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NEERAJ GUPTA CA IPCC TAX CLASSES DEDUCTION OF TAX AT SOURCE

www.ngpacollege.com Assessment Year 2013-14 For sms only 9810139214 Page 1

CHAPTER -14

DEDUCTION OF TAX AT SOURCESection Particulars

192 Deduction of tax from salary

193 Deduction of tax from interest on securities

194 Deduction of tax from dividends

194A Interest other than interest on securities

194B Winnings from lottery, crossword, puzzle, card game etc/

194BB Winning from horse races

194C Payment to contractors and sub contractors

194D Insurance commission

194E Payments to non resident sportsmen or sport associations, Entertainers

194G Commission etc. on sale of lottery tickets

194H Commission or brokerage

194I Rent

194J Fees for professional or technical services

Question 1. Discuss the various TDS provisions.

Introduction :

TDS is one of the means by which income tax is recovered from the assessee in theprevious year itself.

The payer of certain specified incomes deducts tax at source at the specified rate at thetime of accrual or payment of such income to the payee and pays such tax to the Govt.on behalf of the payee.

The payer of income is under legal obligation to do it. If he fails to deduct or deduct atlower rate or does not deposit the deducted amount, he may be liable to interest,penalties & prosecution.

The amount of TDS paid on behalf of payee is deductible at the time of assessment ofpayee.

The recipient of Income though he gets only the net amount deducted at source isadjusted against his final tax liability.

Section 206AA If the recipient does not furnish his PAN to the deductor, tax will bededucted at the normal rate or at 20%, whichever is higher.

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Education cess & Secondary and higher education cess Whether considered inTDS rates : It is applicable only in the following cases

a. TDS on salary Whether amount being paid to resident or Non resident

b. Any other amount being paid to Non-resident or a foreign company

In all other cases, this cess is not considered for TDS rates.

Deduction of tax from Salaries Sec 192

Tax to be deducted at average rate of income tax :Any person(including Individual & HUF)responsible for paying any income chargeable under the head salaries shall at the time ofpayment, deduct income-tax on the estimated income of the employee under the headSalaries for that financial year.

No tax is required to be deducted at source unless the estimated salary exceeds Rs.2,00,000 during the financial year 2012-2013. The limit shall be Rs 2,50,000 for SeniorCitizens and Rs 5,00,000 in case of Super senior citizens.

More than one employer : In such a case, tax will be deducted by each employer separately.However, The employee is under a obligation to declare salary received and tax deductedthereon from other employers to one of the employers by submitting information in Form No.12B. The employer to whom Form No 12B is submitted shall deduct tax on the basis ofaggregate salary.

Relief under section 89(1) : Sub-section (2A) provides that in respect of salary payments ofemployees of Government or public sector undertaking or company, co-operative society,local authority, university, institution, association or body, deduction of tax at source is to bemade after allowing relief under section 89(1).

Other incomes : Under sub-section (2B) a taxpayer, having salary income in addition toother incomes, may furnish the details of total income from other sources to his employerwho shall deduct out of salary payment the tax due on total income, subject to theprescribed conditions. No loss except house property loss shall be considered for thispurpose.

Rules to be followed for deduction of tax at source:Following are to be taken into consideration while computing taxable salary for the purpose ofdeduction of tax at source.

(1) Salary includes wages, bonus, commission, allowances, perquisites, advance or arrearsof salary, profit in lieu of or in addition to salary or wages, annuity or pension, gratuity,

leave encashment, etc. to the extent these are not exempt.

(2) The value of all taxable perquisites u/s 17 like free or concessional residentialaccommodation, any benefit or amenity granted or provided free of cost or atconcessional rate to certain employees viz., supply of gas, electricity, servant etc. is tobe taken into account.

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(3) Deductions from salary permissible under section 16 i.e. entertainment allowance andprofessional tax.

(4) The employer shall allow the deductions u/s 80C, 80CCC, 80CCD, 80CCG, 80D, 80DD,80DDB, 80E, 80GG, 80TTA and 80U before calculating the tax on the income.

Deduction u/s 80G will not generally be allowed by the employer. But wherethere is no qualifying limit problem, a deduction of 100% / 50% may be allowed.

(5) After allowing the above deductions the taxable income should be computed androunded off to the nearest multiple of Rs. 10 u/s 288A. The tax will be calculated at therates applicable for that financial year.

(6) In the tax so computed, add surcharge if applicable. Also add education cess &secondary & higher education cess. Rounding off of tax shall be done u/s 288B.

