12 Amendment to the provisions of sub-clause (ia) of clause (a) of section 40 of the Income-tax Act.
12.1 As per the provisions of sub-clause (ia) of clause (a) of section 40, any interest, commission, brokerage, fees for professional services, fees for technical service payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work, rent and royalty on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 shall not be allowed as deduction. However, the sum is allowed as a deduction in the year of actual payment of the TDS.
12.2 To mitigate any hardship caused by the above provisions of section 40 while maintaining TDS discipline, the Act has amended provisions of sub-clause (ia) of clause (a) of section 40. The amendment allows additional time (till due date of filing of return of income) for deposit of TDS pertaining to deductions made for the month of March so that disallowance under sub-clause (ia) of clause (a) of section 40 is not attracted in such cases. Thus where the last date for filing the return of income in case of a taxpayer (deductor) is 30th September, he will get additional time of six months (April to September) for depositing the tax deducted at source on an expenditure incurred or payment made in the month of March so as to escape disallowance under sub-clause (ia) of clause (a) of section 40.
12.3 Applicability: This amendment has been made applicable with retrospective effect from 1st April, 2005 and shall accordingly apply for assessment year 2005-06 and subsequent assessment years.
Extract from Explanatory Notes to The Provisions of the Finance Act, 2008 vide circular no. 1/ 2009, dated 27th Mar, 2009.