TAX DEDUCTION AT SOURCE

Transcription

1 TAX DEDUCTION AT SOURCE UPDATES & LATEST JUDICIAL PRONOUNCEMENTS CA D R Venkatesh, B.COM, LLB, FCA, Partner, MSSV & Co., Chartered Accountants Bangalore

2 BASICS Status of Deductor/Payer Any Person. o Tax Payer o Agriculturist o Charitable/ Educational Institutions o Co-operative Society

3 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

4 BASICS Status of Recipient/Payee o Rate of Deduction o Government o Applicability of surcharge

5 BASICS Residential status of Recipient/Payee o Resident o Non-resident

6 BASICS Nature of expenditure o In the hands of the deductor payment / Debit may be towards Capital Expenditure Revenue Expenditure Reimbursement of Expenses

7 BASICS When to deduct o o Payment Credit

8 BASICS Rate of Deduction o Tax rate o Under the respective sections o Part II to First Schedule o Part III to First Schedule Salary o Part II to First Schedule u/s 195 o No Surcharge, No Education Cess

9 UPDATE Finance Acts 2009 & 2010 Rules Circulars/Notifications D T C

10 TDS- UPDATE Earlier Finance Acts: 40(a)(ia) ) Amount not deductible. Finance (No.2) Act, 2004 A.Y onwards

11 Finance act, 2008 (w.e.f. 1 st April 2005) 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 sec 139(1); or (B)In any other case, on or before the end of the previous year

12 Finance act, 2010 (w.e.f. AY ) Has not been paid, - On or before the due date specified in sec 139(1) Amendment by Finance Act, 2010 is retrospective effect from AY As held in Kunubai Ramjibai v/s ITO (2010) 49 DTR 70 (Mumbai Trib.) This amendment is clarificatory in nature

13 FINANCE ACT, 2009 Section 194C (6) w.e.f No TDS During the course of business of plying, hiring or leasing the goods carriage on furnishing his PAN to the person paying or crediting such sum Section 194C (7) - Prescribed Form vide notification dt Rule 31A(4)(vi) -- Furnish particulars of amount paid/credited on which tax was not deducted in view of the compliance of provisions of sec 194C(6) by the payee

14 SECTION 206AA With effect from 1 st April, 2010 Requirement to furnish PAN 206AA (1) Any person entitled to receive any sum or income or amount, on which tax is deductible under chapter XVII-B (deductee) shall furnish his PAN to deductor, failing which tax shall be deducted at the higher of the following rates, namely:

15 (i) (ii) At the rate specified in the relevant provisions of this Act or At the rate or rates in force or (iii) At the rate of 20% Section 206AA (2) No declaration u /s 197A(1), 197A(1A) & 197A(1C) shall be valid unless the person furnishes his PAN in such declaration (Form 15G & 15H)

16 Sub Section (3) In case any declaration becomes invalid U/s 206AA (2), the deductor shall deduct TDS in accordance with provisions of Sec 206AA (1) Sub Section (4) No certificate u /s 197 shall be granted unless the application made under that section contains the PAN of the applicant

17 Sub Section (5) The deductee shall furnish his PAN to the deductor and both shall indicate the same in all correspondences, bills, vouchers and other documents which are sent to each other Sub Section (6) Where PAN provided to the deductor is invalid or does not belong to the deductee, it shall be deemed that the deductee has not furnished his PAN to the deductor and the provision of Sec 206AA (1) shall apply accordingly

18 FINANCE ACT, 2010 Threshold limit w.e.f 1 st July, 2010 Section Earlier (Rs.) New (Rs.) 194B 5,000 10, BB 2,500 5, C 20,000 30,000 50,000 75, D 5,000 20, H 2,500 5, I 1,20,000 1,80, J 20,000 30,000

19 FINANCE ACT, 2010 Interest u /s 201 w.e.f: At 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and At1.5%foreverymonthorpartofamonthonthe amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid

20 ISSUES: M/s.ABC & Co. passed the following entries in the books of accounts. Internal Audit fee A/c Dr Rs.1,00, To M/s. Smart Associates. Rs.1,00,000 (Being the internal audit fee payable for the month of January 2011.)