(7) The resultant amount will be the amount of tax to be deducted at source for the financialyear. It will be divided by the number of months of employment and the estimated

amount so arrived at will be deducted at source from the salary of the employee.

(8) The employer may, at the time of making any deduction of tax, increase or reduce theamount to be deducted under this section for the purpose of adjusting any excess ordeficiency arising out of any previous deduction or failure to deduct during the financialyear.

(9) TDS certificate : TDS certificate will be given to the employee in Form No. 16 annuallyon or before May 31 after the end of the financial year. This certificate has to be given inpaper format. The employer should also give a statement of perquisites / profits in lieu ofsalary in Form No. 12BA (If salary exceeds Rs 2,00,000).

Example of TDS on Salary where other incomes are disclosed by the assessee.Salary from A Ltd. 25,000 p.m. = 3,00,000Salary from B Ltd. 8,000 p.m. = 96,000Income from other sources =2,00,000Gross Total Income 5,96,000

Tax Liability = 50676Rounded of U/s 288 B =50680Per Month TDS Deducted by the company = 50680 = Rs 4223

12Example 2.If in above case increment in Salary received from A Ltd. takes place on 1/8/2012Salary from A Ltd. = 25,000 x 4 = 1,00,000

35,000 x 8 = 2,80,000 3,80,000Salary from B Ltd. 96,000Income from other sources 2,00,000

Gross Total Income 6,76,000

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Tax payable rounded of U/s 288B = 67160

Tax paid upto July = 4223 X 4 = 16892

Tax payable for next 8 months = 67160 (-) 16892 = 50268

Per Month TDS Deducted by the Company from July to March = 50268 / 8 = 6,284/-

Section 193 TDS on Interest on SecuritiesAny person responsible for paying any income by way of interest on securities shall deductincome tax at the rates in force on the amount of interest payable.

When does l iabi l i ty to deduct tax at source arise :The tax is to be deducted either at thetime of payment thereof in cash or by issue of a cheque or draft or by any other mode or at thetime of credit of interest to the account of the payee whichever happens earlier.

TDS rate for is 10%

Exempt ion from tax deduct ion :However, no tax is to be deducted if interest on securities ispayable on account of the following :

(a) any interest payable on any security of the Central Government or State Governmentexcept 8% Savings (Taxable) Bonds 2003 popularly known as Relief bonds whereinterest payable annually exceeds Rs 10,000.

(b) Securities beneficially owned by LIC, GIC & subsidiaries or other insurance companies.

(c) Debentures issued by any co-operative society or any institution notified by CentralGovt.

(d) Any listed DMAT security

Debenture interest up to Rs. 5,000 : It is not necessary to deduct tax at source from anyinterest on debentures paid to an individual who is resident in India if the followingconditions are fulfilled, namely :

the debentures have been issued by a company in which the public are substantiallyinterested;

the interest is paid by the company by an account payee cheque; and

the aggregate amount of interest paid or likely to be paid by the company to the holder ofdebentures during the financial year does not exceed Rs. 5,000.

Section 194: TDS on Deemed Dividends u/s 2(22)(e)The principal officer of a domestic company is required to do TDS from payments covered bysection 2(22)(e).

The rate for tax deduction at source is 10%

No TDS in case of dividend which is exempt for shareholder u/s 10(34) on which company isliable for CDT u/s 115 O.

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TDS on interest other than interest on securities: Section 194A Payer responsible for paying To a resident. At the time cheque is credited or payment by cash/ cheque /draft/ any mode whichever is

earlier.

Deduct Income Tax prescribed rates.TDS rate is 10%.

No TDS is deducted if:1. Payer is individual or HUF. But in this case also, if individual/HUF are subject to Tax audit on

the basis of turnover in the preceding FY, then they are liable to deduct tax at source. It isimportant to note here that even if turnover crosses in a particular financial year, the TDSrequirement starts from the next financial year.

2. Amount of interest upto Rs. 10,000 p.a. in following situations

(a) interest on FDR [fixed deposit receipt] with a branch of bank

(b) FDR with Coop Society bank(c) Interest on Senior citizen saving scheme

For other cases the limit is Rs 5,000 p.a.

3. Income is credited /paid to

a) Banking Co. / Cooperative Bank

b) Financial Corporation established by Central, State act (Public financial institutions)

c) LIC

d) UTI

e) Company / Cooperative Society in business of insurance.

