tds provisions and consequences of violation of tds provisions

TAX DEDUCTED AT SOURCE [INCOME TAX ACT,

1961]

A PRESENTATION BY,

CA. Channappa R. Nulvi B.Com, FCA, CAIIB M/s. C.R. Nulvi & Associates Chartered Accountants.........................................................No.124, 4th floor, Between 10th and 11th cross, Margosa Road, Malleswaram-560003.P.h. No. +91 9972183551

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What is TDS?Tax Deducted at Source (TDS) aims at collection of revenue at the very source of income; an indirect method of collecting tax; combines the concepts of

pay as you earn and collect as it is being earned.

TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account.

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Why TDS was conceptualized? Income is earned over a period of time but the

assessment/ determination of tax liability takes place much later

Hence,To avoid a liquidity problem for the tax payer and to ensure a regular flow of revenue for the

government The Income tax Act has provided for periodic recovery

of tax from income liable to tax by requiring the tax to be deducted at source from certain income/payments as and when such income/payments are credited.

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Concept of TDS The concept of TDS is that the person responsible for making certain specified

payments is required to deduct tax at the prescribed rates from the payments made to a specified recipient in accordance with the provisions of the Income Tax Act.

It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

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Who is to deduct TDS? Every person responsible for making payment of nature covered by

TDS provisions of Income Tax Act shall be responsible to deduct tax.

However in case of payments made under sec. 194A, 194C, 194H, 194I and 194J in respect of individual and HUF, only if the turnover or professional receipt exceeds sum of Rs. 1 Crore or Rs. 50 lakh respectively (w.e.f.1.06.2016) in previous year, he is required to deduct tax at source.

These persons are mainly: Principal Officer of a company for TDS purpose including the

employer in case of private employment or an employee making payment on behalf of the employer.[Cont..]

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Who is to deduct TDS?[Cont..] DDO (Drawing & Disbursing Officer), In case of Govt.

Office any officer designated as such. In the case of "interest on securities" other than

payments made by or on behalf of the Central govt. or the State Government, it is the local authority, corporation or company, including the Principal Officer thereof.

Such person is called Deductor while the person from whom the tax is deducted is called Deductee.

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Responsibilities of the Deductor/ Collector Deduct Tax at the time of payment/credit

Any person responsible for paying any sum, on which tax is

deductible, shall deduct tax at the prescribed rates at the time of payment/credit.

Tax must be deducted at the time of payment in cash or cheque

or credit to the payee's account whichever is earlier. Credit to payable account or suspense account is also considered to be credit to payee's account and TDS must be made at the time of such credit.

[Cont..]

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Responsibilities of the Deductor/ Collector [Cont..] Deposit deducted tax within the prescribed time limits:

In case of Government deductors: on the same day where the tax is paid without production of an

income-tax challan; and on or before seven days from the end of the month in which the

deduction is made or income-tax is due under sub-section (1A) of �section 192, where tax is paid accompanied by an income-tax challan.

In case of Others : on or before 30th day of April where the income or amount is credited

or paid in the month of March; and for TDS made in March : On or before 30th April

in any other case, on or before seven days from the end of the month in which-

- the deduction is made; or- income-tax is due under sub-section (1A) of section 192.

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Payment covered under the scheme of TDS

Salary (Sec.192)

Interest on Securities (Sec.193)

Dividends (Sec.194)

Interest other than Interest on Securities (Sec.194A)

Winnings from Lotteries or crossword puzzles (Sec.194B)

Winnings from Horse Races (Sec.194BB)

Payments to Contractors and Sub-contractors (Sec.194C)

Insurance Commission (Sec.194D)

Payment to Non-resident sportsmen or sports association (Sec.194E)

Payment in respect of NSC (Sec. 194EE)

Commission on Sale of Lottery Tickets (Sec.194G)

Commission or Brokerage (Sec.194H)

Rent (Sec.194-I)

TDS on transfer of Immovable property (Sec. 194-IA)

[Cont..]

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Payment covered under the scheme of TDS [Cont..]

Fees for Professional or Technical Services (Sec.194J) Payment of Compensation on acquisition of certain immovable property

(Sec.194LA) Payment of Interest by Infrastructure Debt Fund to Non-Resident [Sec. 194LB] Income from Units of a Business Trust [Sec.14LBA] Income of Unit holder from Alternative Investment Fund [Sec.194LBB] Interest on Foreign Currency Loan, Paid by Indian company [Sec.194LC] Interest on Rupee Denominated Bond or Government Security [Sec.194LD] Other Sums (Sec.195) Long term capital gain (Sec.196B) Income or Long term capital gain from Foreign Currency bonds/Global

Depository Receipts (Sec.196C) Income of Foreign Institutional Investors from Securities (Sec.196D)

Salary (Sec.192)Who is the payer Employer

Who is the recipient Employee

Payment Covered Taxable Salary of the employee

At what time TDS to be deducted At the time of payment

Maximum amount which can be paid without tax deduction

The amount of exemption limit (i.e. ` 2,50,000/5,00,000/10,00,000 for A.Y. 2016-17)

Rate at which tax to be deducted. As per Calculation

When the provisions are not applicable --

Is it possible to get the payment without tax deduction or with lower tax deduction

The employee can make application in Form No.13 to the Assessing Officer to get the certificate of lower tax deduction or no tax deduction.

