CA Final Course Paper 7 Direct Tax Laws Chapter 28 Rajeev Khandelwal FCA, DISA(ICAI)

Basics of TDS/TCS

Mechanism of TDS/TCS

Duties of Deductor

Learning Objective

2

TDS or Tedious?

3

TDS or Tedious? (contd.)

4

Advance Tax

Self Assessment Tax

Payment of Income Tax

5

Tax Deduction at Source

Tax Collection at Source

Payment of Income Tax (contd.)

6

7

Objectives TDS/TCS

Part of Income not paid.

Deposited in Government a/c as tax.

On behalf of Receiver of Income.

Entire tax on income deducted?

Salary : Yes. Others : No.

Shortfall/excess tax at time of filing ITR.

8

Mechanism of TDS/TCS

Different payments under different sections.

Deduction at specified rates.

By Person Responsible for Payment.

At time of Payment or Credit.

Tax Deduction at Source (TDS) (Sec 192 to 195)

9

Collection at Specified Rates.

At time of Receipt or Dr. to Party a/c.

By Seller of Goods.

Timber under forest lease, scrap etc.

Provider of specified services.

Parking, Toll Plaza.

10

Tax Collection at Source (Sec 206C)

Deducted on Payment or Credit.

Credit to Suspense etc. Applicable on Full Amount.

(Circular 715 of 8-8-95) Even on Service Tax in bill.

Exception: Rent. (Circular 4/28-4-08)

Different Sections : Different Rates.

11

Basic Principles of TDS

Surcharge & Cess on Tax. Payable on tax on Salary as

applicable. Other payments to Residents : NA.

Deductee must have valid PAN.

No PAN : TDS @ Minimum 20% .

12

Basic Principles of TDS

TDS Deposit : 7th of next month.

Delay in deduction/ deposit : Interest.

Quarterly TDS Statements :15 days.

TDS Certificates : 15 days from due date of TDS Statements.

13

Basic Principles of TDS

An Intro.

14

Type of Payment Section Exemption limit Rate (%)

Salary 192 As per IT Slabs for AY

Average Rate of Tax

Interest on Securities 193 5,000 10

Dividend 194 2,500 10

Interest other than Interest on Securities

194A Banks : 10,000 Others : 5,000

10

Winnings from Lottery or Crossword Puzzles

194B 10,000 30

15

TDS on Different Payments

Type of Payment Section

Exemption limit Rate (%)

Winnings from Horse Race

194BB 5,000 30

Payments to Contractors and sub-contractors

194C Per payment Per Year

30,000 75,000

Individuals/ HUF Others

1 2

Insurance Commission

194D 20,000 10

16

TDS on Different Payments (contd.)

Type of Payment Section Exemption limit

Rate (%)

Payments to Non-resident Sportsmen or Sports Associations

194E -

20

Payments in respect of Deposits under National Savings Scheme etc.

194EE 2,500

20

Repurchase of units by Mutual Fund 194F -

20

Commission on sale of Lottery Tickets 194G 1,000

10

Commission or Brokerage 194H 5,000

10

17

TDS on Different Payments (contd.)

Type of Payment Section Exemption limit

Rate (%)

Rent 194-I 1,80,000 Plant& Machinery

2

Land Building 10 Fees for Professional or Technical Services

194J 30,000 10

Payment of Compensation on Compulsory Acquisition of Immovable Property

194LA 2,00,000 10

Interest from Infrastructure Debt Fund to Non-residents

194LB - 5

18

TDS on Different Payments (contd.)

Type of Payment Section Exemption

limit

Rate (%)

Interest from Indian Company to Non-residents for foreign currency approved loans/long term infrastructure bonds

194LC -

5

Other Payments to Non-residents

195 -

Different rates for different

payments

19

TDS on Different Payments (contd.)

Type of Payment Surcharge

(2%)

Education

Cess (3%) Salary No Yes

Other Payments to Residents No No

Other Payments to Foreign Co. (Payment up to 1 cr.)

No Yes

Other Payments to Foreign Co. (Payment exceeds 1 cr.)

Yes Yes

Payments to Other Non-residents (Irrespective of amount)

No Yes

20

Surcharge & Cess on TDS (AY 2013-14)

No TDS on following payments :

21

Individuals & HUFs Tax Audit * Not Applicable

Type of Payment Section Interest other than Interest on Securities 194A Payments to Contractors /sub-contractors (Exemption to AOP/BOI also)

194C

Commission or Brokerage 194H

Rent 194-I

Fees for Professional/ Technical services & other payments u/s 194J

194J

Note : TDS to be deducted in other cases like 192, 194B, 195 etc.