4. Interest from firm to Partner.

5. One Cooperative Society paying interests to its members or to other Cooperative Society.

6. Interest on Recurring / Saving deposit with a bank.

7. Interest on PO deposits(Time deposits and recurring deposits), PO Monthly incomeschemes NSC VIII th issue, Indira Vikas Patra, Kisan Vikas Patra.

8. Interest in respect of deposits with a primary agricultural credit society or primary creditsociety or society or cooperative society engaged in the business of banking.

9. where interest is credited or paid by the Central Govt. under different provisions of directtaxes.

10. Where interest is being paid or credited on compensation awarded by the Motor AccidentsClaims Tribunal if the amount of payment does not exceed Rs 50,000/-

11. Income paid / payable by infrastructure capital / fund or public sector company in relation tozero coupon bonds.

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Adjustment in case of short deduction : The person responsible for making the payment atthe time of making any deduction, may increase or decrease the amount to be deducted u/s194A for the purpose of adjusting any excess or deficiency arising out of any previous deductionor failure to deduct during the financial year.

194 B: LOTTERY / CROSSWORD PUZZLE/ CARD GAMES / OTHER GAMES

Any person responsible for paying to any person any income by way of winnings from anylottery or crossword puzzle or Card Games / other games in an amount exceeding Rs. 10,000shall at the time of payment thereof, deduct income-tax thereon at the rates in force.

Therefore, no tax is be deducted where the amount of winning from each lottery or crosswordpuzzle does not exceed Rs. 10,000. If prize exceeds Rs 10,000, then TDS applicable on wholeamount.

RATE OF TDS

Rate of TDS is 30% [plus surcharge if applicable]

Where lottery or prize money is paid in instalments, the deduction of tax is to be made at thetime of actual payment of each such instalment.

Prize gives partly Cash and partly in kind.In such case tax will be deductible from cash prize with reference to the aggregate of cash prizeand the value of prize in kind.

Prize given in Kind.When the winnings are wholly in kind or where they are partly in cash and partly in kind but the

part in cash is not sufficient to meet the liability for tax deduction in respect of the whole of thewinnings, the person responsible for paying shall, before releasing, the winnings either in cashor in kind, ensure that the tax has been paid in respect of the winnings.

194BB: HORSE RACE

Any person, who is responsible for paying to any person any income by way of winningsfrom any horse race in an amount exceeding Rs. 5,000 shall at the time of paymentthereof, deduct income-tax at the rates in force.

Rate of TDS is 30%

194C : PAYMENT TO CONTRACTOR / SUB CONTRACTOR

Payer liable for TDS can be any one of the following :

Central Govt. / State Govt./ Govt of a foreign state

Foreign enterprise

Local Authority

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Corporation established by Central / State / Provincial Act.

Authority for housing accommodation / development of towns/ cities

Co-operative Society

Society registered under Society Registration Act

University

Company

Trust or a firm

Individual / HUF / AOP / BOI whose books of accounts are required to be audited undersection 44AB during immediately preceding financial year and sum paid is not exclusivelyfor private purposes. It means TDS is to be done if payment is for business purpose.

Payee : Contractor including sub-contractor

TDS rate : 1% if recipient is an individual / HUF, otherwise 2%. Tax is deductible on the entire

consideration including service tax, if any.

No TDS in following situations:

(1) No TDS If payer is individual / HUF

(2) No TDS if amount of single contract is upto Rs 30,000 and aggregate payment or creditduring the financial year does not exceed Rs 75,000.

(3) Transport operators : Payment to transport operators (i.e. in the course of business of plying,hiring or leasing goods carriages) is not subject to TDS u/s 194C, if the recipient furnishes hisPAN to the payer. Deductors who make payments who make payments to transporters withoutdeducting TDS (as they have quoted PAN) will be required to intimate these PAN details to theIncome tax Department in the prescribed format.

Basically section 194C is applicable on works contracts including supply of labour forcarrying out any work.

For clarification purpose following have been added in the definition ofWork for the purpose ofsection 194C.

a) Advertising

b) Broadcasting and telecasting

c) Carriage of goods and passengers

d) Cateringe)Manufacturing or supplying a product according the requirement or specification of acustomer by using material purchased/given by the customer. In other cases, i.e. wherethe material belongs to the person supplying the product, it is a contract of sale and notworks contract, hence not subject to TDS.

If AO is satisfied, can issue certificate for lower tax rate

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SOME IMPORTANT POINTS SECTION 194C

1. When an advertising agency makes payments to their models, artists, photographers,etc. the TDS shall be as per Section 194J and not 194C.

