TDS UPDATEDS

1

TAX DEDUCTED AT SOURCE

BASICSUPDATE

& PRACTICAL ISSUES

D R Venkatesh,

B.COM, LLB, FCA, Partner, MSSV & Co.,

Chartered AccountantsBangalore

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BACKGROUNDBACKGROUNDPRESS RELEASE DATED MAY 21, 2009PRESS RELEASE DATED MAY 21, 2009

NO 402/92/2006-MC(12 of 2009)NO 402/92/2006-MC(12 of 2009)FY 2008-

09(in Crores)

FY 2007-08

(in Crores)

Remarks(in Crores)

Direct Tax 3,38,212 3,12,202 26,010 increase, i.e. 8.33%

Corporate Tax 2,12,823 1,92,911 20,912 increase, i.e. 10.84%

Personal Income Tax (FBT, STT & BCTT)

1,23,967 1,18,904 5,063 increase, i.e. 4.25%

FBT 7,997 7,116 881 increase, i.e. 12.28%

STT 5,408 8,577 3,169 decrease, i.e. 36.90%

Corporate TDS 61,683 45,450 16,233 increase, i.e. 35.71%

Non-Corporate TDS

68,786 59,145 9,641 increase, i.e. 16.38%

C.G. TDS 3,364 2,034 1,330 increase, i.e. 65.38%

Tax Collected by way of Assessment

31,242

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• Direct Tax Collection short by Rs 52,798 Crores, as against the Budgeted Target of Rs 3,65,000 Crores.

• Direct Tax Collection only Rs 48,280 Crores during the FY 2007-08, risen to over Rs 3,38,212 Crores, the increase is nearly SEVEN times in 11 years time.

• TDS Collection is Rs 1,30,469 Crores out of the Direct Tax Collection of Rs 3,38,212 Crores.

• Cost of Collection is 0.66% during the FY 2008-09• Cost of Collection was 0.54% during the FY 2007-08

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PresentationPresentation

• Basics

• Update

• Practical Issues u/s 194 C, 194 I and

194 J

• Lower Deduction of Tax

• Annual Tax Statement

• Conclusion

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BasicsBasics

• Status of Deductor/Payer

o Any Person …….

o Tax Payer

o Agriculturist

o Charitable/ Educational Institutions

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BasicsBasics

• Individual / HUF

o Whose total sales, gross receipts or turnover

o Exceed the monetary limits specified under

clause (a) or clause (b) of Section 44AB

o During the financial year immediately

preceding financial year

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• Status of Recipient/Payee

o Rate of Deductiono Applicability of Surchargeo Government

BasicsBasics

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BasicsBasics

• Residential status of Recipient/Payee

o Residento Non resident

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BasicsBasics

• Nature of expenditure

o In the hands of the deductor – payment /

Debit may be towards

Capital Expenditure

Revenue Expenditure

Personal Expenditure

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BasicsBasics

• When to deduct

o Payment

o Credit

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BasicsBasics• Rate of Deduction

o Tax rateo Surchargeo Education Cess

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BasicsBasics• Remittance• Deductor

o Government - On same day

o Others

During the year payment

Year end provisions

o With Special Permission

Salaries – 15th June, 15th September, 15th March

Interest, Insurance Commission, Commission or Brokerage

u/s 194H – 15th July, 15th October, 15th January, 15th April

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UPDATEUPDATE

• The Taxation law (Amendment) Act,

2006

• The Finance Act 2007

• The Finance Act 2008

• Circulars/Notifications

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UP DATE:THE TAXATION LAWS (AMENDMENT) ACT, 2006

- ASSENT OF THE PRESIDENT ON THE 13TH JULY

2006

- THE GAZETTE OF INDIA ON 14TH JULY 2006

- Clause 8 – Amendment to Section 40(a)(ia) w.e.f

1.04.2006 - Rent, Royalty

- Clause 16 – Amendment to Section 194J-

Royalty

- Any sum referred to in clause (va) of

Section 28

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UP DATE:

Clause 15 – Amendment to Section 194I - Rent means any

payment, by what ever name called, under any lease, sublease,

tenancy or any other agreement or arrangement for the use of

(either separately or together) any:-

(a) Land ; or

(b) Building (including Factory Building) ; or

(c) Land appurtenant to a build (including Factory Building) ;

or

(d) Machinery ; or (g) Furniture ; or

(e)Plant ; or (h) Fittings

(f) Equipment ;or

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

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THE FINANCE ACT 2007 Section 194A

- w.e.f 1.06.2007- Rs.5000 to Rs.10000- Rs.10000 – Co-operative Society

engaged in carrying on the business of banking

- Rs.10000 – On any deposit with Post Office under any scheme framed by

Central Government and notified by it in this behalf

- Rs. 5000 in any other case. Section 194C

- 194 C (1) – Substituted - (a), to (j) - old- (k) – New sub section- Any individual or a HUF . . . . . . . . . . .