21 M/s.ABC & Co. passed the following entries in the books of accounts. Internal Audit fee A/c Dr Rs.1,00,000 To M/s. Smart Associates A/c. Rs.90,000 To TDS Payable A/c Rs.10,000 (Being the internal audit fee payable for the month of January 2011 and TDS payable provided for.)

22 ISSUES: Rent paid for the months of April 2010 to June 2010 to owner A is Rs. 14,500/- p.m. Total rent payable during the F.Y is Rs. 1,74,000/- Whether TDS is to be made u / s 194I for rent for the months of April 2010, May 2010 and June 2010

23 ISSUES: Threshold limit computation whether to include Service Tax? u / s194j u / s 194I Fee Rs. 27,500 Rent Rs. 1,65, ST Rs. 2,833 ST Rs. 16,995 Rs. 30,333 Rs. 1,81,995

24 NOTIFICATION S.o. 1261(E) dated 31 st May, 2010 Income Tax (6 th Amendment) Rules, 2010 w.e.f 1 st Day of April, 2010

25 Rule 30 Time and Mode of Payment DEDUCTOR - GOVERNMENT Without Challan Same Day With Challan On or before seven days from the end o of the month in which the deduction is made

26 DEDUCTOR - OTHERS Last month of the year on or before 30 th day of April where the income or amount is credited or paid in the month of March During the year on or before seven days from the end of the month in which the deduction is made

27 SPECIAL PERMISSION Prior approval of the Joint Commissioner Permit quarterly payment Salary - under section 192 Interest - under section 194A Insurance Commission - under section 194D Commission or Brokerage - under section 194H

28 Quarter ended Due date 30th June 7 th July 30 th September 7 th October 31 st December 7 th January 31 st March 30 th April

29 E PAYMENT Rule w.e.f Circular 5/ dated a company and a person (other than a company) to whom the provisions of Sec 44AB are applicable

30 CERTIFICATE Form No. 16 Salary Form No. 16A Other than Salary Specify Valid PAN of the Deductee Valid TAN of the Deductor BIN - CIN Receipt number of the relevant Quarterly Statement

31 TIME SPECIFIED Form No. Periodicity Due Date 16 Annual By 31 st day of May 16A Quarterly Within 15 days from the due date for furnishing the statement Form 26Q

32 Quarterly Returns Statement of Deduction of Tax Form No. 24Q - Salary Form No. 26Q - All other deductees Form No. 27Q - Deductees Non-Resident

33 Time Schedule Quarter Ending of the F.Y Due Date 30 th June 15 th July 30 th September 15 th October 31 st December 15 th January 31 st March 15 th May

34 FURNISHING THE STATEMENT ELECTRONICALLY The deductor is an office of the Government; or The deductor is the Principal Officer of a Company; or The deductor is a person who is required to get his accounts audited u/s 44AB in the immediately preceding Financial Year; or The number of deductee s records in the statement for any quarter of the Financial Year are twenty or more

35 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

36 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 Details of Refund Granted

37 Circulars/Notifications Circular No. 8 dated December 13,2010 (330 ITR (ST) 22) -Income tax deductions from salaries u/s 192 during the F.Y Circular No. 3/2010 dated March 02, TDS on payment of Interest on Time Deposits u/s 194A by Banks following CBS Software.

38 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

39 U/s 194I U/s 194J Rent Rs. 100,000 Service Tax Rs. 10,300 Fees Rs. 100,000 Service Tax Rs. 10,300 Total Rs. 110,300 TDS on Rs. 100,000 Total Rs. 110,300 TDS on Rs. 110,300

40 Any income by way of Any sum by way of 194A 194B 194BB 194D 194E 194G 194H 194I 194C 194J 194L 194LA

41 CIRCULARS/NOTIFICATIONS Notification no. 16/2011/F.No.133/11/2011- SO(TPL) dated : - Rule 28AA - Certificate for deduction at lower rates or no deduction of tax from income. -Form No. 13