2. Maintenance contracts Routine, normal maintenance contracts which include supply of

spares will be covered u/s 194C.

Section 194 D : Insurance Commission:

Payer responsible

To pay remuneration to resident by way of insurance commission shall at the time ofcredit of account or

actual payment

Deduct Income Tax at the prescribed rates.

TDS rate is 10%

No TDS if amount not likely to exceed Rs. 20,000 for the current financial year.

Section 194 E : NR sportsmen / Sports associations / Entertainers (theatre, radio ortelevision artists & musicians)

TDS rate is 20% plus education cess & secondary & higher education cess

Income to non resident foreign citizen sportsman (including an athlete) is by way of

a. participation in India in any game (other than card game or gambling);

b. advertisement; or

c. contribution of articles relating to any game or sport in India in newspapers, magazinesor journals.

Income to non resident sports association or institution can be the amount guaranteed to bepaid or payable in relation to any game (but other than card game, etc.) or sport played in India.

As per section 115BBA, all incomes discussed above are taxable at 20% plus cess. Hence TDSalso at the same rate.

Section 194 G: TDS on commission on sale of lottery tickets

No TDS if amount of commission is Rs 1,000 or less.

TDS rate is 10%

Section 194H : TDS ON COMMISSION OR BROKERAGE

TDS on commission / brokerage exceeding Rs. 5,000.

TDS rate is 10%

Individual and HUF are not liable for TDS (subject to tax audit point)

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Section 194 I : TDS on Rent

Rent here means : Any payment, whether under lease or sub-lease, tenancy or otherwise forthe use of any

a) Land; or

b) Building (including factory building); or

c) Land adjoining to any building; or

d) Machinery; or

e) Plant; or

f) Equipment; or

g) Furniture;

Whether or not any or all the above are owned by the payee.

Who is liable to deduct tax: Any person, other than an Individual or HUF (subject to Tax auditpoint), is responsible for paying to any resident in India, any income by way of rent, amountingin aggregate to more than Rs 1,80,000 in a financial year.

The rate of TDS is as under:

a) Rent of plant, machinery or equipment 2%

b) Rent of land, building or furniture 10%No Tax is to be deducted at source on the amount of service tax included in the rent. (CircularNo 4/2008 dated 28.4.2008)

No TDS for rent to Govt. It is clarified that no tax at source need be deducted from paymentsby way of rent made to Government and local authorities.

SPECIAL POINTS: SECTION 194 I

1. When building is let out alongwith furniture / fittings, the entire composite rent is subjectto tax deduction u/s 194 I @10%.

2. TDS on tenant: Section 194 I is applicable even if the person to whom rent is paid, isnot the owner of the building. In other words, tax is deductible even in the case of sub lease of a building.

3. Advance rent: It is also subject to TDS.

4. Non refundable deposits: It is also subject to TDS

5. Security deposits: No TDS on these payments.6. Payment to Hotel: If hotel accommodation is taken on regular basis, then payment

covered by this section.

7. Joint owners: If there are more than one owner, then limit of Rs 1,80,000 shall applyindividually.

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Section 194J : Fees for professional or Technical services/ Royalty / Non-salaryDirectors payment

Payer All categories of assesses other than individual & HUF (subject to Tax audit point)

Payee Payment is being made for professional / Technical services or payment in the natureof royalty or Payment to directors which is not in the nature of salary.

Deduction of TDS is made Payment is more than Rs 30,000 for financial year. Limit not applicable for payment

to directors.

TDS rate is 10%. Tax is deductible on total payment including service tax & reimbursementof expenses.

Mean ing o f p ro fess iona l serv ices :Professional services mean services rendered by aperson in the course of carrying on legal, medical, engineering or architectural or profession of

accountancy or technical consultancy or interior decoration or advertising (i.e. models, artists,photographers etc.) or any other notified profession by CBDT i.e. authorized representative, filmartist or company secretary or information technology professional.

Meaning of fees for technical services : It means any consideration for rendering anymanagerial, technical or consultancy services.It does not include

a) Consideration for any construction, mining or like projects

b) Consideration for any service provided by machines or robots

c) Salary payments

Amount paid by non-resident : Any fees paid through regular banking channels to any CA,lawyer, advocate or solicitor who is resident in India by the non-resident who do not have anyagent or business connection or permanent establishment in India may not be subject to theprovisions of tax deduction at sources u/s 194J.

Special Points :-1. Individual & HUF shall not do TDS in respect of payment of royalty even if covered by

Tax audit point.

