• Dec
  • 18
  • 2009

FAQ on tax deducted as source (TDS)

Frequently asked questions on tax deducted as source (TDS)

Clarifications to issues some of the issues relating to TDS:

1) Whether capitalization of interest payable attracts TDS U/S 194A?

A) Yes, Capitalization of interest payable attracts the provisions of TDS.

TDS is to be made on interest payment regardless of the fact whether borrower uses funds for acquiring fixed assets, capital assets or stock-in-trade or for making payments of trading debts.

2) How TDS U/S 194B is deducted in case where gift (prize by way of winnings from lottery) is given in kind?

A) Generally we come across two types of situations in case gift is given in kind-

(i) If prize is given partly in cash and partly in kind- Tax will be deducted from cash prize with reference to the aggregate amount of the cash prize and the value of price in kind. And where in the part of cash is not sufficient to meet the liability for tax deduction in respect of whole of the winnings then payer has to collect the balance from the payee.

(ii) Where the prize is wholly in kind- The payer has to collect the liability for tax deduction from payee.

Example – Mr.” X “wins a Maruthi-Zen value of Rs.3,70,000/- on August 20, 2008, in a draw of lot organized by Maruthi Udyog. Tax liability on prize in kind comes to Rs.1,14,330/- (i.e., 30.9% of Rs.3,70,000/-) which may be recovered by the Maruthi Udyog from Mr. “X” and the same can be deposited with the government on account of tax deduction.

3) Whether payment made to Disk jokey (DJ) is covered under 194C or 194J, explain briefly?

A) Artistic performances and services provided by persons are covered U/S 194J. Even though a contract is entered with him, he is rendering professional services only and hence it is subjected to TDS u/s 194J.

4) Whether definition of profession U/S 194J is inclusive or exclusive?

A) Exclusive, almost all the definitions in the act which are favorable to the revenue is not inclusive in nature.

5) Whether TDS U/S 194J is to be made inclusive of reimbursement of expenditure or exclusive?

A) TDS on reimbursement is not required to be made if separate bills are raised one is for professional fee and the other is for reimbursement of expenditure.

If a single bill is raised for the professional fee inclusive of reimbursement of expenditure, in such a case TDS is to be made on gross amount.

The above view is supported by a case law ITO v. Dr. Willmar Schwabe (2005) 3 SOT 71 (ITAT).

Where as per CBDT circular No. 715 dated 8-8-1995, TDS should be on total payment including reimbursement of expenses. But ITAT in the above decision it was held that reimbursement of expenses for which bill is separately raised did not attract the provisions of section 194J, the above circular attracts only in case bill is raised inclusive of reimbursement of expenditure.

6) Whether contract U/S 194C must be in writing?

A) A contract may be written or oral. Even implied contracts are also attract provisions of section 194C. Circular: No. 433 [F.No. 275/30/82-IT(B)], dated 25-9-1985.

7) Whether order of visiting cards, scribbling pads, letter heads in the name of company attracts TDS provisions?

A) Yes, section 194C would apply in respect of supply of printed material as per prescribed specifications.

Circular: No. 715, dated 8-8-1995.

8) Whether TDS U/S 194I to be made on rent is inclusive of maintenance or exclusive?

A) TDS U/S 194I on maintenance charges is not required to be made if separate bills are raised one is for rent and the other is for maintenance charges .

How ever payments made towards maintenance charges attracts sec 194C.

9) Is there any change in the time period for failing quarterly TDS returns 27Q?

A) Yes there is a change,

For the financial year 2009-10, these dates are as follows-

 

Quarter Due date
First quarter ending on June30, 2009 July 15,2009
Second quarter ending on September 30, 2009 October 15,2009
Third quarter ending on December 31, 2009 January 15,2010
Fourth quarter ending on march 31,2010 June 15,2010

Source – Notification No. S.O.858 (E) dated 25th March 2009.

Earlier it was 14th of the month following the quarter.

10) What is due date for remittance of TDS certificates? (Form-16 and Form-16A)

A) (i) Time limit for issue of Form No. 16- The certificate should be given with in one month from the close of the financial year in which such deduction is made. For example, for the financial year 2009-10, certificate should be given by April 30, 2010.