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Interest on Securities [Section 193]

Person responsible for tax deduction - Central or State Government, Local Authority, Company or corporation established by Central or State Government.

Category of payee – Any person being Resident Indian. Nature of payment – a) Interest on debentures or securities for money issued

by or on behalf of a Local Authority or a Statutory Corporation, or

b) Interest on any Debenture of a Company, orc) Interest on any securities of the Central or State

Governments, ord) Any other Interest on Securities.

Rate of TDS – 10% No TDS – 1) Exempted for certain listed securities u/s 193.2) In case of any debenture issued by a company in

which the public are substantially interested, and the interest is paid to a Resident Individual by account payee cheque and aggregate interest paid during the financial year does not exceed Rs.5,000/-.

3) CBDT Circularsa. Interest paid to Educational Institution whose

income is exempt for tax u/s 10(23C) vide circular no.12/113/68 dated 08.10.1968.

b. Interest paid to Regimental fund which is exempted u/s 10(23AA) vide circular no.735 dated 30.01.1996.

c. Interest paid to Provident fund – No TDS for a payment by way of interest on securities to provident fund whose income is exempt u/s 10(25)(ii) vide circular no.741 dated 18.04.1996.

d. Interest paid to Ramakrishna Mutt – No TDS from a payment of income by way of interest on securities to Ramakrishna Math and Ramakrishna Mission whose income is exempt u/s 10(23C)(iv) vide circular no.745 dated 19.07.1996.

e. TDS on Deep Discount Bonds – TDS shall be made u/s 193 or 195, only at the time of redemption of such bonds, irrespective of whether such income from bonds are declared on accrual basis or is declared only in the year of redemption.

Dividend [Section 194] Person responsible for deduction - Principal Officer of Indian

company or a company which has made the prescribed arrangements for declaration and payment of dividend within India.

Category of payee – Any person who is resident in India. Rate of TDS – 10% No TDS –

a) Where dividend is less than Rs.2,500/-.

b) Where dividend is paid to individual shareholder, by way of Account payee cheque.

c) Dividend referred u/s 115-O i.e., Dividend distribution tax.

d) Dividend paid to LIC, GIC or any of its four subsidiaries or any other insurer, for Shares held directly or beneficially.

Interest other than on securities[Section 194A]

Under section 2(28A) “Interest” means – Interest payable in any manner in respect of any

money borrowed or debt incurred (including deposit, claim or other similar right or obligation) and includes any Service Fee or other charges in respect of money borrowed or debt incurred or in respect of any credit facility which has not been utilised.

1. Person responsible to deduct tax – all assesse (except Individual & HUF whose accounts are not subject to tax audit u/s 44AB(a) and 44AB(b) during the preceding financial year).

2. Category of payee – Any resident in India.

3. Rate of TDS – 10%

4. No TDS if –

i. aggregate amount of the interest paid or credited does not exceed Rs.10,000/-, (a) where the payer is a banking company or Co-operative Society engaged in Banking Business; or (b) In respect of a deposit with post office notified by Central Government.

ii. In any other case, it is Rs.5,000/-. The above limit of Rs.10,000/- or Rs.5,000/- is not applicable where payer entity as mentioned above using Core Banking Solution w.e.f 01.06.2015.

iii. Rs.50,000/- - interest on compensation awarded by Motor Accidents Claims Tribunal (w.e.f 01.06.2015).

5. This provision is applicable where interest is credited to interest payable account or suspense account or by any other name in the books of account of person liable to pay such income.

6. w.e.f 01.06.2015, no TDS on income credited by way of interest on compensation amount awarded by Motor Accidents Claims Tribunal but it is applicable when such income is paid, only if aggregate amount exceeds Rs.50,000/-.

7. w.e.f 01.06.2015, time deposit includes recurring deposit also.

8. No TDS on interest on savings and deposits.

9. No TDS on income created by firm to a partner of the firm.

10. No TDS for interest paid to the banking company to which Banking Regulation Act applies or to a Co-operative society engaged in carrying of a business of banking.