2. Individual & HUF covered by Tax audit point shall not do TDS if amount is being paid asprofessional/technical services for personal purposes.

TDS from payment of compensation on acquisition of certain immovable property [Sec.194LA]

Who should do TDS :Any person paying compensation / enhanced compensation on accountof compulsory acquisition of any land (not being agricultural land) or building

No deduction if amount is upto Rs 2,00,000.

TDS rate is 10%.

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Tax Deduction at Source (TDS) on transfer of certain immovable properties (other thanagricultural land) [Section 19LAA]

In order to collect tax at the earliest point of time and also to have a reporting mechanism oftransactions in the real estate sector, a new section 194LAA has been inserted of such property

exceeds

(a) Rs.50,00,000 in case such property is situated in a specified area; or

(b) Rs.20,00,000 in case such property is situated in any other area

Further, where the consideration paid or payable for the transfer of such property is lessthan the value adopted or assessed or assessable by any authority of a State Governmentfor the purposes of payment of stamp duty, the value so adopted or assessed or assessableshall be deemed as consideration paid or payable for the transfer of such immovableproperty.

For better compliance, it is also provided that a Registering Officer appointed under theIndian Registration Act, 1908 (Registrar) shall not register the transfer of any immovableproperty where taxes are required to be deducted under this provision unless the transfereefurnishes proof of deduction and payment of TDS.

For reducing the compliance burden on the transferee, a simple one page challan forpayment of TDS would be prescribed containing details (including PAN) of transferor andtransferee and also certain details of the property.

The transferee would not be required to obtain any Tax Deduction and Collection AccountNumber (TAN) or to furrnish any TDS statement as this would be mostly a one timetransaction. The transferor would get credit of TDS like any other pre-paid taxes on thebasis of information furnished by the transferee in the challan of payment of TDS.

Other points :1. Sale of rural agricultural land shall not be subject to TDS provisions whereas urban

agricultural land shall be subject to provisions of TDS.

2. Immovable property means any land (other than agricultural land) or any building or

part of a building

3. Specified area shall mean an area comprising:

(i) Greater Mumbai

(ii) Delhi

(iii) Kolkata

(iv) Chennai

(v) Hyderabad

(vi) Bangaluru

(vii) Ahmedabad

(viii) District of Faridabad;

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(ix) District of Gurgaon;

(x) District of Gautam Budh Nagar;

(xi) District of Ghaziabad;

(xii) District of Gandhinagar; and

(xiii) City of Secunderabad.

OTHER PROVISIONS RELATING TO TDS

SECTION 197 : OBTAINING A CERTIFICATE FOR LOWER RATE FROM THE ASSESSINGOFFICER

The provisions of section 197 are given below:

1. The tax is deductible u/s 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J &194LA. Its not applicable for 194B, 194BB & 194E.

2. The recipient can apply in form no 13 to the Assessing Officer to get a certificateauthorizing the payer to deduct tax at lower rate or deduct no tax as may be appropriate.

3. The certificate of lower rate shall be issued on plain paper directly to the personresponsible for paying income, under an advice to the applicant.

4. If the recipient does not have PAN, he cannot apply for the aforesaid certificate.

How lower rate is determined:

The AO will issue lower TDS certificate on the basis of existing and estimated tax liability ofthe recipient. Such liability shall be determined by the Assessing officer on the basis of thefollowing:

1. Current FY income2. Returned or assessed income of last 3 years

3. Any outstanding Income tax or wealth tax liabilities

4. Advance taxes paid till date or TDS done till date

The person responsible for paying the income shall deduct income tax at such lower rates ordeduct no tax as specified in the certificate until such certificate is cancelled by AO.

SECTION 197A : DECLARATION BY ASSESSEE IN FORM 15G / 15H

For TDS u/s 193, 194 & 194A, assessee can give a self declaration in form no 15G stating that

the tax on his total taxable income for the year is NIL. In this situation no TDS shall be done. Butthe aggregate amount in all these sections for the full financial year should not exceed themaximum exemption limit i.e Rs 2 lacs.

In case of senior citizens, Form 15H is applicable and they can give declaration if theirestimated tax liability is nil though the aggregate amount may exceed Rs 250,000 / Rs 5,00,000.

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SECTION 200 DUTY OF PERSON DEDUCTING TAX

Payment of TDS to the Government

Any person deducting any sum in accordance with the provisions already discussed, shall pay

within the prescribed time, the sum so deducted to the credit of the Central Govt or as the Boarddirects.