Type of Payment Section Payments made for personal purposes Payments to Contractors /sub-contractors

194C Fees for Professional Services

194J

Note : TDS to be deducted in other cases like 192, 194I, 195 etc.

No TDS on following payments :

22

Individuals & HUFs Tax Audit * Applicable

Note : TDS applicable on : a. Fees for Professional or Technical Services for official purposes b. other sections.

Payments made for official purposes(194J)

Royalty

Non-compete fees etc.

No TDS on following payments :

23

Individuals & HUFs Tax Audit * Applicable (contd.)

Every Responsible Person to obtain TAN.

Structure : DELW01005G

Single TAN for all payments for TDS/TCS.

Apply in Form 49B (in duplicate).

In 1 month from end of month of first TDS/TCS.

Quote TAN in all challans, certificates etc.

24

Tax Deduction & Collection Account No. (TAN)

Application to AO. (Sec 195(2))

To find out appropriate % of sum chargeable.

General or Specific Order.

TDS on that portion only.

Mandatory : CBDT notifies Class of Persons/ Cases. (Sec 195(7))

TDS on Part Payment

Applicable for payments to Non-residents.

25

Deductor may agree to bear TDS.

Amount to be grossed up.

Deductee gets income without TDS.

Government gets TDS.

Income Net of Tax (Sec 195A)

Who bears TDS normally?

26 NA on non-monetary perks u/s 192(1A)

Government.

Reserve Bank of India.

Corporations established by or under Central Act (No Income Tax)

Mutual Funds specified u/s 10(23D) .

Exempted Entities (Sec 196)

Note : In case of interest on securities, Govt. etc. may own securities or have beneficial interest in them.

27

Apply to AO in Form 13. PAN must.

AO to issue certificate if estimated total income of payee justifies TDS at a lower or nil rate.

Certificate issued electronically.

Certificate issued individually to each Deductor .

Certificate of Lower/Nil TDS (Section 197)

28

Payment Section Salary 192 Interest on Securities 193 Dividends 194 Interest, other than Interest on Securities 194A Payments to Contractors and Sub-contractors 194C Insurance Commission 194D Commission etc. on lottery tickets 194G

29

Certificate of Lower/Nil TDS (contd.)

Payment Section Commission or Brokerage 194H Rent 194-I Fees for Professional or Technical Services or Royalty or Non-compete fee

194J

Income from units of Mutual Funds or UTI 194K Compensation for Compulsory Acquisition of Immovable Property

194LA

Incomes payable to Non-resident/Foreign Co. 195

30

Certificate of Lower/Nil TDS (contd.)

No TDS in some cases

31

32

Form 15 G/ 15H

Sec 194 194EE Sec 193 194A Payee can furnish declaration?

Dividend Withdrawal from NSS

Interest on securities

Interest other than on securities

Company No No No No Firm No No No No Resident Individual

Yes Yes Yes Yes

Others No No Yes Yes

33

Declaration by Payee

Tax on Estimated Income : Nil.

NA if incomes u/s 194+194EE+193+194A > Taxable.

Restriction on Persons < 60 years.

Form 15H : Senior Citizens & 15G : Others

Submitted once for each FY in duplicate.

Payer of Income to file 1 copy with Chief Commissioner or Commissioner by next 7th.

34

Declaration by Payee

Interest on loan/ deposit (taken on or after 1-4-2005) from Non-resident/NO Resident by Offshore Banking Unit. (Sec 197A(1D))

Any payment for New Pension System Trust u/s 10(44). (Sec 197A(1E))

35

No TDS without Declaration

Payments made to notified institutions etc. (Sec 197A(1F)).

36

No TDS without Declaration (contd.)

Notification 21/2012 of 13-6-2012. • No TDS to be deducted again, • In case of subsequent sale of software, • without modification.

Notification 56/2012 of 31-12-2012 Wef 1-1-13, no TDS on certain payments made to banks (other than foreign banks) Bank Guarantee Commission Cash Management Service Charges DEMAT Charges. Charges for Warehousing Services for Commodities Underwriting Service Charges Clearing charges (MICR charges) Credit Card or Debit Card Commission

Payments made to notified institutions etc. (Sec 197A(1F)).

37

No TDS without Declaration (contd.)

