The term TDS refers to tax deducted at source. The concept of TDS was introduced with an aim to collect tax from source itself. It fulfills dual purpose of Govt. i.e. advance receipt of tax and requirement to regulate person making certain payments or receiving any sum. Govt. is using TDS as its tool to widen tax base. Therefore every year in Budget lots of amendments are being made in TDS section by introducing new sections or amending the existing one.
2. WHO IS REQUIRED TO DEDUCT TDS.
Any person who pays to resident contractor for carrying out any work in pursuance of contract between contractor and specified person shall be required to deduct TDS. Specified Persons who are required to deduct TDS are as follows-
- Local Authority (Nagar Nigam)
- Corporations established by Govt. Eg: SBI, LIC
- Co-operative Society
- Housing or Town development authority like HUDCO or CIDCO
- Registered Society
- Trusts whether its income is exempted or not
- Foreign Govt., Foreign Enterprise, Foreign Association or body
- Individual, HUF, AOP,BOI whose turnover/ gross receipts from business or profession exceeds 1crores (in case of business) or 50 Lakhs (in case of profession) and who does not falls in above-mentioned points.
3. WHEN TO DEDUCT TDS
- At the time of payment or
- credit to account of contractor in books of accounts, whichever is earlier
- Illustration-There is an annual maintenance contract of Rs.2,50,000/- between Mr. Rajesh and Financial Tree Company (FTC) for repairs maintenance of Office Computers and other Hardware and Software for F.Y.2019-20. Mr. Rajesh raised the bill on 28/03/2020. FTC made payment on 15/04/2020. In this case on which date TDS is required to be deducted?
If FTC records transaction in its books of account on 28/03/2020 then TDS is required to be deducted on 28/03/2020. But if FTC records transaction on date of making payment i.e. on 15/04/2020, then TDS is required to be deducted on 15/04/2020.
4. WHAT IS RATE OF TDS
||RATES REDUCED BY 25% FROM 13TH MAY 2020 TO 31ST MARCH 2020 DUE TO COVID-19.
||IF PAN IS NOT PROVIDED
|If payment is made to Indv/ HUF
|In any other case
- No need to add surcharge/cess to rate of TDS
5. IN WHICH CASES TDS IS NOT REQUIRED TO BE DEDUCTED-
- PAYMENT TO GOVT, RBI, ETC.- As per section 196, no TDS shall be deducted if payment is made to Govt., RBI, Mutual fund or any corporation established under Central Act which is exempt for paying Income-tax.
- PAYMENT MADE FOR PERSONAL PURPOSE– Ind/ HUF who pays to contractor for carrying out any work for personal purpose shall not be required to deduct TDS. Ind/HUF carrying on business or profession and is not subjected to audit and who makes payment to resident contractor are also not required to deduct TDS even if it is paid for business purpose. But section 194M is inserted w.e.f. 1st Sept 2019 in which Ind/HUF is required to deduct TDS @5% if he makes payment to resident contractor exceeding Rs.50 lacs. However they can deposit TDS deducted using PAN and TAN No. is not required to be taken.
- GOODS CARRIAGE-If payment is made to transport contractor who owns 10 or less goods carriages and is engaged in business of plying, hiring or leasing of goods carriages, then TDS is not required to be deducted provided he furnishes declaration and PAN. Deductors have to furnish details of non-deduction of tax along with PAN of Payee in Form 26Q.
- NON-RESIDENT CONTRACTOR-If person makes payment Non Resident Contractor for carrying out any work, than TDS is not required to be deducted.
6. WHAT IS THE THRESHOLD LIMIT FOR DEDUCTION OF TDS
- If payment to contractor exceeds Rs.30,000/- the TDS is required to be deducted. This limit is per invoice basis.
- If aggregate of amounts paid to contractor exceeds 1 lakh or is likely to exceed 1 lakh, then TDS is required to be deducted.
||Single Contract of 30,000 a year
||3 contract of Rs.30,000
||Single Contract of Rs.40,000
||5 Contracts of Rs.15,000 each
||No, because single contract does not exceeds 30000/- and agrregate also does not exceeds 1 lakh.
7. WHAT ARE THE TYPES OF PAYMENTS IN WHICH TDS IS REQUIRED TO BE DEDUCTED
TDS shall be deducted if payment is made in pursuance of contract or sub-contract for carrying out any work including supply of labour for carrying out any work. Work includes-
- Broadcasting or telecasting
- Carriage of goods or passengers by any mode other than railways
- Contract manufacturing-If contractor manufactures or supply product according to requirement or specification of customer by using material purchased from such customer, than customer is required to deduct TDS u/s 194C at the time of making payment to contractor. TDS is not required to be deducted if material is purchased from any person other than customer. Application of this provision can be easily avoided if material is supplied not by customer but an associate of customer. To plug this loophole amendment is made From 1st April 2020 wherein raw material provided by associate of customer as defined in section 40A(2)(b) is also included. TDS shall be deducted-
|If value of material is separately mentioned in invoice
||On Value excluding value of material
|If value of material is not separately mentioned in invoice
||On Invoice Value
8. SOME PRACTICAL DOUBTS-
- Payment by advertising agency to Print or Electronic Media– When client i.e. an advertiser makes payment to advertising agency then TDS is required to be deducted. When advertising agency makes payment to their models, artists, photographers, etc. TDS shall be deducted u/s 194J. However no TDS shall be deducted when advertising agent makes payment to Print or Electronic Media. If payment is made against consolidated bill (including reimbursement for other charges), than TDS shall be deducted on total invoice value.
- Payment to Travel Agents– CBDT has clarified that payment made to travel agent or an airline for purchase of ticket for travel would not be subject to TDS as privity of contract is between individual passenger and airline/travel agent. However tax shall be deducted if plane/bus is chartered.
- Payment to Restaurants– TDS is not required when payment is made for serving food in a restaurant in normal course of running of restaurant/café.
- Payment to recruitment agencies– It provides services for recruitment of personnel and do not supply labour. Thus payment made to recruitment agencies would attract TDS u/s 194J.
- Sponsorship Fees– The agreement of sponsorship of debates, seminars and other functions in schools/ colleges/associations is in essence an agreement for carrying out a work of advertisement. Therefore TDS is required to be deducted u/s 194C.
- Payment for use of hoarding– The contract for putting up a hoarding is in the nature of advertising contract and provisions of this section would be applicable. If however a person has taken a particular space on rent and thereafter sub-lets the same fully or in part for putting up a hoarding, TDS shall be deducted u/s 194-I.
- Payment for production of content– If content is produced as per specifications of broadcaster or telecaster and copyright of content also gets transferred, then it would amount to work and TDS shall be deducted under this section. But if telecaster or broadcaster acquires only telecasting or broadcasting rights of content already produced by production house, then there is no contract for carrying out any work.
- Payment to clearing and forwarding agent for carriage of goods is subject to TDS under this section. Similarly, carriage of documents, letters, etc. is in nature of carriage of goods and TDS shall be deducted in respect of payments made to couriers.
- Reimbursement Charges-TDS shall be deducted from gross sum payable and any reimbursement of actual expenses cannot be deducted out of bill amount for purpose of TDS. However if separate bill is given for reimbursement of out of pocket expenditure, then reimbursement of expenditure is not subject to TDS.
- Repair or maintenance work– Any payment to an electrician or plumber for routine, normal maintenance contracts which includes supply of spares would be included in this section.