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Section 194 H- w.e.f 01.06.2007- 5% to 10%- Insertion of proviso – No deduction

Any commission or brokerage payable by BSNL or MTNL to their public call office franchises

Section 194 I- w.e.f. 01.06.2007- (a) 10% for use of any machinery or

plant or equipment- (b) 15% land or building or furniture

or fittings Payee – individual or HUF

- (c) 20% land or building or furniture or fittings Payee – other than individual or HUF

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Section 194J

- w.e.f 1.06.2007

- 5% to 10%

Section 201(1A)

- 12% per annum to 1% for every

month or part of a month

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The Finance Act 2008The Finance Act 2008

– Amendment to Sec 199– Amendment to Sec 203– Amendment to Sec 40(a)(ia)

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Amendment to Sec 40(a)(ia)Amendment to Sec 40(a)(ia)

Has not been paid-

[A] In a case where the tax was deductible and was so deducted during the last month of the

previous year, on or before the due date specified in

sub - section[1] of section 139; or

[B] In any other case, on or before the last day of

the previous year;

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Circulars/NotificationsCirculars/Notifications

• Circular No. 4/2008, Dated April 28, 2008

• Circular No. 275/73/2007, Dated June 30, 2008

• NotificationNo.88/2008/F.NO.275/43/2008-IT[B],

Dated August 21, 2008

• Notification No. 28/2009, Dated March 16, 2009

• Notification No. 30/2009, Dated March 25, 2009

• Notification No. 31/2009, Dated March 25, 2009

• Notification No. 142/22/2008, TPL Circular No.

02/2009, Dated May 21,2009

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Circulars/NotificationsCirculars/Notifications

• Circular No. 4/2008 dated April 28, 2008• Clarification regarding service tax should be

excluded for TDS u/s 194I

• Clarificatory Circular No. 275/73/2007 dated June 30, 2008

• Clarification regarding service tax should be included for TDS u/s 194J

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U/s 194I U/s 194JU/s 194I U/s 194J

Rent Rs. 100,000Service Tax Rs. 10,300

Total Rs. 110,300TDS on Rs. 100,000

Fees Rs. 100,000

Service Tax Rs. 10,300

Total Rs. 110,300

TDS on Rs. 110,300

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Any income by way of Any sum by way Any income by way of Any sum by way of of

• 194A• 194B• 194BB• 194D• 194E• 194G• 194H• 194I

• 194C• 194J• 194L• 194LA

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Circulars/NotificationsCirculars/Notifications

• NotificationNo.88/2008/F.NO.275/43/2008-IT[B]

Professional includes for Section 194J

• Sports Persons

• Umpires and Trainers

• Team Physicians and Physiotherapists

• Event Managers

• Commentators

• Anchors and

• Sports Columnists

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Circulars/NotificationsCirculars/Notifications• Notification No.28/2009

– Income Tax (Sixth Amendment) Rules, 2009– W.e.f April 1, 2009– New Rule 37BA, 37I– Credit for tax deducted at source for the

purpose of sec 199(3)– On the basis of information relating to

deduction of tax furnished by the deductor to the income tax authority or the person authorized by such authority

– TDS amount– Assessment Year

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Circulars/NotificationsCirculars/Notifications• Notification No.30/2009

– Income Tax (Seventh Amendment) Rules, 2009– W.e.f July 1, 2009– New Rules 37BB– Furnishing of information u/s 195(6) – Form No. 15CA – Information shall be furnished

electronically to the website designated by the IT Department prior to remitting the payment

– Form No. 15CB – Certificate of Accountant

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Circulars/NotificationsCirculars/Notifications• Notification No.31/2009

– Income Tax (Eight Amendment) Rules, 2009– W.e.f April 1, 2009– New Rules 30, 31, 31A, 37CA, 37D– New Forms 16, 16A, 17, 24C

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Rule 30 :Rule 30 :

Time schedule for remittance of TDS

– No change

• Within two months from the end of the month in which amount is credited by the payer to the account of the payee

• Any other case, within one week from the end of the month

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Rule 30 :Rule 30 :• Special cases – prior approval of the Joint

