Transcript TAX DEDUCTION AT SOURCE

TAX DEDUCTED AT SOURCE
BASICS
UPDATE
&
PRACTICAL ISSUES
D R Venkatesh,
B.COM, LLB, FCA
,
Partner, MSSV & Co.,
Chartered Accountants
1
Bangalore
BACKGROUND
PRESS RELEASE DATED MAY 21, 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%
3,364
2,034 1,330 increase, i.e. 65.38%
C.G. TDS
Tax Collected by
way of Assessment
31,242
2
• 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
3
Presentation
• Basics
• Update
• Practical Issues u/s 194 C, 194 I and 194 J
• Lower Deduction of Tax
• Annual Tax Statement
• Conclusion
4
Basics
• Status of Deductor/Payer
o Any Person …….
o Tax Payer
o Agriculturist
o Charitable/ Educational Institutions
5
Basics
• 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
6
Basics
• Status of Recipient/Payee
o Rate of Deduction
o Applicability of Surcharge
o Government
7
Basics
• Residential status of Recipient/Payee
o Resident
o Non resident
8
Basics
• Nature of expenditure
o In the hands of the deductor – payment /
Debit may be towards

Capital Expenditure

Revenue Expenditure

Personal Expenditure
9
Basics
• When to deduct
o Payment
o Credit
10
Basics
• Rate of Deduction
o Tax rate
o Surcharge
o Education Cess
11
Basics
• Remittance
• Deductor
o
Government - On same day
o
Others
o

During the year payment

Year end provisions
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
12
UPDATE
• The Taxation law (Amendment) Act, 2006
• The Finance Act 2007
• The Finance Act 2008
• Circulars/Notifications
13
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
14
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.
15
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 . . . . . . . . . . .
16

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
17


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
18
The Finance Act 2008
– Amendment to Sec 199
– Amendment to Sec 203
– Amendment to Sec 40(a)(ia)
19
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;
20
Circulars/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
21
Circulars/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
22
U/s 194I
U/s 194J
Rent
Service Tax
Rs. 100,000
Rs. 10,300
Fees
Service Tax
Rs. 100,000
Rs. 10,300
Total
TDS on
Rs. 110,300
Rs. 100,000
Total
TDS on
Rs. 110,300
Rs. 110,300
23
Any income by way of
Any sum by way of
•
•
•
•
•
•
•
•
•
•
•
•
194A
194B
194BB
194D
194E
194G
194H
194I
194C
194J
194L
194LA
24
Circulars/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
25
Circulars/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
26
Circulars/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
27
Circulars/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
28
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
29
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
30
– Credit or Debit card
Rule 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
31
Rule 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
32
Form 16, Form 16A and Form 27D has been
modified with similar changes and have the same
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
33
TDS 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.
34
TDS/TCS Compliance Statement –
Form No. 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.
35
TDS/TCS Compliance Statement – Form
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
36
Unique Transaction Number [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.
37
Circular 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
38
Practical issues
• General
• Specific
39
Issues - General
• 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
40
Issues - General
The entries passed in books of accounts for MIS
purposes.
Examine the applicability of chapter
XVII - B
41
Issues – General
• Excess/Short deduction
• Excess/Short Remittance - Adjustment
- With in the quarter.
- With in the financial year
• Refund of Excess tax remitted
42
Issues - General
• Defaults
o
o
o
o
o
Non deduction
Short deduction
Non remittance
Short remittance
Delay in remittance
43
Issues - General
• Consequences
o
o
o
o
Interest
Penalty
Prosecution
Amount not deductible
44
Issues - 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
45
Issues - 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
46
Issues - 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) ?
47
Issues - 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
48
Issues - 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
49
Issues - 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?
50
Issues – 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
51
Issues – Specific
• Incentive paid to a Contractor
• Liquidated damages recovered from
contractor
52
Issues – Specific
• Transport contract
• Vehicle hire charges
- Section 194C or Section 194I
53
Issues – Specific
• Reimbursement of expenses to
agent
- Loading and unloading charges
- Freight/transportation charges
54
Issues – 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:
____________________________________________________________________________________
Invoice
Towards setting data centre
Add: VAT @12.5%(on 75% of the value)
Add: Service Tax @12.36% (33% of the value)
- 3,00,00,000
28,12,500
12,23,640
----------------3,40,36,140
-----------------
_____________________________________________________________________________________________________________________________ _______
Issue – 1 :
Issue – 2 :
M/s A Limited propose to deduct the Tax on 33% of
contract value.
Whether TDS should be made including Service Tax
and VAT?
55
Issues – 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
56
TDS issues.
Issues – Specific
• Rent
o 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
57
Issues – 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.
58
Issues – 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.
59
Issues – 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?
60
Issues – Specific
Audit Fee
Service Tax & Cess
Rs. 1,00,000
Rs. 10,300
Reimbursement of expenses
Rs. 50,000
Total
Rs. 1,60,300
61
Issues – 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%
62
LOWER DEDUCTION OF TAX
• Section 197
• Payments Covered:
- Section 192
- Section 193
- Section 194
- Section 194A
- Section 194C
- Section 194D
- Section 194G
- Section 194H
- Section 194I
•
-
Section
Section
Section
Section
194J
194K
194LA
195
Form No 13
63
ANNUAL 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
64
Conclusion
• Remittance without deduction
Transportation
Charges
Rs. 100L
TDS @ 2.266%
Rs. 2.266L
Total
Rs. 102.266L
65
Conclusion
• Remittance in advance
• Duty / Responsibility under chapter
XVII – B cannot be bypassed
66
Conclusion
• Method of accounting
o
o
o
Cash Basis
Mercantile Basis
Compliance Basis
67
Conclusion
GOLDEN PRINCIPLES
•
•
•
•
Applicability
Rate
Deduction & Remittance
Planning
68
Tips
for
Better and clear understanding
of
provisions of chapter XVII B
are
69
Step 1 :
Read, Read and Read until you are
clear about the provisions (Sections &
rules)
Step 2 :
Read circulars and notifications
70
Step 3 :
Read case laws of Supreme Court, High
Court, ITAT…
Step 4 :
Advise accordingly
71
Finally
Deduct and remit
Without failure
Avoid – interest,
penalty, prosecution
and disallowance
With due care
File TDS returns & Issue Within time
the forms
72
Then…
THE
DEDUCTOR
DEDUCTEE
WILL
SMILE FOREVER
73
Thank You
74