(ii) Time limit for issue of Form No.16A- The certificate shall be issued within one month from the end of the month during which credit is given or the amount is paid. This rule is subject to following exceptions:

a) If the amount is credited to the payee’s account, by the person, on the last date of the accounting year, then such certificate shall be issued with in one week after the expiry of 2 months from the end of the month in which the amount is credited.

For instance, if sum is credited to the account of payee on March 31, 2009, certificate shall be issued by June 7, 2009.

b) If on the request of the recipient, a consolidated certificate is to be issued, then such certificate can be issued within 30 days from the end of the financial year.

11) Whether plant include vehicle? Whether payment of hire charges attracts Sec 194I (TDS on rent)?

A) (i) Yes, plant includes vehicle. According to Sec.43 (3) Plant includes-

  • Ships,
  • Vehicles,
  • Books,
  • Scientific apparatus and
  • Surgical equipment used for the purpose of business or profession.

But it excludes-

  • Tea bushes,
  • Livestock,
  • Buildings,
  • Furniture and fittings.

(ii) Yes, payments made towards hire charges of vehicles attracts Sec194I

W.e.f. A.Y.2007-08, rent means any payments by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for 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 any or all of the above are owned by the payee.

12) Difference between TDS and TCS?

A) TDS is Tax deducted at source and TCS is tax collected at source. The meaning can be understood from its definition itself. TDS is for expense and where as TCS is for revenue (Ex- scrap sale).

13) Nil TDS returns are to be filed or not required?

A) For an assesse who is filing return for the first time there is no need to file NIL TDS return. For others it is compulsory.

14) Whether any person is exempted from TDS deduction? Is there any such relaxation? If so what is the procedure that should be followed?

A) Yes, if the assessing officer is satisfied that the total income of the recipient is below the basic exemption limit or the tax liability of the person is NIL, he should, on an application in Form-13, may issue a certificate on a plain paper for deduction of tax at lower rate or no deduction of tax.

15) Difference between Form-15G and Form-15H?

A) Form-15G: It is declaration given by an individual or other person (not being a company or firm) to the person responsible for deducting tax at source not to deduct tax, since the total income including the current receipts will not exceed the maximum amount which is not chargeable to income tax.

Form-15H: It is declaration given by an individual who is the age of 65 years or more to the person responsible for deducting tax at source not to deduct tax, since the total income including the current receipts will not exceed the maximum amount which is not chargeable to income tax.

16) Whether conversion of out standing interest on loan into loan attracts TDS?

A) There are two situations generally we come across while dealing the above case-

(i) Interest payment to banks/financial institutions- Any interest paid or credited to the banks/financial institutions is not subject to tax deduction U/S 194(3)(iii), hence TDS is not required to be made on interest payments.

Even the interest payments does not attract TDS provisions, hence there is no question of TDS in case of capitalization of interest on loan as loan.

(ii) Interest payments to others (other than persons those who are covered under 194(3)(iii))- According to sec-194A, TDS is to be made at the time of credit or payment which ever earlier.

So the liability to deduct TDS arises at the time of credit or payment, where as the conversion of interest out standing into loan arises after a long period from the time interest liability becomes due for payment. This is due to inability of the borrower in making the interest payments.

There is a point of timing difference between the interest due and conversion of interest into loan.

Hence the liability to deduct TDS arises only at the time the interest becomes due but not at the time of conversion of interest outstanding into loan.

Clarifications relating to TAX AUDIT matters

1) Whether gross turn over (or) gross receipts criteria for Tax Audit U/S 44AB to exceed 40 Lakhs or 10 Lakhs include other income?

A) In the “Guidance Note issued on the Terms Used in Financial Statements” published by the institute, the expression “Sales Turnover” has been defined as under :- “The aggregate amount for which sales are affected or services rendered by an enterprise. The term ‘gross turn over’ and ‘net turn over’ are sometimes used to distinguish the sales aggregate before and after deduction of returns and trade discounts”.

It does not include income falling under other heads.

2) Whether write off of ROC fee payments for increasing authorized share capital is allowed?

A) Registration fee paid for increase of authorized share capital is in the nature of capital expenditure and hence disallowed. The same view is supported by a case law

Punjab State Industrial Development Corporation Limited Vs

CIT [1997] 93 Taxman 5 (SC)

3) What is the Treatment of capitalization of interest borrowed for acquiring capital asset as per IT act? And

What it the tax treatment of interest once the asset is capitalized?