Commissioner – Quarterly payment of amount on 15th June, 15th

September, 15th December and 15th March - salaries

– Quarterly payment of amount on 15th July, 15th October, 15th January and 15th April – Interest, Insurance Commission, commission or brokerage u/s 194H

• Rule 30(4) - Payment of tax under chapter XVII- B– Electronically furnish an income tax challan in

Form No. 17• Rule 30(5) – electronically remitted by way of

– Internet banking facility– Credit or Debit card

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Rule 31Rule 31• Rule 31(1) – TDS Certificate

– Form No. 16– Form No. 16A

• Rule 31(2) – Time schedule for furnishing TDS Certificate– Within one week – Within one month – Within fourteen days– Within one month

• Rule 31(3) – Duplicate Certificate• Rule 31(4) – Duplicate Certificate

– Obtain indemnity bond from deductee– Get a payment certified by the AO designated in

this behalf by the chief commissioner or commissioner

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Rule 31ARule 31A• Quarterly Statement of Deductions of Tax or

Collection of Tax– Form No. 24C – TDS Compliance Statement– Form No. 24Q – Salaries– Form No. 27Q – Other Cases – Deductees other

than company being non-residents or a foreign company

– Form No. 26Q – Other Cases – others– Form No. 27EQ – Collection of Taxes

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Form 16, Form 16A and Form 27D has been Form 16, Form 16A and Form 27D has been modified with similar changes and have the modified with similar changes and have the same structuresame structure

• Additional changes made applicable to the above 3 forms are:– Whether Original/Duplicate/Amended– TDS Certificate Number– Unique Transaction Number (UTN) has to be

mentioned i.e. provided by IT Department, along with Gross amount paid and TDS amount.

• Removal from old form:– Details of Tax Deducted and Deposited into Central

Government account – PAN of the Deductor

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TDS Challan – Form No. 17TDS Challan – Form No. 17• TDS remittance challan – challan No. 281 is

replaced by Form No. 17 and the remittance is to be done electronically (either by way of internet banking or through Debit/ Credit Cards)

• Additional Requirements as per Form No. 17– PAN of the Deductor– Challan is section Independent. Deductor can

prepare a single challan at the end of the month for all his TDS deductions (Including Salaries and Non Salaries).

– Due date of deposit of TDS is same as per old provision.

– Deductor has to provide deductee wise PAN, Name and TDS amount.

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TDS/TCS Compliance Statement – Form TDS/TCS Compliance Statement – Form No. 24CNo. 24C

• It is to be filed by all assesses who have been allotted TAN.

• Section wise (all), 3 months separate information, are to be filed electronically to the DGIT or the person authorized by the DGIT on quarterly basis.

• It contain information of Total Payment, Total amount eligible for deduction, Total amount considered for TDS at full rate, Amount of TDS at full rate, Total amount considered for TDS at lesser rate, Amount of TDS at lesser rate, Total TDS.

• The due dates for delivering the Form 24C i.e. 15th July. 15th October, 15th January for first 3 quarters of financial year and 15th June following the last quarter of the financial year.

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TDS/TCS Compliance Statement – TDS/TCS Compliance Statement – Form No. 24CForm No. 24C• SCH COM-1 Details of TDS compliance in the

month of ___ ____ • SCH COM-2 Details of TDS compliance in the

month of ___ ____ • SCH COM-3 Details of TDS compliance in the

month of ___ ____ • SCH PAY Details of payment of tax deducted or

collected at source• At a glance the preliminary structure of Form 24C

is similar to Income Tax Return especially the deductor details

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Unique Transaction Number Unique Transaction Number [UTN][UTN]

• The Deductee records under that challan have to be entered online [if less than 10] or have to be uploaded through a file.

• On successful payment, an acknowledgement would be generated in Form 17 format, which validates [Yes/No] for each PAN of the deductee and generates a Unique Transaction Number [UTN] for each deductee record.

• It is a common link between Challan, TDS certificate and eTDS Statement and will be provided by the I.T. department.

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Circular No. 02/2009 Dated May 21, 2009Circular No. 02/2009 Dated May 21, 2009

• TDS or TCS effected on or after April 1, 2009, but not later than May 31, 2009:Fill-up Form No. 17 – between July 1, 2009 to July 15, 2009

• Return of Income in Form No. ITR 1 to ITR 8 for the AY 2009-10

Quoting of relevant UTN for every TDS or TCS• Deductions or collections made before April 1,

2009

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Practical issuesPractical issues

• General

• Specific

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• Mr.X a practicing CA who is subject to Tax Audit u/s

44AB for the year ending 31.03.2009 having the

following transactions during the financial year 2009

- 2010:

1. Constructed a house for self occupation & he

is making payment to contractor

Rs.10,00,000/-

2. Borrowed funds from friends Rs.10,00,000/-

on which he wants to pay interest

Examine the applicability of TDS

Issues - General

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Issues - GeneralIssues - General

The entries passed in books of accounts

for MIS purposes.