42 Certificate for deduction at lower rate u/s 197 All sections covered Assessing officer Documents to be filed along with application in Form No latest 3 years ROI filed copies - latest 3 years financial statements - current year provisional/estimated P & L A/c - PAN of all deductors - quarterly returns (Form 24Q and 26Q) for the latest 3 years (12 quarters)

43 NO DEDUCTION TO BE MADE IN CERTAIN CASES u/s 197A Sections covered - section 194, 194EE, 193, 194A and 194K Persons covered Individuals and HUFs Persons barred companies and firms Form 15H Senior Citizens Form 15G - Others Rule 31A(4)(v) Furnish particulars of amount paid/credited on which tax was not deducted in view of issue of certificate of no deduction of tax u/s 197 by the AO to the payee

44 Circulars/notifications Circular No 3/2011 dt 13/05/2011 Issuance of TDS Certificates in Form No 16A downloaded from TIN website.

45 DIRECT TAXES CODE BILL, 2010 TDS Provisions

46 CHAPTER XIII Collection and Recovery of Tax A Deduction of Tax at Source (Section )

47 SECTION 195 Liability to Deduct tax at source Section 195(1): Specified Payment At the time of Payment At the appropriate rate

48 Section 195(2) & (3): Specified payment (Column 2) Third Schedule, if the deductee is a resident Fourth Schedule, if the deductee is a non-resident

49 Section 195(5): Deductee has failed to furnish his PAN Higher of the following (a)20% or (b)the rate specified in Sub-section (2),(3) or (4) of Section 195

50 SECTION 200 No deduction of tax in certain cases 19 cases Individual or a HUF is not liable to audit of accounts u/s 88 for the financial year immediately preceding the financial year in which the payment is made

51 CONTROVERSIES No TDS v/s Yes TDS 194C v/s 194J 194C v/s 194I 194C v/s 194H 194J v/s A v/s 206AA

52 JUDGEMENTS 194A 194C 194H 194I 194J 195 Total SC AAR HC Trib Total

53 Latest judicial pronouncements

54 CONSTITUTIONAL VALIDITY OF SEC 40(a)(ia) Rakesh Kumar and Co V/s Union of India (P&H) 325 ITR 35 dt 20 th November, 2008 Tube Investments of India Ltd n/s ACIT (2010) 318 Taxation 343 (Madras)

55 Is Disallowance u/s 40(a)(ia) attracted only to the expenses covered u/s 30 to 38? M/s Tej Constructions v/s ACIT (2010) 36 DTR 220 (Hyderabad)

56 Is Disallowance u/s 40(a)(ia) attracted only in cases where the payments are due and outstanding? Jaipur Vidyut Vitran Nigam Ltd v/s DCIT (2009) dt IIT 0888 (Jaipur) 26 DTR 0079 (Jaipur) M/s Tej Constructions v/s ACIT dt DTR 220 (Hyderabad) 129 TTJ 057 (Hyderabad) Contrary decision in the case of - Smt. J Rama v/s CIT dt (Kar) (unreported)

57 Is Disallowance u/s 40(a)(ia) attracted when the deductee has remitted the taxes? Hindustan Coco-cola Beverage Pvt Ltd v/s CIT (2007) 293 ITR 226 (SC) Children s Education Society V/s DCIT (TDS) 319 ITR 409 (Karn) dt 1 st December, 2009 Deductee paid tax even though deductor failed to deduct tax at source tax - cannot be recovered once again from deductor

58 RECENT JUDGEMENTS CIT V/s NIIT Ltd 318 ITR 289(Delhi) dt 22 nd September, 2009 Section 194I Assessee providing computer education and training-franchisee agreement under which fees collected from students by assessee and shared with franchisees-not a payment of renttax need not be deducted at source

59 RECENT JUDGEMENTS Mythri Transport Corporation V/s ACIT Circle 1(1) Visakhapatnam 124 ITD 40(Visakhapatnam) dt 9th January, 2009 DCIT V/s Satish Aggarwal & Co ITAT Amritsar Bench 122 ITD 35 dt 28 th November 2008 Section 194C - Payment to sub contractors liable for tax deduction at source U/s 194C(2) & disallowance U/s 40(a)(ia)