As per rule 30, the payment is to be made in general within 7 days from the last day of themonth in which the deduction is made.

If tax has been deducted in the month of March, tax should be deposited on or before 30thApril.

Quarterly return of TDS Rule 31A

Ist qtr : By 15th July2nd qtr : By 15th Oct

3

rd

Qtr : BY 15

th

Jan4th Qtr : By 15th May

Penalty for Delay : Rs 200 per day. Maximum upto the amount of TDS.Form No 24Q for salary returnsForm No 26Q for other returns

SECTION 201 CONSEQUENCES OF FAILURE TO DO TDS OR PAY AFTER TDS

Where a person who is required to deduct tax at source, does not deduct, or after deductingfails to pay, the whole or any part of tax, as required by the Act, then such person shall bedeemed to be an assessee in default in respect of such tax under u/s 201(1). He will be liable

for payment of tax, interest, penalty and prosecution.

Besides disallowance u/s 40(a) shall be attracted.

RELAXATION : The assessee can escape from above, if following conditions are satisfied:

1. The recipient resident has furnished his return of income u/s 139(1)2. He has taken into account such sum for computing income in such return of income; and3. He has paid tax due on the income declared by him in such return of income, and

person furnishes a certificate to this effect from an accountant in such form as may beprescribed.

Good and sufficient reasons : If assessee can prove that there were good and sufficient reasonsfor his not abl to do the TDS or for non-payment of TDS in Govt treasury after TDS, then penaltymay be waived by Assessing officer.

Interest Obligation : For failure to do TDS, interest is payable @ 1% pm or part of a month. Thecalculation shall start from the date on which the TDS should have been done till the date ofactual TDS.If after TDS, it is not deposited, then interest is payable @ 1.5% pm or part of a month for theperiod of delay.

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SECTION 203 : CERTIFICATE FOR TAX DEDUCTED

Every person deducting tax at source shall issue a certificate to the person with regard to whomtax has been deducted at source.

In case of payment of salary, certificate shall be issued in Form No 16 and in other cases it willbe in Form no 16A.

The certificate in Form no 16 should be given upto 31st May of the succeeding year in case ofan employee and it will be an annual certificate.

In other cases certificate in Form No 16A should be issued on quarterly basis and it should beissued within 15 days from the last date of submitting the quarterly return u/s 200.

SECTION 203A : TAX DEDUCTION ACCOUNT NUMBER (TAN)

Every person, deducting tax or collecting tax, who has not been allotted a tax deduction account

number shall, within such time as may be prescribed, apply to the Assessing officer for theallotment of a Tax deduction and collection account number.

As per rule 114A, application should be given in form no 49B within one month from the end ofthe month in which tax was deducted for the first time.

SECTION 204 : MEANING OF PERSON RESPONSIBLE FOR PAYING

The person responsible for paying means:

(i) In case of salary payments, the employer and if the employer is a company, it willinclude the company and also its principal officer;

(ii) In case of interest on securities, the local authority, corporation or the companyincluding its principal officer

(iii) In any other case, the person making the payment.

When service tax included for TDS

1. Professional / technical service u/s 194-J

2. Contractual payments u/s 194-C

When service tax is excluded for TDS

1. Rent

2. Commission / brokerage3. Commission for sale of Lottery tickets

4. Commission for Insurance business

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Tax collection at source

Tax collection at source arises on the part of the seller. Certain specified goods when soldmust be subjected to tax collection at source and taxes collected thereon must be remitted intogovernment's accounts as done in the case of TDS.

As per section 206C, rate of collection of tax at source shall be

TABLE

Sl.No.

Nature of goods Percentage

(1) (2) (3)

(i) Alcoholic Liquor for human consumption One per cent

(ii) Tendu leaves Five per cent

(iii) Timber obtained under a forest lease Two and one-half per

cent(iv) Timber obtained by any mode other than under a forest

leaseTwo and one-half percent

(v) Any other forest produce not being timber or tendu leaves Two and one-half percent

(vi) Scrap/Minerals being coal or iron ore One per cent

(vii) Parking lot Two per cent

(viii) Toll plaza Two per cent

(ix) Mining and quarrying Two per cent

(x) Minerals, being coal or lignite or iron ore

(xi) Bullion / jeweler

One per cent

One per cent

Cess shall be added only in case of non-residents or foreign company.

