Some issues on Practice of TDS Law
Seminar By NIRC
1 Pradeep Dinodia
S.R.Dinodia & Co.
Collection & Recovery of Taxes
A. Chapter XVII contains Machinery provisions in the aid of the substantive
provisions of sections 4, 5, 28, 145 laying down the charge of income tax.
B. 4(1) Income Tax shall be charged in respect of the total income of the
4(2) In respect of Income chargeable u/s 4(1), income tax shall be deducted
C. Credit for tax deducted u/s 199
TDS shall be treated as payment of tax on behalf of the person from whose
income the deduction was made/owner of security/depositor/property/unit
D. Credit shall be given to him for the Assessment Year for which such income
E. Section 191 - Where no provision for TDS or where TDS has not been
deducted. Obligation to pay directly by the assessee.
Section 205 - Where TDS applicable and deducted then assessee can not
be called upon to pay tax himself.
TDS – Provision in Brief
Section 192 - Salary
(a) Any person responsible for paying SALARIES is required to deduct tax at
source on the amount payable to employees. Tax is required to be
deducted at the time of actual payment of salary.
(b) Where an employee is in employment of more than one employer, tax will
be deducted at source by the employer, which the employee chooses or the
(c) The employee may furnish to the employer details of income chargeable to
tax under other heads of income (not being loss except loss under the head
Income from House Property and tax deducted on the same). In such a
case employer shall deduct tax due on total income. However, total amount
of tax deducted should not be less than the amount of tax deductible from
salary except where the loss under the head Income from House Property
has been taken into account.
Section 193 – Interest on Securities
(a) Any person responsible for paying an interest on securities to a resident is
required to deduct tax at source at the rates in force on amount of interest
(b) The Tax is required to be deducted at the time of credit of such income to the
payees account or at the time of payment of interest on securities whichever
Section 194 – Dividends
(a) The Principal Officer of the Indian Company or a company, which has made
prescribed arrangements for declaration and payment of dividend in India is
responsible for deducting tax at source from dividend payable to a
shareholder, who is resident in India.
(b) No tax is to be deducted at source u/s 194 from Dividend payable to any
individual shareholder if the dividend is paid by the company by an account
payee cheque and the aggregate amount of dividend distributed/paid or
likely to be distributed/paid during the financial year does not exceed
(c) Dividend paid by domestic companies u/s 115O are exempt from tax in the
hands of the recipients‟ w.e.f. April 1, 2003.
Section 194A – Interest other than “Interest on Securities”
(a) Any person (except on individual or a HUF) responsible for paying interest
other than interest on securities to a resident is required to deduct tax at
(b) However, w.e.f. 1st June, 2002, an Indian or a HUF whose total sales, gross
receipts or turnover from business or profession exceeds Rs. 40 lakhs or
Rs.10 lakhs respectively, during the financial year immediately preceding the
financial year in which such interest is credited or paid shall be liable to
deduct tax at source
(c) TDS is required to be deducted either at the time of credit of such income to
the payees account or at the time of payment, whichever is earlier.
(d) No tax is deducted in case where the aggregate amount of interest does not
exceed Rs.5,000/-. In case of term deposits with banks or Cooperative
Society and Housing Finance Companies, no tax is required to be deducted
upto an aggregate interest of Rs.10,000/-.
(e) No tax is required to be deducted in case of interest paid/credited to any
banking company/financial corporation, LIC, UTI, etc.
Section 194B – Winning from Lottery or Crossword Puzzles
(a) Any person responsible for paying income by way of winning from
Lottery/crossword puzzle or card game or any other game is required to
deduct tax at source.
(b) No tax is deductible if the amount of payment is Rs.5,000/- or less.
Section 194C – Payment to Contractor/Sub-contractors
(a) Any person (other than individual and HUF) paying any sum to any resident
contractors for carrying out any work (including supply of labour for carrying
out any work) in pursuance of a contract between the resident contractor
and specified person is required to deduct tax at source. The same rule is
applicable in case payment is made by a resident contractor to a resident
sub-contractor for carrying out he whole or any part of the work undertaken
by the contractor or for supplying whether wholly or partly any labour, which
the contractor has undertaken to supply.
(b) However, an individual or a HUF whose total sales or gross receipts or
turnover from business exceeds Rs.40 lakhs or whose gross receipts from
profession exceeds Rs. 10 lakhs during the financial year immediately
preceding the financial year which such sum is credited or paid to the account
of sub-contractor shall be liable to deduct tax at source.
(c) Tax is required to be deducted either the time of credit of the sum paid to the
account of the payee or at the time of payment in cash or by cheque or by any
other mode, whichever is earlier.
(d) With effect from 1st October, 2004, Section 194C has been amended to
provide that tax will be required to be deducted at source where the amount
credited or paid to the contractor or a sub-contractor exceeds Rs.20,000 in a
single payment or Rs.50,000 in the aggregate during the financial year.