11. Any financial corporation established by or under Central, State or Provincial Act.

12. Interest paid to LIC.

13. Interest paid to UTI

14. Interest paid to any company or a Co-operative society carrying on a business of insurance.

15. Any other institution or AOP or BOI which Central Government may notify in the official gazette.

TDS from Winning from Lotteries/Puzzle/Game [Section 194B]

1. A person responsible for paying to any person any income by way of winning from lottery or crossword puzzle in an amount exceeding Rs.10,000/-, shall at the time of payment thereof, deduct the Income tax thereon.

2. Deductor – All persons3. Payee – All assessee4. Rate of TDS – 30%5. Prize money in kind – Proviso to section 194B6. Essential elements of lottery :

a)A prize or some advantage in the nature of prize.b)Distribution thereof by chance

c) Consideration paid or promised for purchasing the chance.d) Personal knowledge and skill of the participants is not

involved.If the above elements are not fulfilled, it cannot be called as lottery.Case Laws – H. Anraj v. Government of Tamil Nadu 61 STC 165

(SC). Canaan Kuries & Loans (P.) Ltd 272 ITR 534 (Ker.)

In case of a chance to win in lieu of contribution paid is a lottery. If it is a chance to win in addition to a contribution, it is not a lottery.[221 CTR 80 (Karnataka High Court) in case of B K Suresh Vs ITO].

TDS from Winnings from Horse Race [Section 194BB]Payer – Any personPayee – All assessees Any person, being a bookmaker or a person to

whom a licence has been granted by the Government who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding Rs.10,000/- w.e.f 01/06/2016, [Rs.5,000 upto 31/05/2016] shall, at the time of payment thereof, deduct TDS @30%.

Payment to Contractors [Section 194C]1) Person liable to deduct tax – person responsible for paying any

sum i.e., Specified Person. Specified Person means –

a) The Central Government or any State Government;

b) Any local authority;

c) Any corporation established by or under a Central, State or Provisional Act;

d) Any company;

e) Any co-operative society;

f) Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both;

f) Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of India;

g) Any trust;

h) Any university or deemed university;

i) Any firm

2) Category of payee – Resident in India

3) Rate of TDS –

a. For Resident Individual or HUF – 1%.

b. For others – 2%

4) No TDS –

a. No TDS on contracts, the consideration for which does not exceed Rs.30,000/- and the aggregate of such sum credited during the financial year does not exceed Rs.75,000/-. W.e.f 01.06.2016, Rs.75,000/- replaced by Rs.1,00,000/-.

b. No TDS shall be made from any sum credited or paid or likely to be credited or paid during the previous year, to the account of a Contractor who is engaged in the business of plying, hiring or leasing goods carriages.

c. W.e.f 01.06.2015 the Contractor should own 10 or less Goods Carriages at any time during the PY and furnish a declaration to that effect along with his PAN, to the payer.

5) No TDS u/s 194C for the payment made under the following contracts.

a. Contract for hiring or renting equipments.b. Contract for sale of goods.c. Work executed under National Rural Employment

Programme and Rural Landless Employment Guarantee Programme [Circualr No.502, dated 27.01.1988]

d. Payments made to Airlines or Travel Agents for purchase of tickets for air travel of Individuals [Circular No.713, dated 02.08.1995]

e. Contract, the consideration of which does not exceed Rs.30,000/- singly, and RS.1,00,000/- in aggregate.

f. Sums paid/payable to Transport Contractor, if he submits his PAN to the payer (irrespective of his type/size).

g. Payments made to Banks for discounting bills, collecting/receiving payments through cheques/drafts, opening and negotiating Letters of Credit and transactions in negotiable instruments.

h. Sum credited or paid to a Contractor, by an Individual/HUF, exclusively for personal purposes of such Individual or any Member of HUF.

TDS from Insurance Commission[Section 194D]

Person responsible to deduct tax – Insurance Companies. Payee – Resident Assessee. Any person responsible for paying to a resident any income

by way of remuneration of reward, whether by way of commission or otherwise, for soliciting or procuring insurance business shall, at the time of payment of such income, deduct TDS @10%. The amount aggregate not exceeding Rs.15,000/- [upto 31/05/2016, it was Rs.20,000/-].

No TDS on commission paid to Insurance companies for reinsurance as it was in the nature of compensation towards the cost of procurement incurred by Insurance companies [General Insurance Corporation Ltd. Vs ACIT 28 SOT 453 (Mum-Trib).

Payment in respect of Life Insurance Policy[Section 194DA]

Payer – Any person responsible i.e., Insurance Companies

Payee – Resident assessee (Individual or HUF) Nature of payment – Any sum under Life Insurance

Policy including the amount allocated by way of Bonus to such Policy.

No TDS on any sum paid under LIC which is exempt u/s 10(10D).

