be styled as charges for use of plant and not for use of the building. Cold storage is a plant.Hall rent paid by an association for use of itSince the association is assessed as an association of persons and not as an individual or HUF, the obligation of tax deduction will be there, provided payment for the use of hall exceeds Rs.2,40,000 from FY 2019-20 onwards (earlier it was Rs.1,80,000).Payments to hotels for holding seminars including lunchWhere hotels do not charge for use of premises but charge for catering/meal only, the provisions of Sec. 194I would not apply. However, Sec.194C would apply for catering part. Q15) Under what circumstances TDS u/s 194I is not deductible?A15) Amount payable/paid not exceeding Rs.2,40,000 during the financial year: No tax is required to be deducted in case the amount of rent due or paid does not exceed Rs.2,40,000 from FY 2019-20 onwards (earlier it was Rs.1,80,000).Where tenant is individual or Hindu Undivided Family: Deduction is not required under Sec. 194I when the rent is due or paid by an Individual or HUF not carrying on a business which is audited under income tax law.Sharing or proceeds of film exhibition between a film distributor and a film exhibitor owning a cinema theatre:In case of a film exhibitor and film distributor contract, the share of the exhibitor is on account of composite services. The distributor does not take cinema building on lease or sub-lease or tenancy or under an agreement of similar nature. The payment made is not rental in nature.Where the payee is the Government at agency:A person making payment to Government is not required to deduct tax at source under Section 194-I. The payments made to statutory authorities and local authorities are exempt from tax and hence not tax deductible. Q16) What is section 194J under the Income Tax Act? Who is required to deduct TDS u/s 194J?A16) Section 194J stated that any person who is paying fees to any resident person for specified services, then TDS is required to be deducted u/s 194J.However,TDS is to be deducted when amount of payment in a year exceeds Rs.30,000/- at the rate of 10%.As per this section, any person (but not an individual or HUF) who pays to a resident fees for professional or technical services,will be required to deduct tax at source u/s 194J. However, individual or HUF will be required to deduct TDS if they are liable to audit u/s 44AB (a) and (b).Person here means :Central or State Government Local Authority Corporation Company Cooperative Society Trust University Registered Society Firm Individual/HUF/AOP/BOI required to get accounts audited u/s 44AB (a) and (b) Q17) Which services are covered under section 194J? What is the limit to deduct TDS u/s 194J?A17) Following type of services are covered under section 194J:Fees for professional service Fees for technical service Remuneration or fee or commission to a director of a company (which is not liable to TDS u/s 192). Royalty Payment received (in cash or kind) under an agreement for: Not carrying out any activity in relation to any business, or Not sharing any know-how, patent, copyright, trademark, license, franchise or any other business/ commercial right of similar nature/ information/ technique. TDS is required to be deducted if the amount of payment in a year exceeds Rs. 30,000/-.Now a question may arise in your mind whether this threshold limit is the overall limit for all services covered u/s 194J or it shall be calculated individually for payment of professional fees or technical fees etc.This limit of Rs. 30,000/- is not a total limit for all services.It shall be calculated individually for payment as professional fees or technical fees or royalty or non-competence fees. Q18) How to compute advance tax?A18) Computation of advance Tax(1) The amount of advance tax payable by an assessee in the financial year shall, subject to the provisions of sub-sections (2) and (3), be computed as follows, namely :-(a) where the calculation is made by the assessee for the purposes of payment of advance tax under sub-section (1) or sub-section (2) or sub-section (5) or sub-section (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year;(b) where the calculation is made by the Assessing Officer for the purpose of making an order under sub-section (3) of section 210, the total income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment or the total income returned by the assessee in any return of income furnished by him for any subsequent previous year, whichever is higher, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year;(c) where the calculation is made by the Assessing Officer for the purpose of making an amended order under sub-section (4) of section 210, the total income declared in the return furnished by the assessee for the later previous year, or, as the case may be, the total income in respect of which the regular assessment, referred to in that sub-section has been made, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year;(d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable: Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.(2) Where the Finance Act of the relevant year provides that, in the case of any class of assessees, net agricultural income (as defined in that Act) shall be taken into account for the purposes of computing advance tax, then, the net agricultural income to be taken into account in the case of any assessee falling in that class, shall be-(a) in cases where the Assessing Officer makes an order under sub-section (3) or sub-section (4) of section 210,-(i) if the total income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment forms the basis of computation of advance tax payable by him, the net agricultural income which has been taken into account for the purposes of charging income-tax for the assessment year relevant to that previous year; or (ii) if the total income declared by the assessee for the later previous year referred to in sub-section (4) of section 210 forms the basis of computation of advance tax, the net agricultural income as returned by the assessee in the return of income for the assessment year relevant to such later previous year;(b) in cases where the advance tax is paid by the assessee on the basis of his estimate of his current income under sub-section (1) or sub-section (2) or sub-section (5) or sub-section (6) of section 210, the net agricultural income, as estimated by him, of the period which would be the previous year for the immediately following assessment year.(3) Where the Finance Act of the relevant year specifies any separate rate or rates for the purposes of computing advance tax in the case of every Hindu undivided family which has at least one member whose total income of the previous year exceeds the maximum amount not chargeable to income-tax in his case, then, the Assessing Officer shall, for making an order under sub-section (3) or sub-section (4) of section 210 in the case of any such Hindu undivided family, compute (subject to the provisions of section 164) the advance tax at such rate or rates-(a) in a case where the total income of the latest previous year in respect of which the Hindu undivided family has been assessed by way of regular assessment forms the basis of computation of advance tax, if the total income of any member of the family for the assessment year relevant to such latest previous year exceeds the maximum amount not chargeable to income-tax in his case;(b) in a case where the total income of the previous year in respect of which a return of income is furnished by the Hindu undivided family under section 139 or in response to a notice under sub-section (1) of section 142 forms the basis of computation of advance tax, if the total income of any member of the family for the assessment year relevant to such previous year exceeds the maximum amount not chargeable to income-tax in his case. Q19) What is the meaning of work for the purpose of Section 194C?A19) The expression, “work” in this section would include-Advertising Broadcasting and telecasting including production of programs for such broadcasting or telecasting Carriage of goods and passengers by any mode of transportation, other than railways Catering Manufacturing or supplying of a product according to the requirement or specification of a customer by using the materials purchased from such customeror its associate as defined in section 40A(2), But does not include manufacturing or supplying of a product according to the requirements or specifications of a customer by using the materials purchased from a person, other than such a customer.
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