Section 194D – Insurance Commission
(a) Any person responsible for paying insurance commission to a resident is
required to deduct tax at source.
(b) No tax is deductible if the amount of insurance commission or aggregate of
the amount of such income credited/paid during the financial year does not
Section 194E – Payment to Resident Sportsman/Sports Association
(a) Any person responsible for paying any income to a non-resident sportsman
including an athlete who is not a Citizen of India or a non-resident Sports
Association or Institution is required to deduct tax at source.
(b) The tax is required to be deducted at the time of credit of such income to
the account of payee or at the time of payment in cash or by issue of
cheque or draft or by any other mode whichever is earlier.
Section 194EE – Payment in respect of deposits under National
(a) Any person responsible for paying to any person any amount referred to in
Section 80CCA(2) is required to deduct Income Tax.
(b) No deduction is required to be made where the amount of such payment or
the aggregate amount of such payments during the financial year is less
Section 194F – Payment on account of Repurchase of Units by Mutual
Funds or UTI
Any person responsible for paying to any person any amount referred to in
Section 80CCB(2) is required to deduct tax at source at the time of payment
without any exemption.
Section 194G – Commission etc. on the sale of Lottery Tickets
Any person who is responsible for paying commission, remuneration or prize to
any person who is or has been stocking, distributing, purchasing or selling
lottery tickets is required to deduct tax at source on such tickets on an amount
Section 194H – Commission or Brokerage
a) Any person other than an individual or Hindu Undivided Family who is
responsible for paying on or after 1st June, 2001, to a resident, any income
by way of commission (other than insurance commission referred to in
section 194D), or brokerage, is required to deduct tax.
(b) No deduction is required to be made where the amount of such income or
the aggregate of the amounts of such income credited/paid during the
financial year does not exceed Rs.2,500/-. 11
Section 194 I – Rent
(a) Any person other than an individual or Hindu Undivided Family responsible
for paying rent to resident any income by way of rent is required to deduct
(b) „Rent‟ means any payment by whatever nature called, under any lease, sub-
lease, tenancy or any other agreement or arrangement for the use of
(either separately or together) any:
(i) land, or
(ii) building (including factory building), or
(iii) land appurtenant to a building (including a factory building), or
(iv) machinery, or
(v) plant, or
(vi) equipment, or
(vii) furniture, or
(viii) fittings 12
Any hire charges paid for hiring Motor Cars would also get covered under the
ambit of TDS u/s 194-I. The amendment has simply expanded the coverage of
section 194-I to include machinery or plant or equipment within its ambit.
c) From 1st June, 2002 an individual or a Hindu Undivided Family whose total
sales or gross receipts or turnover from business exceeds Rs.40 lacs or
whose gross receipts from profession exceeds Rs.10 lacs during the
financial year immediately preceding the financial year in which such sum is
credited or paid shall be liable to deduct tax at source.
d) No deduction shall be made where the amount of such income or the
aggregate of amounts of such income credited/paid during the financial year
does not exceed Rs.1,20,000/-.
Section 194 J – Fees for Professional or Technical Services
a) Any person other than individual or HUF responsible for paying to a resident
fee for professional services or fee for technical services is required to deduct
tax on the income comprised therein.
(b) “Professional services” means services rendered by a person in the course of
carrying on legal, medical, engineering or architectural profession or the
profession of accountancy or technical consultancy or interior decoration or
advertising or such other profession as is notified by the Board for the
purpose of section 44AA or of this section.
(c) “Fees for technical services” shall have the same meaning as in Explanation
2 to clause (vii) of sub-section (1) of section 9 – For the purpose of this
clause “Fees for technical services” means: any consideration
(including any lumpsum consideration) for the rendering of any
managerial, technical or consultancy services (including the
provisions of services of technical or other personnel), but does not
include consideration for any construction, assembly, mining or like
product undertaken by the recipient or consideration which would
be income of the recipient chargeable14 under the head „salaries‟.
d) The tax is required to be deducted at the time of credit of such income to
the account of the payee or at the time of payment in cash or by issue of
cheques or drafts or by any other mode whichever is earlier.
No tax is required to be deducted in case amount of such sum or aggregate
of amount of such sums credited or paid during the financial year does not
(e) With effect from 1st June, 2003 no individual or HUF shall be liable to
deduct tax on fees for professional services in case such sum is credited or
paid exclusively for personal purposes of such individual or any member of
Section 197 – Obtaining a Certificate of Lower Rate from
the Assessing Officer
a) For tax-deductible u/s 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-
I, 194J, 194K, 194LA or 195.
(b) The recipient can apply in Form No.13 to the Assessing Officer to get a
certificate authorizing the payer to deduct tax at lower or deduct no tax as
may be appropriate.
c) The certificate of lower rate shall be issued on plain paper directly to the
person responsible for paying income, under an advice to the applicant.