Section 10(10D) specifies “any sum received under LIC including bonus thereof, other than –

a) any sum received u/s 80DD(3) or 80DDA(3).b) Keyman Insurance policy.

c) any sum received under Insurance policy issued on or after 1st April, 2003 before 31/03/2012 wherein, premium payable for any of the previous years during the terms of policy exceeding 20% of sum assured.

d) any sum received under Insurance policy issued on or after 1st April, 2012 in respect of which premium is payable for any of the years during the terms of policy exceeding 10% of the actual Capital sum assured.

Provided that provision of sub clause (c) & (d) shall not apply if any sum received on the death of a person. Further provided, any sum received on a policy issued on or after 1st April, 2013 who is a person with disability as referred u/s 80U, person suffering from a disease or ailment as referred u/s 80DDB wherein the premium is paid during any of the previous years exceeding 15% of the sum assured.Time of deduction – At the time of payment.

Payment of NSS Deposits [Section 194EE]

Person responsible to deduct tax - Post office.

Payee – Any person

Rate of TDS – w.e.f 01.06.2016, 10%. Earlier it was 20%.

No TDS if the payment does not exceed Rs.2,500/- or payment made to the heirs of the assessee.

Commission on sale of Lottery tickets[Section 194G]

Person responsible to deduct tax - Stockist, Distributer, etc. of Lottery tickets.

Payee – Any person Stocking, Distributing, Purchasing or Selling Lottery tickets.

No TDS for the payment not exceeding Rs.15,000/- prior to 31.05.2016, it was Rs.1,000/-.

Rate of TDS – 5% w.e.f 01.06.2016. Earlier it was 10%.

Commission or Brokerage [Section 194H] Payer – Any person responsible for payment except

Individual & HUF other than a person subject to Audit u/s 44AB(a) and 44AB(b).

Category of payee – Any person who is resident in India. Rate of TDS – w.e.f 01.06.2016 @5%, prior to that 10%. No TDS –

a. when aggregate payment does not exceed Rs.15,000/- during the financial year. Before 31/05/2016, it was Rs.5,000/-.

b. Any commission or brokerages payable by BSNL/ MTNL to their Public Call Office Franchisees.

The commission is for services rendered other than professional services and for any services in the course of buying and selling of goods or in relation to any transactions relating to any assets, valuable article or things, not being securities.

CASE LAWS: Trade discount is not a commission, not liable for TDS

u/s 194H [CIT Vs Moving Picture Company India Ltd., Delhi High Court].

Bank charges and bank guarantee commission, not liable for TDS u/s 194H [Tata Teleservices Ltd. Vs DCIT Bangalore Tribunal].

Discount allowed to stamp vendors, not liable for TDS u/s 194H [CIT Vs Ahmadabad Stamp Vendors Association 340 ITR 378].

Sale of Sim Cards and Recharge Coupons at discounted price to the distributors and the discount given is nothing but Commission, liable for TDS u/s 194H [Vodafone Essar Ltd. Vs ACIT 332 ITR 355, Kerala High Court]. But, Karnataka High Court in case of Bharti Airtel Ltd. 52 Taxmann.com held the contrary decision.

Target incentives to the distributors and dealers is not a commission, not liable for TDS u/s 194H.

TDS from Rent [Section 194-I] Person responsible to deduct tax - All assessees

except Individual and HUF whose accounts are not subject to Tax Audit u/s 44AB(a) and 44AB(b).

Category of payee – Any person being resident. Rate of TDS – 2% for Plant & Machinery and 10%

for Land & Building or Land appurtenant to building, Furniture and Fittings.

No TDS –

a. When aggregate amount of payment during the year does not exceed Rs.1,80,000/-.

b. If the payee is the Government or Local Authority.

c) w.e.f 01.06.2015, No TDS on rent credited or paid to Business Trust, being a Real Estate Investment Trust, owned directly by such Trust covered u/s 10(23FCA).

CASE LAWS: No TDS on refundable deposits made by the

tenant. But, non-refundable deposits pertains the nature of rent liable for TDS u/s 194I.

Transfer of Immovable Property, other than Agricultural land [Section 194-IA]

Person responsible to deduct tax – Any person Transferee.

Nature of payment – Any sum by way of consideration for transfer of any Immovable Property being land (other than Agricultural Land) or any Building or part of a Building.

Category of payee – Any Resident Transferor (other than person referred in section 194 LA i.e., compensation and acquisition of certain immovable property).

Rate of TDS – 1% No TDS – if the consideration does not exceed Rs.50

Lakhs.

Duties of Deductor –

a. Assessee is liable to deduct TDS u/s 194-IA is not liable to have TAN Number u/s 203A.

b. The Deductor shall pay the TDS to the credit of Central Government in Form No.26QB, and TDS certificate shall be issued to the payee.

Fees for Professional or Technical Services[Section 194-J]

1. Person responsible to deduct tax – All assesses except Individual or HUF, whose accounts are not subject to Tax Audit u/s 44AB(a) and 44AB(b) of the act during preceding financial year.