Seller can be :

1. Central / State Govt

2. Local authority

3. Corporation or authority established by or under a central, state or provincial act

4. Company

5. Firm

6. Cooperative society

7. Individual/HUF (covered by tax audit point)

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Exempted category of purchasers:

1. Public sector company

2. Central / State govt

3. An Embassy, High commission, Trade representation of a foreign state

Purchase for personal consumption from retailer is not taxable.

Special provisions in case of bullion / Jewellery

1. If sale of bullion is comprising sale of coin/article weighing 10 grams or less it is nottaxable.

2. Other sale of bullions not taxable if one sale at one time is upto Rs 2 lacs. If sales aboveRs 2 lacs, than 1% tax collection on total amount.

3. Similar to above, jewellery sales are not subject to TCS upto Rs 5 lacs.

4. If payment is made by any mode other than cash, TCS not applicable even if purchase ismore than limits mentioned above.

5. If sales are above the limits and any part or full payment is done in cash then TCS isapplicable.

Following provisions shall apply as in case of TDS

1. Certificate for lower rate of TCS

2. Deposit of tax

3. Issue of certificate

4. Quarterly returns to Govt

5. Tax collection account number

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EXAMINATION QUESTIONS

IPCC NOV - 2011

Question 2. (4 Marks)State the applicability of TDS provisions and TDS amount in the following cases:

(a) Rent paid for hire of machinery by B Ltd. to Mr. Raman `2,10,000.

(b) Fee paid to Dr. Srivatsan by Sundar (HUF) `35,000 for surgery performed to a member ofthe family.

PCC NOV - 2011

Question 3. (6 Marks)Compute amount of tax deduction at source on the following payments made by M/s S Ltd.during the financial year 2012-13 as per the provisions of the Income-Tax Act, 1961.

Sr. No. Date Nature of Payment(i) 01.10.2012 Payment of Rs.2,00,000 to Mr. R a transporter who is

having PAN.

(ii) 01.11.2012 Payment of fee for technical services of Rs.45,000 to Mr.Shyam who is having PAN.

(iii) 30.06.2012 Payment ofRs.25,000 to M/s X Ltd. for repair of building.

(iv) 01.01.2013 Payment of Rs.2,00,000 made to Mr. A for purchase ofdiaries made according to specifications of M/s S Ltd.However, no material was supplied for such diaries to Mr.

A by M/s S Ltd.

(v) 01.01.2013 Payment made Rs.80,000 to Mr. Bharat for compulsoryacquisition of his house as per Law of the StateGovernment.

(vi) 01.02.2013 Payment of commission of 6,000 to Mr. Y.

PCC MAY - 2011Question 4. (5 Marks)List any 5 instances where the tax deductible at source in terms of section 194A will not apply.

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Question 5. (4 Marks)Ashwin doing manufacture and wholesale trade furnishes you the following information:Total turnover for the financial year Rs.

2011-12 115,00,0002012-13 105,00,000

State whether tax deduction at source provisions are attracted for the below said expensesincurred during the financial year 2012-13: Rs.

Interest paid to UCO Bank 41,000Contract payment to Raj (2 contracts ofRs.12,000 each) 24,000Shop rent paid (one payee) 1,90,000Commission paid to Balu 7,000

IPCC NOV - 2010

Question 6. (4 Marks)

Explain the consequences of not deducting tax and paying to Govt. account under section 201of the Income Tax Act, 1961.

IPCC MAY - 2010

Question 7. (2 Marks)State the concessions granted to transport operators in the context of deduction of tax atsources under section 194-C.

PCC MAY - 2010

Question 8. (8 Marks)State with reasons, whether tax deduction at source provisions are applicable to the followingtransactions and if so, the rate of tax deduction:

(i) X & Co. (Firm) engaged in wholesale business assigned a contract for construction of itsgodown building to Mr. Ravi, a contractor. It paid `25,00,000 to Mr. Ravi as contract payment.

(ii) Y & Co. engaged in real estate business conducted a lucky dip and gave Maruti car to aprize winner.

(iii) An Insurance Company paid `45,000 as Insurance Commission to its agent Mr. Hari.

(iv) AB Ltd. allowed a discount of`50,000 to XY & Co. (a firm) on prompt (immediate) paymenttowards supply of automobile parts.

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IPCC NOV - 2009

Question 9. (4 Marks)Explain the consequences of not deducting tax and paying to Govt. account under section 201of the Income Tax Act, 1961.