All TDS deemed to be Income Received. Income = 100 TDS =10 Net Receipt = 90. Income =90+10=100 Exception : TDS on non-monetary perks by employer.

38

TDS= Income Received (Sec 198)

CBDT makes rules for giving credit of TDS

Rules for giving credit to another person.

Income Tax Assessee & Deductee not same.

Declaration by Deductee. (Rule 37BA(2)(i))

On behalf of Minor for credit to Parent.

39

Credit of TDS (Sec 199)

Specify AY for which credit to be given.

Deposit TDS by due dates.

File Quarterly TDS Statements.

40

Duties of Deductor (Sec 200)

41

Procedure for TDS Deposit

Government Deductors: Transfer Voucher / Challan.

Others: Challan. Challan 281 for all types of TDS.

Separate challan: Cos & other parties.

E-payment Mandatory: Cos & Tax Audit cases. (Rule 125)

Deposit of TDS

Deposit by Due date of Deposit

Transfer Voucher Same day

Challan By 7th of the month subsequent to the month of deduction.

No extra time for March cases.

Government

42

TDS deducted in Due Date of Deposit March By 30th April Other months By 7th of the month

subsequent to the month of deduction.

43

Others (Only Challan)

Deposit of TDS

44

Quarterly Deposit of TDS

Exceptional cases.

AO to allow Quarterly Deposit of TDS.

Prior Approval of Joint Commissioner.

45

Quarterly Deposit of TDS (contd.)

Quarter Due Date of Deposit

April- June 7 Jul

July - Sep 7 Oct

Oct - Dec 7 Jan

Jan - Mar 30 Apr

Deductor to furnish Quarterly TDS statements. DGIT(Systems) or authorized agency. Presently NSDL is authorized agency.

46

Quarterly TDS Statements

Type of Payment Form Salaries (both residents & non-residents) 24Q Payments other than salary to Residents 26Q Payments other than salary to Non-Residents 27Q

Due Dates of TDS Statements

Quarter Government Q1 (Apr-Jun) 31 Jul Q2 (Jul-Sep) 31 Oct Q3 (Oct-Dec) 31 Jan Q4 (Jan-Mar) 15 May

47

Others 15 Jul 15 Oct 15 Jan 15 May

Mandatory Companies Government Deductors Tax Audit in immediately preceding

year. Others ◦No. of deductee records >= 20 in a

Quarterly Statement of FY.

48

E-filing of TDS Statements

Others can file paper statements.

Option to e-file.

Summary of TDS Return in Form 27A (paper form) with e-TDS Return.

49

E-filing of TDS Statements

No. of deductee records in e-TDS/TCS return

Filing charges

(exclusive of Service

Tax)

Service Tax Filing charges

(inclusive of Service

Tax) 1-100 31.15 3.85 35.00

101 to 1000 178.00 22.00 200.00

More than 1000 578.50 72.50 650.00

50

Submission of TDS Statements

Submit Paper Statements also to TIN FCs.

No charges to TIN FCs for paper statements.

TIN FCs convert paper statements into e-TDS format.

51

Paper TDS Statements

Type of Payment

TDS Certificate Frequency Due Date

Salaries Form 16 Yearly 31 May of next FY

Other payments (whether to Residents or Non-residents)

Form 16A Quarterly 15 days from due date of

Quarterly TDS Statement

52

TDS Certificates

Quarter Government Q1 (Apr-Jun) 15 Aug Q2 (Jul-Sep) 15 Nov Q3 (Oct-Dec) 15 Feb Q4 (Jan-Mar) 30 May

53

Due Dates of Form 16A Others

30 Jul 30 Oct 30 Jan 30 May

TDS Certificates

Mandatory to Download from www.traces.gov.in ◦ Form 16 Part A. ◦ Form 16A Payee’s PAN MUST to download.

Deductor to prepare : ◦ Form 16 Part B. ◦ Form 12BA (details of perks) if salary > Rs. 1,50,000/-.

54

Digital Signature Optional.

Delay : Penalty Rs. 100/- per day.

Penalty <=TDS.

55

TDS Certificates (contd.)

56

No Direct Demand (Section 205)

Assessee not to pay tax

On income on which TDS deducted

57

Statement of Interest without TDS

(Section 206A) To be filed by every :

• bank • co-operative society engaged in banking • public co. providing long term finance for housing

Applicable on interest paid to Resident by : Bank & Co-operative society : up to Rs. 10,000/- Others : up to Rs. 5,000/-

Form 26QAA to be filed electronically.