2. Payee – Resident Indian3. Section 194-J is applicable for the following payments.a. Fees for Professional services.b. Fees for technical services.c. Remuneration, fees or commission to a director of a

company excluding salary payment.d. Royaltye. Sum referred u/s 28(va).

Section 28(va) referred to any sum received or receivable in cash or kind under any agreement for –

a. Not carrying out any activity in relation to any business or profession; or

b. Not sharing know-how, patent, copyright, trademark, license, franchisee or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services.


5. No TDS –

a. if fees does not exceed Rs.30,000/- in a year.

b. sum paid by Individual or HUF towards Professional services exclusively for their personal purpose.

6. No TDS on subsequent transfer of software without any modification in the software (vide notification no.21/2012) which states –

a. That 194J is not attracted if the software is acquired in a subsequent transfer and transferor has transferred the software without any modification.

b. TDS shall be made u/s 194J for previous transfer of such software or TDS shall be made u/s 195 on payment for any previous transfer of such software from a non-resident.

c. The transferee obtains the declaration from the transferee that the tax has been deducted during the first transfer along with PAN number by the transferor.

Meaning of terms:1. Professional Services means services rendered by a person in

the course of carrying on any of the following professions –a) Legal,b) Medical,c) Engineering,d) Architectural,e) Accountancy,f) Technical Consultancy,g) Interior Decoration, or h) Profession as notified by the Board for the purpose of Sec.44AB

i.e., Film Artists, Authorized Representatives, Information Technology Professionals, etc.

i) Services rendered in relation to sports activities by Sports persons, Umpires & Referees, Coaches and Trainers, Team Physicians & Physiotherapists, Event Managers, Commentators, Anchors and Sports Columnists.

2. Technical Services means any consideration (including lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). It does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.

3. Royalty for the purpose of Sec.9(1)(vi) has been defined as the consideration for –

a) The transfer of all or any rights in respect of a patent, invention, model, design, secret formula or process or trade mark in similar property.

b) The imparting of any information covering the working of or the use of a patent, invention, model, design, secret formula or process or trade mark or similar property.

c) The use of any patent, invention, model, design, secret formula or trademark or similar property.

d) The imparting of any information regarding technical, industrial, commercial or scientific work, including films or video tapes for use in connection with radio broadcasting but not consideration for the sale, distribution or exhibition or cinematographic films or

e) The rendering of services in connection with any of the above activities.

Royalty includes any lump sum consideration but excludes consideration, which would constitute income by way of Capital Gains.

4. Film Artist means any person engaged in his professional capacity in the production of a Cinematograph Film, whether produced by him or by any other person, as –

a) an Actor,b) a Cameraman, c) a Director including an Assistant Directord) a Music Director including an Assistant Music Directore) an Art Director including an Assistant Art Directorf) a Dance Director including an Assistant Dance Directorg) an Editorh) a Singeri) a Lyricistj) a Story Writerk) a Screenplay Writerl) a Dialogue Writerm) a Dress Designer

5. Authorised Representative means a person who represents any other person, on payment of any fee or remuneration before any tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy.

6. Information Technology Professionals : Notified Technology enabled products or services [Notification No. SO 890 (E), dated 26.09.2000.

a) Back-office Operations,

b) Call Centres,

c) Content Development or Animation,

d) Data Processing,

e) Engineering and Design,

f) Geographic Information System Services,

g) Human Resources Services,

h) Insurance Claim Processing,

i) Legal Databases,

j) Medical Transcription,

k) Payroll,

l) Remote Maintenance,

m) Revenue Accounting,

n) Support Centres, and,

o) Web-site Services.

Compensation on acquisition of certain Immovable Properties [Section 194 LA]

Payer – Any person responsible to deduct TDS u/s 194 LA.

Nature of payment – Compensation or Enhanced Compensation or the consideration or enhanced consideration, on account of compulsory acquisition under any law, for any immovable property other than Agricultural land. Agricultural Land includes Urban Agricultural land also.

Rate of TDS – 10% No TDS – if the aggregate payment does not exceed

Rs.2,50,000/- w.e.f 01.06.2016. Earlier it was Rs.2,00,000/-.

Interest from Infrastructure Bond [Section 194 LB]

It is inserted by Finance Act, 2011 w.e.f 01/06/2011. Where any income by way of interest is payable to a

non-resident, not being a company, or to a foreign company, by any infrastructure debt fund set up in accordance with the prescribed guidelines notified by the Central Government in Official gazette.

Rate of TDS – 5%

Income from Units of a Business Trust [ Section 194LBA] Person responsible to deduct tax – Business Trust

including Real Estate Investment Trust (REIT). Category of Payee – Unit Holder of a Business

Trust. Nature of Payment – Distributed Income referred to

in Sec.115UA, being of the nature referred to in Sec.10(23FC) upto 31.05.2016/w.e.f. 01.06.2016 Sec. 10(23FC)(a)/w.e.f. 01.06.2015 Sec.10(23FCA).