Examine the applicability of chapter

XVII - B

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Issues – GeneralIssues – General

• Excess/Short deduction

• Excess/Short Remittance - Adjustment

- With in the quarter.

- With in the financial year

• Refund of Excess tax remitted

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Issues - GeneralIssues - General• Defaults

o Non deductiono Short deductiono Non remittanceo Short remittanceo Delay in remittance

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Issues - GeneralIssues - General• Consequences

o Interesto Penaltyo Prosecutiono Amount not deductible

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Issues - GeneralIssues - General

Disallowance u/s 40(a)(ia) & Form No 3CD

o In the case of

non deduction

short deduction

non remittance

short remittance

delay in remittance

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Issues - GeneralIssues - General Compute the Disallowance u/s 40(a)(ia) for the AY

2009-10

Internal Audit Fee for the FY 2008-09 Paid every month with

out deduction of tax.

TDS made during March 2009 (Including earlier months) and

remitted to Govt.

- On or before March 31, 2009

- On July 25, 2009 or September 25, 2009

Internal Audit Fee for the FY 2008-09 Paid every month with

deduction of tax but not remitted to Government.

Remitted before March 31, 2009

Remitted on July 25, 2009 or September 25, 2009

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Issues - GeneralIssues - General

• M/s X Private Limited paid statutory audit

fee of Rs.1,00,000/- in cash during the

accounting year 2008 – 2009 with out

deduction of tax at source.

• For Assessment year 2009–10, Examine the

disallowance u/s 40(a)(ia) and u/s 40A(3) ?

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Issues - GeneralIssues - General• The Assessee has received the transport advance of Rs.10

Crore from X Limited. X Limited has deducted the TDS U/s 194C

on 10Crores while making the advance payment. The Assessee

couldn't complete the contract work to the extent of Rs.6Crores

and the same has been returned to X Limited.

The Assessee has credited Rs.10Crores as income debited

Rs.6Crores to as Fright Charges refund account in the P&L A/c.

The assessing officer disallowed Rs 6Corores u/s 40a(ia) since

the assessee has not deducted the tax at source. Discuss

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Issues - GeneralIssues - General

• Assessment completed U/s 143(3) for the

Assessment Year 2005 – 2006, 2006 – 2007 &

2007 – 2008. The Assessing officer verified the

books of accounts and all the records & no

observations regarding noncompliance of

provisions of Chapter XVII – B is noted in the said

order.

Survey officials of TDS Circle observed that for

the above years the assessee has violated the

TDS provisions and propose to invoke Section

40(a)(ia). examine

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Issues - GeneralIssues - General

Time limit for verifying the TDS

returns and demanding interest u/s

201(1A)?

Interest paid u/s 201(1A) – is it a

deductible expenditure?

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Issues – SpecificIssues – Specific

• U/s 194C

o Contract between the contractor and

specified entity

o Each contract less than Rs. 20,000

o Total payment in financial year Rs.

50,000

o Sub contractor – individual – not

owned more than 2 lorries

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Issues – SpecificIssues – Specific

• Incentive paid to a Contractor

• Liquidated damages recovered from contractor

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Issues – SpecificIssues – Specific

• Transport contract• Vehicle hire charges

- Section 194C or Section 194I

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Issues – SpecificIssues – Specific

• Reimbursement of expenses to agent

- Loading and unloading charges- Freight/transportation charges

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Issues – SpecificIssues – Specific• M/s A limited has given turnkey project to B

Limited for setting the data centre in their premises for 3 Crore plus applicable taxes. B Limited raised the invoice which is as follows:

____________________________________________________________________________________

InvoiceTowards setting data centre - 3,00,00,000Add: VAT @12.5%(on 75% of the value) -

28,12,500Add: Service Tax @12.36% (33% of the value) -

12,23,640 ----------------- 3,40,36,140 -----------------

____________________________________________________________________________________________________________________________________

Issue – 1 : M/s A Limited propose to deduct the Tax on 33% of contract value.

Issue – 2 : Whether TDS should be made including Service Tax and VAT?

