TDS : Some Other Issues

Even after reading major sections related with TDS in detail there are some matter which needs further consideration. Some of them are discussed hereunder:-

Person deducting Tax at source under section 194B has been made liable : TO PAY TAX TO THE CREDIT OF THE CENTRAL GOVERNMENT – As per rule 30 of the Income-tax Rules, 1962, any tax deducted by or on behalf of the Government has to be paid to the credit of the Central Government on the same day by book adjustment. In other cases, the tax deducted is required to be paid to the credit of the Central Government within one week from the date of such deduction or the date of receipt of the challan by the person making the deduction, as the case may be. TO ISSUE CERTIFICATE OF DEDUCTION – The person responsible for deducting tax is required to give to the person receiving the winnings a certificate which will have to be in Form No. 19B. TO FURNISH QUARTERLY RETURNS OF DEDUCTION OF TAX- The person responsible for deducting tax is also required to furnish to the Income-tax Officer having jurisdiction to assess him a return in Form No. 26B quarterly on July 15, October 15, January 15 and April 15 in respect of the deductions made during the immediately preceding quarter. Such a return is, however, not required to be sent if the tax is deducted by or on behalf of the Government. [ Circular No. 94 dated 15th November 1972]

Similarly person deducting Tax under 194BB has been made accountable for : Under section 197(1)(a) in the case of any person other than a company, it will be open to the recipient of the winnings from horse race to make an application to the Income-tax Officer and obtain from him a certificate authorizing the payer to deduct tax at such lower rate or deduct no tax, as may be appropriate in his case. The amendment to rule 28 seeks to provide that the applica­tion of this purpose is to be made in Form No. 13BB in the Rules.2.The amendment to rule 30 seeks to provide that the tax deducted by the person responsible for paying the income by way of winnings from a horse race should be paid to the credit of the Central Government within one week from the date of such deduction or the date of receipt of the challan by the person making the deduction, as the case may be. 3. The amendment to rule 31 seeks to provide that the person responsible for making deduction of tax under section 194BB shall issue a certificate in the new Form No. 19BB to the person to whom winnings from horse race have been paid, showing therein the amount of income by way of winnings from horse race, the amount of tax deducted at source and other prescribed particulars.

4. The amendment to rule 37 seeks to provide that the person responsible for making the deduction of income-tax from the winnings from horse races shall also furnish to the Income-tax Officer having jurisdiction to assess him a quarterly statement in the new Form No. 26BB on July 15, October 15, January 15 and April 15, in respect of the deductions made during the immediate­ly preceding quarter. [Circular 241 dated 1 st June 1978]

Whether, at the time of deducting tax from insurance commis­sion credited to agent’s account, adjustment for debits made earlier is permissible : A doubt has been raised whether at the time of deducting tax from the insurance commission credited to an agent’s account adjustment for the debits made earlier is permissible or not. At the time a proposal is brought by an agent, his account is credited with the appropriate amount of commission. It may happen after some time that a portion of the premium paid earlier is refunded to the insurer. At the time of making the refund of premium the agent’s account is debited by an appropriate amount representing the commission on the premium refunded. On the original credit the insurer is required to deduct tax at the rate of 10 per cent. The doubt is whether at the time when a subse­quent credit is made and the tax is to be deducted from such credit, an adjustment for intervening debits is permissible so that deduction at the rate of 10 per cent is made only on the amount credited as reduced by the debit made to that account. The Board has affirmed the view that in such cases adjustment for intervening debits is not permissible. Under section 194D, the person responsible for paying insurance commission to a resident is required to deduct tax at the time of credit of such insurance commission to the account of the payee or at the time of payment thereof, whichever is earlier. A plain reading of this section would suggest that the deduction of income-tax is to be made from the amount credited or paid. If the credit to the account is made subsequent to making of the debits, the deductions will have to be made from the full amount credited. [Circular No. 120 dated 8th October 1973]

Whether requirement of deduction of income-tax at source under section 194-I applies in case of payment by way of rent to Government, statutory authorities referred to in section 10(20A) and local authorities whose income under the head “Income from house property” or “Income from other sources” is exempt from income-tax :  The matter with regard to the statutory authorities and the local authorities referred to above, has been examined by the Board. Section 190 of the Income-tax Act provides for deduction of income-tax at source as one of the modes of collection of income-tax in respect of an income, notwithstanding that the regular assessment in respect of such income is to be made in a later assessment year. The income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, is exempt from income-tax under section 10(20A). Similarly, the income of a local authority which is chargeable under the head ‘Income from house property’ or ‘Income from other sources’, is exempt from income-tax under section 10(20). There is no other condition specified in these two clauses of section 10 which is necessary to be satisfied in order to avail of the income-tax exemption.

In view of the aforesaid, there is no requirement to deduct income-tax at source on income by way of ‘rent’ if the payee is the Government. In the case of the local authorities and the statutory authorities referred to in para 3 of this circular, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax-exempt status under clause (20) or (20A) of section 10 on the basis of a certificate to this effect given by the said authorities. [Circular 699 dated 30th January 1995]

Similarly The issue of deduction of income-tax at source under section 193 and section 194-I of the Income-tax Act from any income received by any person on behalf of any Regimental Fund or Non-public Fund established by the Armed Forces of Union for the welfare of past and present members of such forces or their dependants, has been brought to the notice of the Board. Repre­sentations have also been received on behalf of Regimental Funds and Non-public Fund established by the Armed Forces. The matter with regard to regimental fund or non-public fund established by Armed Forces had been examined by the Board. Since the income of these organisations is exempt under section 10 (23AA) of the Income-tax Act, it has been decided that no tax may be deducted at source under sections 193 and 194-I from the income of such Funds.  [Circular 735 dated 30.01.1996]

Where whole payment would not be income chargeable to tax in the hands of recipient non-resident, person responsible for paying such sum may make application for determination of appro­priate portion : section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any interest (not being “interest on security”) or any other sum (not being dividends) chargeable under the provisions of the Income-tax Act to deduct income-tax at the “rates in force”, unless he is himself liable to pay income-tax thereon as an agent. Payments to a non-resident, by way of royalty for the use of, or the right to use, any copyright (e.g., of literary, artis­tic or scientific work including cinematograph films or films or tapes for radio or television broadcasting), any patent, trade mark, etc., and payments for technical services rendered in India are some of the typical examples of sums chargeable under the provisions of the Income-tax Act to which the aforesaid require­ment of tax deduction at source will apply. The term “rates in force” means the rates of income-tax specified in this behalf in the Finance Act of the relevant year. Where the person responsible for paying any such sum to a non-resident considers that the whole amount thereof would not be income chargeable under the Income-tax Act in the case of the recipient non-resident, he may make an application under section 195(2) to the Income-tax Officer for the determination of the appropriate portion of such payment which would be taxable and in respect of which tax is to be deducted under section 195(1). The object of section 195 is to ensure that the tax due from non-resident persons is secured at the earliest point of time so that there is no difficulty in collection of tax subsequently at the time of regular assessment. Failure to deduct tax at source from payment to a non-resident may result in loss of revenue as the non-resident may sometimes have no assets in India from which tax could be collected at a later stage. Tax should, therefore, be deducted in all cases where it is required to be deducted under section 195 before the payment is made to the non-resident and the tax so deducted should be paid to the credit of the Central Government as required by section 200 read with rule 30. Failure to do so would render a person liable to penalty under section 201 read with section 221, and would also constitute an offence under section 276B.[Circular No. 152 dated 27th November 1974].

This is very clear that section 197 itself not apply on Non Residents and application of lower deduction of TDS is possible only through this circular.