Due Dates : 31 July, 31October, 31 January & 30 June after respective quarter.

Deductee to furnish PAN to deductor.

No exemption to Non-residents.

Proper credit of TDS to account of deductee.

Failure to furnish PAN to Deductor.

TDS at higher of : • Rate specified in Income Tax Act. • Rate in force i.e. mentioned in Finance Act. • 20%.

58

No PAN : Higher TDS (Sec 206AA)

No certificate of TDS at lower rate by AO. (Section 197)

Form 15G or 15H. (Section 197A)

PAN furnished to deductor :

• Invalid • Not of deductee.

No PAN : Higher TDS (contd.)

59

Computerised Processing of TDS Statements like ITRs wef 1-4-2010.

To reduce Manual Interface with ITD.

Adjustment in Processing : • Arithmetical Errors. • Incorrect Claims.

Refund/Demand determined.

Intimation in 1 year from end of FY in which statement filed.

Computerised Processing

60

Meaning of TDS /TCS.

Mechanism of TDS/TCS.

TDS Rates.

Duties of Deductor.

Due dates.

61

Lesson Summary

62

Amount of Payment = 100.

TDS Rate =10%.

TDS borne by :

Deductee : ?

Deductor : ?

Any exception?

63

Question 1

Amount of Payment = 100.

TDS Rate =10%.

TDS borne by :

Deductee : Payment= 100-10=90. Deductor : Payment=111-11=100

(100/90*100) Exception : No grossing up in case of

Tax paid u/s 192(1A)

64

Solution 1

• Sunita aged 58 years.

• Earns Rs. 3,00,000 Interest from Co.

deposits.

• TDS is applicable u/s 194A.

• Deposit in PPF : Rs. 1,00,000.

65

Question 2

• Income Tax for AY 2013-14 = Nil.

• Can A give Declaration?

• No, as income liable to TDS >

taxable limit even though tax is nil.

• Krishna Devi, a senior citizen can

give declaration in similar case.

66

Solution 2

Form 15H is applicable to ? Solution. Form 15H : Senior citizens. Form 15G : Others.

67

Question 3

Rent of Rs. 2,00,000 p.a for office paid by Aditya Haldia, a sole proprietor whose accounts are audited u/s 44 AB to Rachna Gupta? Whether TDS applicable?

What would be the position if accounts are not audited u/s 44AB?

Solution. TDS is to be deducted u/s 194-I in case of an individual or HUF only if accounts are audited in the immediately preceding financial year. So TDS is applicable only if in last year he was subject to tax audit.

.

68

Question 4

Question 5

Amitabh Bachhan paid Rs. 20 lacs to his architect for preparing layout for his new residential bunglow. Tax Audit is applicable to him. Whether TDS applicable u/s 194J? Solution. No. Payment made for personal purposes.

69

ICICI bank pays rent of Rs. 50,00,000 p.a to Delhi Government for its branch office in Civic Centre. Whether TDS is applicable ? Solution. No. TDS is exempt u/s 196, being payment made to Government.

70

Question 6

ICICI Bank credits Rs. 2.37 cr on 30-6-12, towards interest on savings accounts, in a separate account , in Core Banking Solution (CBS), interest not credited to individual accounts, done only for macro monitoring. Whether TDS applicable u/s 194A? Solution. No. Circular 3/2010 of 2-3-2010.

71

Question 7

Question 8

Kanishka Enterprises (P) Ltd. pays interest of Rs. 50,000/- to Naman, a minor.

His father Vishal requests it to issue TDS certificate in his (Vishal’s) name.

Is it possible? Solution. Yes. Rule 37BA(2).

72

Question 9

HDFC Bank credits audit fee to CA on 31-3-2013. HDFC deducts TDS u/s 194J. CA does work in FY 2013-14. CA shows income on Receipt basis in 2013-14. In which year should he claim TDS? Solution. TDS should be claimed in the year in which income offered to tax. So it should be claimed For FY 2013-14 (AY 2014-15). (Rule 37BA(3)(i)).

73

Niyati, a sole proprietor has 2-3 entries of TDS every quarter. Is e-filing mandatory for her?

Solution. No. Mandatory only if entries in a quarter exceed 19 (in cases where e-filing not mandatory otherwise).

74

Question 10

Question 11

Sandhu Bros, a Transporter does not have PAN. Is TDS to be deducted on transportation charges? If yes, at what rate? Solution . No TDS on transportation charges if PAN furnished by transporter. Otherwise @ 20%.

75