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Issues – SpecificIssues – Specific• X Limited entrusted the construction work to C Limited. As

per the arrangement, construction materials is supplied by X Limited to maintain the quality. X Limited deducted the amount towards supply of material from gross contract price. The details are as follows:

Contract Price (Gross) Rs.100 Lakhs

Less: Amount deducted towards supply

of material Rs.70 Lakhs

-------------

Net amount paid to C Ltd Rs.30 Lakhs

-------------

X Limited deducted TDS U/s 194C on Rs.100 Lakhs.

- Discuss the accounting entries to be passed in the books of accounts in both the companies to avoid the probable TDS issues.

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Issues – SpecificIssues – Specific

• Rento Advance Rent of Rs. 5 Lakhs paid for

next 5 Financial years on 30.06.2008

o Rent of Rs.5 lakhs paid to 5 co-owners

o Warehousing Charges

o Cooling Charges paid to cold storage

owners

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Issues – SpecificIssues – Specific• M/s King fisher Airlines paid landing fee and parking

fee of Rs.10 Crores to Airport authorities during the accounting year 2008 - 09. M/s Kingfisher Airlines proposes to deduct tax at source:-- 194C or 194I ?

• Rent paid to owner as a percentage of sales.• Tenants in a commercial complex following payments

are made to the owner:- - Rent - Maintenance charges - Power & Water charges re-imbursements.

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Issues – SpecificIssues – Specific

• M/s X Limited has paid interest free

refundable deposit of Rs.100 lakhs to M/s Y

Limited. M/s Y Limited allowed M/s X limited

to use the building without rent. Assessing

Officer observed that this arrangement is

only to avoid the TDS and he propose to

invoke the provisions of Section 194A in the

case of M/s Y Limited and Section 194I in the

case of M/s X Limited.

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Issues – SpecificIssues – Specific

• Fees for professional services

o Is TDS to be effected u/s 194J on the gross

amount of bill including service tax and

reimbursement of expenses or the fees

only?

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Issues – SpecificIssues – Specific

Audit Fee Rs. 1,00,000

Service Tax & Cess Rs. 10,300

Reimbursement of expenses Rs. 50,000

Total Rs. 1,60,300

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Issues – SpecificIssues – Specific

• M/s Specialty Hospital Private Limited

makes payment to consulting doctors by

collecting amount from patients . It retains

20% of the fee collected as its service

charges and pays 80% to the consulting

doctors.

- TDS U/s 192 or 194J?

- TDS on 80% or 100%

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LOWER DEDUCTION OF TAXLOWER DEDUCTION OF TAX

• Section 197• Payments Covered: - Section 192 - Section 194J - Section 193 - Section 194K - Section 194 - Section 194LA - Section 194A - Section 195 - Section 194C - Section 194D - Section 194G - Section 194H - Section 194I

• Form No 13

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ANNUAL TAX STATEMENTANNUAL TAX STATEMENT• Form No. 26AS• Section 203AA• Rule 37AB• Statement issued on behalf of Income Tax Department• Details of Tax indicated based on the data submitted by the

deductor• Due Date for sending this statement is July 31 every year• Form 26AS consists of: - General Information - Part A : Details of TDS - Part B : Details of TCS - Part C : Details of Tax Paid, other than TDS/TCS

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ConclusionConclusion

• Remittance without deduction

Transportation Charges

Rs. 100L

TDS @ 2.266% Rs. 2.266L

Total Rs. 102.266L

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ConclusionConclusion

• Remittance in advance

• Duty / Responsibility under chapter XVII – B cannot be bypassed

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ConclusionConclusion

• Method of accounting

o Cash Basiso Mercantile Basiso Compliance Basis

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ConclusionConclusion

GOLDEN PRINCIPLES

• Applicability• Rate• Deduction & Remittance• Planning

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TipsTips

for for

Better and clear Better and clear understandingunderstanding

ofof

provisions of chapter XVII Bprovisions of chapter XVII B

areare

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Step 1 :Step 1 :

Read, Read and Read until you are Read, Read and Read until you are clear about the provisions clear about the provisions (Sections & rules)(Sections & rules)

Step 2 :Step 2 :

Read circulars and notificationsRead circulars and notifications

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Step 3 :Step 3 :

Read case laws of Supreme Court, Read case laws of Supreme Court, High Court, ITAT…High Court, ITAT…

Step 4 :Step 4 :

Advise accordingly Advise accordingly

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FinallyFinally

Deduct and remit Without failure

Avoid – interest, penalty, prosecution and disallowance

With due care

File TDS returns & Issue the forms

Within time

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Then…Then…THE

DEDUCTOR DEDUCTEE

WILL SMILE FOREVER

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Thank You