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Some issues on Practice of TDS Law Seminar By NIRC By 1 Pradeep Dinodia LL.B., FCA S.R.Dinodia & Co. http://www.srdinodia.com Chapter XVII 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 previous year. 4(2) In respect of Income chargeable u/s 4(1), income tax shall be deducted at source. 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 holder/shareholder. D. Credit shall be given to him for the Assessment Year for which such income is assessable 2 1 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. 3 2 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 present employer. (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. 4 3 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 payable. (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 is earlier. 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 Rs.2,500/- 5 4 (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 source (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 6 upto an aggregate interest of Rs.10,000/-. 5 (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 7 the contractor has undertaken to supply. 6 (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. 8 7 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 exceed Rs.5,000/-. 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. 9 8 Section 194EE – Payment in respect of deposits under National Savings Scheme (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 than Rs.2,500/-. 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. 10 9 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 exceeding Rs.1,000/-. 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 10 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 tax. (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 11 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/-. 13 12 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‟. 13 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 exceed Rs.20,000/-. (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 HUF. 15 14 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. 16 15 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 or 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 made. 17 However, these will be allowed in the year of payment. 16 Consequences of Default Liability u/s 201 (1) Penalty – assessee in default u/s 221 equal to the amount of tax in arrears. (1A) Interest @ 1% per month Both the above are consequences of - Not deducting or - 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. Section 271C Penalty for failure to deduct tax at source as required or under the provisions of Chapter XVII-B. Penalty Equal to Tax. 18 17 Section 276B 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. 19 18 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.” 20 19 CASE STUDY II a) Reimbursement of expenses actually incurred b) Service tax levied on the services rendered – whether liable for TDS 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) 21 20 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) 22 21 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 23 22 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. 24 23 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 to tax. 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) 25 24 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 26 25 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 27 26 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 one section Ref: CBDT Circular No. 720 dated 30th August 1995. 28 27 29
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