In my earlier article I have made a discussion about the disallowance when the amount is payable to a non-resident /foreign company but TDS is not deducted by the payer. Section 40(a)(ia) deals with the situation when the amount is payable to a resident . Hereon also we will discuss the complete scenario in parts to have a better understanding .
1. When TDS is required to be deducted
The complete details and conditions under which the TDS is required to be deducted is provided under Chapter XVII of Income Tax Act , 1961 covering the Section 192 to Section 206B.
2. Consequences in case the TDS is not deducted
Section 40(a)(ia) provides that if the payer has made the payment in respect of which the TDS is required to be deducted as per the provisions of Chapter XVII , without deduction of TDS , then 30% of the amount paid will be disallowed to the payer.
3. Relief in respect of Disallowance
30% disallowance is prescribed under this section in case of default in TDS deduction .However there are certain cases where the amount will be allowed as deduction even in the cases in which the TDS default is committed by the payer . These conditions are : –
i) TDS is later on deducted and deposited by the payer
If the assessee has not deducted TDS during the year in which TDS was required to be deducted but later on in subsequent year , TDS was duly deducted and deposited by the assessee then so much of the amount which was disallowed will be allowed as deduction in the year in which the tax was actually deposited by the payer.
ii) Tax is deposited by the recipient on the amount received from the payer
In case the payer has not deducted TDS but the recipient has duly deposited the tax on its income after considering the amount received from the payer in its total income at the time of filing of his ROI and satisfying all other conditions mentioned in First Provision to Section 201(1), then the 30% of such amount paid to the recipient will be allowed as deduction to the payer in the FY in which the tax on income was deposited by the recipient. It is to be noted that this relief is available only in the case TDS was not deducted by the payer at all, In case the TDS was deducted by the payer but has not been deposited by the assessee before the due date of filing of ROI u/s 139(1) , relief will not be available to the assessee even if the payer has paid the tax on its total income .
The conditions specified under First Provision to Section 201(1) are :
1. Recipient has furnished his return of income under section 139;
2. Recipient has taken into account such sum for computing income in such return of income; and
3. Recipient has paid the tax due on the income declared by him in such return of income,
4. Payer furnishes a Certificate in Form No. 26A to this effect from a Chartered Accountant
If the following conditions are satisfied then it shall be deemed that the payer has deducted and paid tax on such amount on the date of furnishing of ROI by the recipient.
Putting herewith some examples for better understanding of the concept .
Laxminath Enterprises is a Partnership firm liable for tax audit under section 44AB of the Income Tax Act , 1961. The firm is liable to pay an interest of Rs. 100000.00 to a resident individual in which tax is required to be deducted u/s 194A . Due date of filing of return by the Firm is 30.09.2017 for FY 2016-17 and for the resident individual the respective last date is 31.07.2017. Interest is payable for the month of Nov 2016 on which TDS is required to be deducted on 30.11.2016 .
CONDITION I : TDS is not deducted by the payer
SOLUTION : 30% of interest amount will be disallowed for the FY 2016-17
CONDITION II : TDS is deducted by the assessee on 02.04.2017 and deposited on 13.04.2017
SOLUTION : 30% of Interest amount will be disallowed during the FY 2016-17 as the TDS was not deducted by the payer during the FY .
CONDITION III : TDS deducted by the assessee on 30.11.2016 but deposited after 31st March 2017 i.e on 13.04.2017
SOLUTION : Deduction will be allowed in respect of whole of interest amount as the TDS is deducted in the FY and deposited before the due date of filing of ROI
CONDITION IV : TDS deducted by the assessee on 30.11.2016 but deposited after the due date of filing of ROI but before 31.03.2018
SOLUTION : 30% of the interest amount will be disallowed in FY 2016-17 . However as the TDS is deposited in the subsequent year so the same amount will be deducted from the NP of FY 2017-18
CONDITION V : TDS is deducted by the assessee on 30.11.2016 but has not deposited the same . However the receipient has duly deposited the tax on his income after considering this Rs. 100000.00 in his ROI. Recipient has submitted return on 15.07.2017
SOLUTION : 30% of interest amount will be disallowed in FY 2016-17 and the same will be allowed in the FY in which the ROI was submitted by the recipient i.e. FY 2017-18
CONDITION VI : TDS is deducted by the assessee on 30.11.2016 but has not deposited the same neither before the 30.09.2017 nor thereafter. But the receipient has submitted his ROI after taking into consideration the interest . received and deposited the tax thereupon
SOLUTION : 30% of the Interest amount will be disallowed in the hand of payer during the FY 2016-17 . Moreover no allowance will be allowed for the same during the FY 2017-18 as the relief as per the provision of Sec 201(1) is allowed only in the case the assessee has not deducted the TDS. Hereunder the payer has deducted the TDS but has not deposited the same , so no allowance will be allowed during the FY, 2017-18