A) (a) If loan is borrowed for acquiring an asset then interest on such loan up to the time the asset is put to use can be capitalized.

(b) Interest on loan taken to purchase an asset is deductible U/S 36(1)(iii) if it pertains to the period after the plant and machinery is put to use.

4) In case of cash negative balance in books of accounts, what are the implications?

A) Negative cash balances indicates that

  • the receipts are not properly accounted
  • Cash brought in by partners were not considered in the books
  • payments made to creditors by the proprietor/partner from their personal money were not accounted

During the scrutiny the assessing officer may raise the question on the correctness of books of accounts in case of cash negative balances and hence it the responsibility of the tax auditor to verify such issues before issuing tax audit report.


31 Responses to “FAQ on tax deducted as source (TDS)”

  1. G.K.Sharma says:

    My Question is this: Bank acquired a immovable property under SARFAESI Act and sold by e auction to some body. whether TDS liability is there if yes who will pay and how much.

  2. manish tanwar says:

    My Question is can i deducte the Tds on
    Purchases like Stationery and all office Materials.

  3. Sanjay Bhagat says:

    I want to know about interest on borrowing capital for housing, whether company can give deduction of interest on housing loan, which is let out from salary.

    Please clarify the same immediately

  4. Dilip Patel says:

    Money credited in the account or in the name of 1st account holder any credit in the account is treated as 1st name holder. after that second holder makes deposit in her/his name alone, is there any violation of IT rules ?

  5. Dilip Patel says:

    Declaration given by individual for submitting 15G require presence for verification or if he is NRI or living abroad.

  6. Santosh says:

    Dear Sir,
    Please let me know regarding TDS deduction, if 1 party raised 3 bills to us and one of that bill is Rs.40000/- second Rs.6000/- & third one is Rs.4000/- Total billing Rs.50000/- as per tds rule if single bill is over Rs.30000/- you will deduct tds Now in this situation i will deduct TDS of single bill which more than Rs.30000/- or three bills ?
    Thanks & Regards

  7. Premlata Jain says:

    Dear Sir
    What if the builder is charging the maintenance charges to the unit holder for reimbursement as the builder has to pay
    the same to the agency who looks after housekeeping, security, Lift, & other facilities.
    1.Whether TDS to be deducted by the unit holder while reimbursing to the builder?
    2.Whether Service tax is applicable when reimbursement is made to the builder for maintenance charges?
    Please quote the section no.
    Thanks

  8. ARUN KUMAR SINHA says:

    Bank has deducted and deposited excess tax to the income tax department in financial year 2010-11 fourth quarter (31st March 2011) , can deductor claim for refund before the income tax department

    Arun kumar Sinha

  9. Bharat Chudasama says:

    We have need to pay 200000/- to government towards stall booking in abrod business fare. TDS is applicable or not ?

  10. Krishnendu says:

    TDS deduction will attract u/s 194I as the basic nanure is payment of rent.

  11. Ram sukhit choudhary says:

    Dear sir,

    we have to pay a private limited co as a ware house storage charges rs. 70000/- pm. and Repair and maintenancee charges including ground rent maintenance charges Rs. 30000/- p.m. My question is specially Repair and maintance charges including ground rent maintaince charges Rs. 30000/ is tds applicable if yes what Rate and other one ware house storage charges rs. 70000/- pm what rate od tds is applicable

    Thanku for your anticipation

    Urgent
    R.s.choudhary

  12. PANKAJ says:

    Whether, TDS is deducted on Maintenance of gardening of Guest house.( %)

  13. E.RAMESH says:

    Dear Sir,

    I am working with pharma company, whether we have to pay excise duty on RM samples , which is for Quality control samples , for example 100 kgs received 10gm using for testing.

    Kindly guid us.

    With Regards,

    E.Ramesh

  14. vinit says:

    in provisional cases tds paid on 4th may 2011 so what is the interest

  15. vinit says:

    in provisional cases tds paid on 4th may 2011 so what is the interest n how many month in shd be paid (ap n may or only may)

  16. vinit says:

    in provisional cases tds paid on 4th may 2011 so what is the interest rate & for hw many month int will be paid (april n may or only may)

  17. Chaithra says:

    Hii

    I am drawing Rs. 10000/- per month. Company is deduction Rs. 1000/- as TDS. Though I am not eligible to pay TDS as per my salary slab, one of my colleague suggested that this amount can be reimbursed from Income Tax. So please help how to get reimburse this amount.