However in the case of entities covered by Rule 28AB, the Assessing
Officer may issue a certificate to the recipient authoring payment of
income without deduction of tax at source. The recipient may furnish
copies of such certificate to the person responsible for paying the
income for the purpose of no deduction of tax at source.
Consequences of Default
Amounts not deductable u/s 40(a)(ia) in computing the income under Profit and
Gains of business or profession.
i) When TDS is deductable and has not been deducted.
ii) After deduction, has not been paid during the previous year or time
prescribed under section 200 (1) read with Rule 30.
- For Non Government Payer
Within one week from last day of the month in which deduction is made
credited on the date of making up of accounts upto within 2 months of the
expiry of the said months, except
- Salary (192) winning from Lottery (194), winning from Horse Racing
(194BB), payment of NSS (194EE) Repurchase of Mutual Fund (194F)
Within one week from the last day of the month in which the deduction was
However, these will be allowed in the year of payment.
Consequences of Default
Liability u/s 201
(1) Penalty – assessee in default u/s 221 equal to the amount of tax
(1A) Interest @ 1% per month
Both the above are consequences of
- Not deducting
- Deducted and not paying to the Central Government.
(2) After deducting not paying also leads to a charge being credited on the
assets of the payer.
Penalty for failure to deduct tax at source as required or under the provisions of
Chapter XVII-B. Penalty Equal to Tax. 18
Fails to pay to the credit of Central Government, tax deducted at source by
him as required by or under the provisions of Chapter XVII-B.
Imprisonment Period 3 months to 7 years and with fine.
CASE STUDY I
In Madumilan Syntex Ltd. vs. Union of India (2007) 160 Taxman 71(SC)
“The contention of the appellant that though tax deducted at source had been
deposited late but since TDS had already been deposited to the account of the
Central Government, there was no default and no prosecution can be ordered,
could not be accepted.
Once a statute requires to pay tax and stipulates period within which such payment
is to be made, the payment must be made within that period. If the payment is not
made within that period, there is default and an appropriate action can be taken
under the Act. Interpretation canvassed by the appellant would make the provision
relating to prosecution nugatory.”
CASE STUDY II
a) Reimbursement of expenses actually incurred
b) Service tax levied on the services rendered – whether liable for
Ref: CBDT Circular No. 715 dated 08.08.1995 : Question No. 30.
CBDT Circular No. 718 dated 22.08.1995 : Question No. 4.
ITO Vs Dr. Willimar Schwabe India (P) Ltd. (2005) 3 SOT 71
CIT Vs. Laxmi Machine Works (2007) 290 ITR 667 (SC)
SS & Company Vs. State of Punjab, 268 ITR 398 (P&H)
CASE STUDY III
Reasonable cause - bona fide belief that ex-patriate salaries paid
in home countries not liable for tax in India – No penalty u/s. 271C.
CIT vs. Mitsubishi & Co. (2005) 272 ITR (Del) 545
CIT vs. NHK Japan Broadcasting Corporation (2006) 284 ITR 357 (Del)
CASE STUDY IV
TDS not deducted – interest payable u/s.201(1A) upto the date
payee has paid tax on his income.
CIT vs. Adidas India Marketing Pvt. Ltd. (2007) 288 ITR (Del) 379
CASE STUDY V
As all income liable for TDS, though not deducted – interest
u/s.234B not chargeable.
Motorola Inc. vs. DCIT (2005) 95 ITD (Delhi SB) 269.
CASE STUDY VI
Section 198, 199 do not determine year of chargeability to tax – Sections
4, 5, 28, 145 are charging sections and determine the year of chargeability
Income as per method of accounting regularly followed, credit of TDS is
attached to it.
Smt. Varsha G. Salunke vs. DCIT (2006) 281 ITR (AT Sec) (Bom.) 55 (TM)
CASE STUDY VII
Labells sold after the printing logo, trademark as per directions of the
customer, is a sale and not a works contract which contrary to Circular
No. 715 dated 08/08/95 Question No. 15
DBA Ltd. vs. ITO (2006) 281 ITR (Bom.) 99
CIT vs. Dabur India Ltd. (2006) 283 ITR (Del) 197
CASE STUDY VIII
Landing fee and parking fee at the airport for aircraft is rent within
the definition of section 194I liable for TDS.
United Airlines vs. CIT (2006) 287 ITR (Del) 281
CASE STUDY IX
Specific provision will override the general provision – contractors’
payment specifically covered u/s.194C, will not be covered under general
provisions of section 194J.
CIT vs. Prasar Bharti (2007) 208 CTR 317 (Del)
Glaxo Smithkline Healthcare Services Ltd. vs. ITO (2007) 12 SOT 221 (Del)
Each section regarding TDS under Chapter XVII deals with the particular
kind of payment to the exclusion of all other sections in this Chapter.
Thus, payment of any sum shall be liable for deduction of tax only under
Ref: CBDT Circular No. 720 dated 30th August 1995.