Time of deduction – At the time of credit or payment whichever is earlier.

Income of Unit holder from Alternative Investment Fund [Section 194LBB] [w.e.f.01.06.2015]

1) Person responsible for TDS – Person responsible for making the payment.

2) Category of Payee – Unit Holder of an Alternative Investment Fund.

Rate of TDS – Upto 31.03.2016 – 10% w.e.f.01.06.2016, Rates are as under –

• At 10%, where the payee is Resident,• At the rates in force in case of Non-Resident (not

being a Company) or a Foreign Company.3) Time of deduction – At the time of credit or

payment whichever is earlier.

Interest on Foreign Currency Loan, Paid by Indian Company [Section 194LC] Person responsible to deduct tax – Indian Company or a

Business Trust, which pays Interest on Monies borrowed from 01.07.2012 to 01.07.2017 in Foreign Currency, from a source outside India.

Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company, the person responsible for making the payment, shall at the time of credit of such income to the account of the payee or the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income tax thereon at the rate of 5%.

Rate of TDS – 5%.

Interest on Rupee Denominated Bond or Government Security [Section 194LD]

Payer Any Person

Payee Foreign Institutional Investor, Qualified Foreign Investor

Rate of TDS 5%

Nature of Payment Income by way of interest payable on or after 01.06.216 but before 01.06.2017

Investment towards Rupee Denominated Bond by Indian Concern or Government Security

Rate of Interest Interest rate in respect of Bond shall not exceed the rate as may be notified by Central Government.

Time of Deduction Either at the time of credit or payment by any made at any mode whichever is earlier.

Payments to Non-Residents[Section 195(1)]

1. Payer – Any person

2. Payee – Payment to Non-resident or a Foreign Company.

3. Nature of Payment – Any interest (including interest on securities) other than interest u/s 194LB, 194LC and 194LD.

4. Rate of TDS – Rate as per Finance Act of relevant year or DTA entered by the Central Government u/s 90 or agreement notified by the Central Government u/s 90A whichever is most beneficial to the assessee.

5. Deduction u/s 195 is applicable whether or not the non-resident has place of business or business connection or any other presence in India.

6. Time of deduction –a) At the time of credit or payment, whichever is

earlier.

b) In case of Interest payable by the Government or Public Sector Bank or Public Financial Institution within the meaning of section 10(23D), deduction of tax shall be made only at the time of payment thereof in cash or by cheque or draft or by any other mode.

Section 195(2) Where the person is responsible for payment of

any sum chargeable under this Act (other than interest u/s 194LB, 194LC,194LD and Salary) to a non-resident considers that the whole of such amount would not be income chargeable in the case of recipient, then the person shall make an application in Form no.15C or 15D to the Assessing Officer to determine (by General or Special Order), the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted by the payer.

Section 195(3)

Subject to Rules made u/s 195(5), any person entitled to receive any interest or other sum on which TDS has to be made u/s 195(1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate for not making the TDS. As per Section 195(4), such certificate granted by the Assessing Officer shall remain enforce till the expiry of period therein or if it is cancelled by the Assessing Officer before the expiry of period, till such cancellation.

Income form Units including LTCG to an Offshore Fund [Section 196B]

1. Payment in respect of which tax is to be deducted –

Income in respect of –

a) Units referred to in Sec.115AB [OR]

b) Long Term Capital Gain arising from transfer of such units.


3. Time of tax deduction – At the time of credit or payment, whichever is earlier.

Income from Foreign Currency Bonds or GDR including LTCG [Section 196C]

1. Payment in respect of which tax is to be deducted –

a) Any person responsible for paying any income (other than Dividend referred in Sec.115-O), in respect of Global Depository Receipts referred to in Sec.115AC, to a Non-Resident.

b) Long term Capital Gain arising from transfer of such bonds.



Income of FIIs from Securities (not being Dividend, STCG or LTCG) (Section 196D)

1. Payments in respect of which tax is to be deducted – Any person responsible for paying any income (other than any Dividend referred in Sec.115-O), in respect of Securities referred to in Sec.115AD (1) (a), other than income by way of interest referred u/s 194LD is payable.



Consequences of violation of TDS Provisions

1. Disallowances u/s 40(a)(ia).2. Assessee deemed to be an assessee in default

u/s 201.

3. Penalty for failure to incompliance of TDS u/s 221.

4. Levy of fee u/s 234E for late filing of TDS returns.5. Persecution possibilities in case of failure in

complying with TDS provisions u/s 276B.

Disallowances u/s 40(a)(i)1) Payment covered u/s 40(a)(i) a. Outside Indiab. In India to a non-resident not being a company or to a foreign company on

which tax is deductible at source under chapter XVIIB.