    Regards
    Chaithra

  18. I want clarification regarding TDS on interest income. Interest income upto 10000 is exempt from tax, but if interest income is (say) 11000 then 10% TDS will be deducted from (11000-10000=1000) or from entire 11000?

  19. TDS on the amount you are paying; say the amount you have to pay by cheque but subject to deduction of TDS, so you are duducting the TDS and paying the net amount/balance amount. For the TDS deducted you are the Treasurer and bound to remit the amount to the I.Tax Authorities and issue the Tax Deduction Certificate to the Payee.

    This is just a Source of Deduction from payment, and the payee will get the credit for the Income Tax Deducted at Source while computing his income for Income Tax purposes.

  20. I have not found the reply to my querry.

  21. Gaurav says:

    Am i suppose to deduct TDS on Invoive Amount of A Profeesional Service Provider’s Bill including Services Tax…?

    Confused with Circular no 4 dated 28-04-2008 and Provisions under Section 194-I and 194-J.

  22. harish says:

    Hello Sir,

    My wife would like to start investment in stock market. Initial Money will be borrowed on interest [from

    local private money lender].

    I want to know how tax will be calculated on profit of Stock Trading.

    Can she adjust the interest charges of borrowed money with share profit.

    Is it required that she has to maintain any document on Borrowed money Interest.

    if income does not cross 1.6 L/A then Income tax Return filling is required.

    It would be better if you provide an illustation on this.

    Thanks a lot in advance
    Harish

  23. swati says:

    Would like to get clarification on section 54 F
    My client has sold long term capital asset. He is going to invest consideration in residential house and avail 54F.
    But, new house will be jointly in name of him and his brother.
    Shares will be separately mentioned in sale deed.
    Consideration will be paid by them separately as per their share.
    Whether he can get benefit of 54F?

  24. arun karnwal says:

    i want to know about the travell deduction details. i travell from my home to office and vice-versa and spend nearly 500/- per month. will you please tell me, how i take deduction benefit in above said condition.

    thank you

  25. Yes. It is allowable.

  26. Devi says:

    my doubt is ,’ll xplain with an example: Based on the sub contract agreement an amt of Rs.100000/- is payable to a party(not reflected at the time of agreement at that point of time), an amt of Rs.30000/- paid thru cheque and remaining bal paid in cash parts of < 20000/-.If the deductor pays TDS on Rs.30000 (Ch amt)when paid to the party and on the bal of 70000 also the deductor pays TDS at the time of paymnet. Whether this mode of transaction is allowable under the Act ?

  27. R. Sasidharan says:

    Yes TDS has to be deducted on gross amount credited or paid. This is applicable to all TDS sections, except TDS on Rent paid for building u/s 194 I . Further the landlord has to calculate the service tax amount after deducting the corporation tax paid to local authority from the gross rent amount.

  28. Jitu says:

    Even I want to ask the same question that whether TDS is to be deducted on gross amount including service tax u/s 194J? Plz anyone?

  29. SATISH CHANDRA AGARWALA says:

    I hold 8.00% G.O.I. RELIEF / SAVINGS BONDS CUMULATIVE (TAXABLE)purchased on 23-Sep-04 maturing on
    23-Sep-10. I understand that initially these bods were exempt from TDS. However subsequently made subject to TDS.

    Please appraise me how TDS amount would be computed and deductions made. Since TDS would cover interest income relating to more than one year I would be allowed to claim credit for the entire amount of TDS that may be deducted by ICICI bank from the income subjected to tax for the Financial Year ending on 31st. March 2011 corresponding to Assessment year 2011-2012.

    Rough computation of TDS on a token bond of say Rs. 10,000/= shakk be highly appreciate.

    Regards,

    Satish Chandra Agarwala
    PANAEYPA1397L

  30. Rajesh says:

    My Questions is: My assessee has closed the business in F.Y. 2009-10 having TAN No. earlier due to turnover more than Rs. 40 Lacs. What is the procedure to surrender the TAN No.

  31. bhaskar nagawade says:

    whether TDS is to be deducted on gross amount including service tax u/s 194J

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