PCC NOV - 2009

Question 10. (2 Marks)State with reasons, whether the following statements are true or false having regard to theprovisions of the Income-tax Act, 1961, for the assessment year 2013-14:

An AOP having gross receipts ofRs.110 lacs during the financial year 2011-12 is not required todeduct tax at source under section 194C of the Income-tax Act, 1961, on payment made tocontractors during the financial year 2012-13.

Question 11. (4 Marks)

Mrs. Indira, a landlord, derived income from rent from letting a house property to M/s VaibhavCorporation Ltd. ofRs.1,00,000 per month. She charged the service tax @ 12.36% on lease rentcharges. Calculate the deduction of tax at source (TDS) to be made by M/s Vaibhav CorporationLtd. on payment made to Mrs. Indira and narrate related formalities in relation to TDS. What arethe consequences of failure to deduct or pay TDS?

Question 12. (4 Marks)Explain the difference between tax deduction at source and tax collection at source.

PCC JUNE - 2009

Question 13. (2 Marks)When will tax not required to be deducted at source on interest payable to a resident on anybond or security issued by a company though the aggregate amount of interest exceedsRs.5,000, the basic exemption limit under section 193 of the Act?

PCC MAY - 2008

Question 14. (2 Marks)Mrs. Hemalatha has made payments ofRs. 5 lacs to a contractor (for business purposes) duringthe last two quarters of the year ended 31.03.2013. Her turnover for the year ended 31.03.2012was Rs. 115 lacs. Is there any obligation to deduct tax at source?

PCC NOV - 2007

Question 15. (4 Marks)Briefly explain the provisions of section 197 in respect of obtaining certificate for deduction oftax at a lower rate.

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PCC MAY - 2007

Question 16 (4 Marks)What are the consequences of failure to deduct tax at source or pay the tax deducted at sourceto the credit of Central Government?

PRACTICE QUESTIONS ON TDS

Question 17:A TV channel pays Rs 15 lacs on Aug 2, 2012 as prize money to the winner of aquiz programme. Discuss TDS liability.

Question 18: Canara Bank pays Rs 90,000 pm as rent to State Govt for a building in which oneof its branch is situated. Disuss TDS liability.

Question 19:A Film producing company pays Rs 80,000 to a cameraman for shooting of acommercial film. Discuss TDS liability.

Question 20: The Govt of Assam pays Rs 60,000 as commission to one of its agent on sale oflottery tickets. The agent is of the view that TDS is not required, as the payer is a stategovernment. Discuss TDS liability.

Question 21:A is a sole proprietor. In current FY his turnover is crossing the limits of Tax auditfor the first time. He is paying the following

1. Rent of Rs 90,000 pm plus service tax2. Service charges @ 20,000 pm

Discuss TDS liability.

Question 22:A pays professional charges to a consultant Rs 2 lacs plus service tax @ 12.36%.

Discuss TDS liability.

Question 23:A company operating a television channel makes payment of Rs 8 lacs to aformer cricketer for making running commentary of a one day cricket match. Discuss TDSliability.Hint: Section 194J applicable

Question 24 : X, a sole proprietor is having turnover of 5 crores for last many years. He paysinterest on loan taken for the marriage of his son. He also pays interest on some business Loan.Discuss TDS liability.

Question 25: X, a sole proprietor is having turnover of 4 crores for last many years. He gave a

contract for construction of his residential house and for office. Discuss TDS liability.

Question 26: Suppose in above case he paid brokerage and commission for residential andcommercial reasons. Discuss TDS liability.

Question 27: Suppose in above case he paid rent for residential and commercial reasons.Discuss TDS liability.

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Question 28: Suppose in above case he engaged an advocate for some of his personal casesand some of cases relating to business. Discuss TDS liability.

Question 29: Is coach of a sports team covered by section 194J.Hint: Yes

Question 30: Whether TDS on salary is possible when salary is due or only when it is paid.

Question 31: X paid Rs 25,000 towards professional services and Rs 24,000 towards technicalservices. Discuss TDS liability.

Question 32: X gave 5 contracts of Rs 20,000 each to same person in one financial year.Discuss TDS liability.

Question 33: S Ltd has taken a building on rent @ 10,000 pm. The landlord is not having PANnumber. Discuss TDS liability.

Question 34: Suppose in above case rent is Rs 30,000 pm. Discuss TDS liability.

Question 35: Payment to a transporter is being done : Rs 10,00,000 (PAN is intimated).Discuss TDS liability.

Question 36: Suppose in above case PAN is not intimated. Discuss TDS liability.

Question 37: What if in above two questions, payment is being done to a caterer and nottransporter.

833_TDS

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