2) Payment when disallowablea. Not deductedb. Deducted but not paidc. Not paid on or before due date u/s 139(1)

3) Provisions u/s 40(a)(i) are applicable to payment made on Capital account. Case law [Spaco Carburettors Ltd. Vs. ACIT 3 SOT 798 Mumbai Tribunal].

4) The provisions u/s 40(a)(i) are applicable for the Interest paid by PE of a foreign bank to head office and offshore branches.

[Case law- ABN AMRO Bank Vs. Assistant director of Income Tax 280 ITR 117].

Disallowances u/s 40(a)(ia)1) Applicability of sec 40(a)(ia)- applicable to all assessee

except an individual who is not liable for Tax Audit u/s 44AB.

2) Payment covereda. Any interest, commission or brokerages, fees for

professional services or technical services payable to resident.

b. Amount payable to contractor or sub-contractor being a resident for carrying out any work.

c. Any rent or royalty payable to resident.d. With effect from A.Y: 2015-16, the scope of disallowances

u/s 40(a)(ia) has been extended all types of payments with requires TDS - Vector shipping company case.

3) Disallowances u/s 40(a)(ia) is applicable - a. Not deductedb. Deducted but not paid within the specified date u/s 139(1)

4) The disallowances u/s 40(a)(ia) is restricted to 30% of the amount paid or payable.

5) Where the payer is not deemed to an assesse in default under provision to sec 201(1) than the payer shall be deemed to have deducted and paid the tax for the purpose of sec 40(a)(ia).

6) Disallowances not applicable in case of capital expenditure.

7) Disallowances attracted where the tax is not deposited in earlier years.

8) No disallowances where no tax is deductible.9) No deduction of tax in case of reimbursement of

expenses.10) No disallowances if tax deducted and paid but failed

to file TDS challan and TDS returns.11) Procedural defaults in complying with TDS

provisions such as filing a form 15-I, 15-G and 15-H.12) No disallowances of TDS made under wrong

section.

Assessee deemed to be in default u/s 2011) With effect from 01/06/2002, a person including a principal officer of a company

deemed to be assessee in default u/s 201 fails to deduct or after deducting, fails to pay the whole or any part of the tax.

2) Penalty u/s 221 is liable which does not exceed the amount to be deducted or deducted but not paid.

3) Interest u/s 201(1a) effect from 01/07/2010 interest u/s 201(1a) shall be charged as under:

a. 1% for every month or part of a month on the amount of such tax from the date on which tax was deductible to the date on which tax was deducted.

b. 1.5% for every month or part of a month on tax from the date on which tax was deducted and to the date, tax is actually paid.

c. As per provision to sec 201(1) with effect from 01/07/2012, the assessee/payer not deemed to be in default where the payee discharged its tax liabilities but interest u/s 201(1A) liable to pay from the date on which the tax was deductible to the date of furnishing of the return.

d. No interest is payable where payment was disallowed u/s 40(a)(i) or 40(a)(ia).

Penalty for failure to Incompliance of TDS provision u/s 271 C,271 H and 272 A(2)

1) A person fails to deduct the whole or any part of the tax under the provisions of chapter XVII-B is liable to pay by a penalty sum equal to the amount of tax.

2) No penalty is liable if there is a reasonable cause u/s 273B.

3) Penalty u/s 271H

a. u/s 271H(1) which provides that without prejudice to the provisions of the act, a person shall be liable to pay the penalty if he fails to deliver or cause to be delivered a statement within the time prescribed u/s 200(3) or sec 206C(3).

b. Furnishes incorrect information in the statement which is to be delivered u/s 200(3) or provision to sec 206C (3).

c. Penalty sec 271H(2) provides that the penalty which shall be not less than Rs.10,000/- which may extend to Rs.1,00,000/-.

d. The statement referred above refers to form no. 24Q, 26B, 26Q, 27A and 27Q.

Penalty u/s 272A(2)1) If a person is responsible for deducting the amount fails to furnish the

statement u/s 192(2C) (Salary statement).

2) Fails to deliver in due time copy of a declaration mentioned in Sec. 197A i.e. Form No.15G and 15H.

3) Failure to furnish the certificate of tax deduction as required by sec 203 and 206 C i.e., Form No.16 and 16A.

4) Penalty for such failure is Rs.100 per every day of default but such penalty shall not exceed the amount of tax deductable or collectable.

5) Penalty u/s 272A cannot be levy on or after 01/07/2012 in consequence of insertion of sec 234E.

6) Penalty not liable where assessee proves reasonable cause for failure of Sec. 273B.

7) Penalty for false quoting of TAN and PAN No. is Rs.10,000/-.

