Now , even individuals or HUF have been made responsible for deducting tax at source if their sales turnover exceeds Rs 40 lakhs or gross receipts from profession exceeds Rs 10 lacs. Not deducting tax at source from payments made will make them suffer very heavily. The punishment for not deducting tax at source, was enhanced by Finance Act 2004 by an amendment in section 40 of the I T Act. So , substituted section 40(ia) consists of following provision

40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession,



(ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B 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 :

Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid

The aforesaid provision contained in section 40(ia) clearly states if the TDS had to be deducted on any payment which is an expense, such expense shall be allowed as business expense only in year in which tax is deducted and deposited .

This year’s budget has further plugged in a loophole in section 194C of the I T Act. Previously , the individuals or HUF were not responsible for deducting tax at source in case of any contractual payment . They were responsible for TDS only for payment to a sub-contractor. But from 1/6/2007, even individuals and HUF are responsible for TDS on contractual payments. So , individuals having business turnover over Rs 40 lacs or having professional receipts exceeding Rs 10 Lacs, should be careful not to forget to deduct the tax at source and pay to govt in time .Otherwise , the whole of expense shall be disallowed while computing total income for that year. It shall be allowable only in that year in which the TDS is paid to govt.This is apart from risk of penalty and interest for not deducting the tax at source.

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October 2020