60 RECENT JUDGEMENTS Supreme Renewable Energy Ltd V/s ITO Company Ward VI(1) Chennai ITAT Chennai Bench C 124 ITD 394(Chennai) dt 14 th August 2008 Section 199-Credit for tax deducted-assessee has received requisite certificate, assessee becomes entitled to credit of TDS, even if assessee has not directly offered said income for tax as assessee considers that same is not liable for tax

61 RECENT JUDGEMENTS ITO Ward 49(3) New Delhi V/s G D Goenka Public School ITAT Delhi Bench G 117 ITD 101(delhi)dt 14 th February 2008 Section 201 read with Section 17(2) and 192-valuation was made by assessee on basis of interpretation of provisions given in Taxmann s Direct Taxes Ready Reckoner by Vinod K Singhaniawhether valuation of perquisite by assessee by relying upon aforesaid reckoner could be said to be bonafide and therefore assessee could not be deemed to be an assessee-in-default U/s 201(1), consequently interest U/s 201(1A) could not be levied.

62 RECENT JUDGEMENTS Idea Cellular Ltd V/s DCIT, Circle-50(1), New Delhi ITAT Delhi Bench A dt 28 th March ITD 620(Delhi) Section 194H-Asseessee company was engaged in business of providing cellular mobile telephone services to subscribers- Assessee offered discount for prepaid calling services to its distributors-agreement entered into between assessee and Prepaid Market Associates (PMAs) was in nature of contract of sale and not contract of agency, discount allowed by assessee to PMAs would not fall within definition of commission or brokerage.

63 RECENT JUDGEMENTS DCIT & Another V/s Laxmi Protein Products Pvt Ltd ITAT Ahmedabad A Bench 3 ITR (Trib) 768 (Ahmedabad) dt 11 th February 2010 Section 194C-Payment made to laborers through their representative-single payment not exceeding tax need not be deducted at source

64 RECENT JUDGEMENTS T.H.E Makers Pvt Ltd V/s ITO(TDS) ITAT Delhi B Bench dt 11 th December ITR (Tribunal) 611(Delhi) Section 201,201(1A) - Assessee under duty to pay tax deducted - No provisions under Act absolving assessee from liability on demonstration of reasonable causes

65 RECENT JUDGEMENTS CIT, Delhi v/s Bharthi Cellular Ltd (SC) dt Taxman 97 S 194J D d ti f t t F f Sec 194J - Deduction of tax at source Fee for Technical or Professional Services

66 RECENT JUDGEMENTS Vijaya Hemanth Finance & Estates Ltd v/s ITO 238 ITR 282 (Madras) TDS Assessee in default defects in declaration in Form 15H

67 DEFAULTS Non deduction Short deduction Non Remittance Short Remittance Delay in Remittance

68 Consequences Interest Penalty Prosecution Disallowance

69 DISALLOWANCE U/S 40(a)(ia) & Form No 3CD Clause No. 17(f) Clause No. 27 In the case of Non-deduction Short deduction Non Remittance Short Remittance Delay in Remittance

70 CONCLUSION Duty / Responsibility under Chapter XVII B cannot be bypassed by the deductor to any person

71 CONCLUSION Method of Accounting o Cash Basis o Mercantile Basis o Compliance Basis

72 SUGGESTIONS Tips For Better and clear understanding of Provisions of chapter XVII B are

73 Step 1 : Read, Read and Read until you are clear about the provisions (Sections & rules) Step 2 : Read circulars and notifications Step 3: Advise Accordingly

74 Step 1 : Read case laws of Supreme Court, High Court, ITAT Step 2 : Advise accordingly

75 CONCLUSION GOLDEN PRINCIPLES Applicability Rate Deduction & Remittance Planning

76 FINALLY Deduct and Remit Without failure Avoid interest, t penalty, With due care prosecution and disallowance File TDS returns & issue the Certificates Within time

77 THANK YOU