Levy of fee u/s 234E for late filing of TDS returns

1. The Finance Act 2012 introduces sec 234E effective from 01/07/2012 for levy of fee for delay in filing the TDS or TCS returns.

2. Where a person fails to deliver the statement within the time prescribed u/s 200(3) and sec 206C(3), shall be liable to pay Rs.200 per everyday during which failure continues.

3. The fee referred above shall not exceed the tax amount deductible.

4. The fee referred above shall be paid before delivering or causing to be delivered a statement in accounts with sec 200(3) and sec 206C(3).

5. The section is effective from 1st day of July 2012 and apply to the statement to be delivered or cause to be delivered on or after 1st day of July 2012.

6. The Rajasthan High Court in case of Dundlod Sikshan Sansthan Vs. Union of India held that “where the fee was levied u/s 234E for late filing of the returns , even prior to the amendment made for the finance Act 2015 with effect from 1/06/2015 in sec 200A, 246A and 272A for providing for computation and appeal, the imposition of fee was illegal”.

Prosecution possibilities in case of failure in complying with TDS provisions u/s 276B.

1. Section 276B provides that, if a person fails to pay to the credit of Central Government.

a) The tax deducted at source by him as required by or under the provision of chapter XVIIB.

b) The tax payable by him as required by or u/s 115-O(2) are second provision to sec 194B.

c) Section 115-O refers to tax on distributed profit of domestic companies within 14 days from the date of declaration of the dividend or distribution of any dividend or payment of any dividend whichever is earliest.

d) Section 194B refers to winning from lotteries or crossword puzzle exceeding an amount of Rs. 10000.

2. U/s 276B, a person shall be punishable with rigorous imprisonment for a term which may extend to 7 years with fine.

3. Section 276B is not applicable to an individual or HUF for failure u/s 194A that is interest other than interest on securities.

4. Notice before initiation of a proceedings is not a statutory requirement, but before filing a prosecution case before the court of law, the opportunity of being heard shall be provided to assessee.

5. Non initiation of a penalty proceedings u/s 271C in time, is not the ground for squashing the prosecution.

6. With the introduction of Sec.278B with effect from 01/10/1975 prosecution can be launched against the company and director of the company.

7. Where the amount of tax deducted is Rs.1,00,000/- and more, which is not deposited prosecution u/s 276B shall mandatorily processed in addition to the recovery of tax.

8. Where the amount deducted but not paid is between Rs. 25,000/- to Rs. 10,000/-, the case may be processed for prosecution depending upon the facts and circumstances of the case i.e., for repeated defaults or tax has not been paid till detection by the department.

No deduction or deduction at lower rate Under sec 197 if the payee applies to the jurisdictional ITO in form no. 13 for non deduction of tax or deduction at the lower rate. This provision is applicable to-

1. Payment of salary- sec 1922. Payment of Interest on securities- sec 1933. Payment of dividend- sec 1944. Payment of Interest other than Interest on securities- sec 194A5. Payment to contractors or sub-contractors- sec 194C6. Payment of Insurance commission- sec 194D7. Payment of commission on sale of a lottery tickets- sec 194G8. Payment of commission or brokerages- sec 194H9. Payment of rent- sec 194I10. Payment of fees for professional and technical services- sec 194J11. Payment of compensation on acquisition of a certain immovable

property- sec 194LA12. Payment of Interest or other sum to non-resident- sec 195

Non deduction of tax in case of self declaration u/s 197A

1. Any person except company or a firm can receive such income without tax deducted at source by declaring in a Form No. 15G and 15H. Form no. 15G is for a person other than senior citizen and 15H for the senior citizen.

2. Sec.197A(1) is applicable for resident individual for dividend u/s 194 and payment in respect of deposits under NSS u/s 194EE.

3. Sec 197A(1A) applies no deduction of tax u/s 192A for payment of accumulated balance due to an employee, Sec. 193 is for Interest on securities, Sec.194A is for Interest other than Interest on securities, Sec.194DA for payment under Life Insurance Policy. This section applies for all persons except the company or firm.

Time and manner of deposit of TDS

1. Where the deposit is made other than by government, the amount deducted shall be paid to the government within 7 days from the end of the month in which the deduction is made.

2. For the amount deducted in the month of March, shall be paid to the government on or before 30th April.

3. The facility for quarterly payment for deduction u/s 192, 194A, 194D and 194H is available with prior approval of Joint Commissioner as per rule 30(3).

4. The mode of payment can be electronic, deposit of TDS in physical format for sec 194-IA, the payment mode can be cash or by cheque or by draft or by any other mode along with the statement in Form No. 26QB.

TDS Certificates u/s 203

1. Form No.16 - annually on or before 31st day of May of succeeding financial year in case of salary u/s 192.

2. Form No.16A - within 15 days from the date of furnishing of the statement i.e. quarterly statement.

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