The Rigours of Tax Deducted at Source

An Overview
Prepared by:

CA Apar Jain
Sonal Sapra
Gungun Yaduvanshi
Vishwanath, Singh & Associates
Chartered Accountants

INTRODUCTION/BACKGROUND
Tax deducted at source (TDS), as the name implies, means collection of revenue at the very source of
income. It is essentially an indirect method of collecting tax which combines the concepts of pay as you
earn and collect as it is being earned.
The concept of TDS requires that the person, on whom responsibility has been cast, has to deduct tax at
the appropriate rates, from payments of specified nature which are being made to specified recipient.
The deducted sum is required to be deposited to the credit of the Central Government. The recipient
from whose income tax has been deducted at source gets the credit for the tax amount deducted in his
personal assessment on the basis of the certificate issued by the deductor. The scheme of TDS has been
designed to plug leakages of revenue by putting the onus on the payer of income to act as a tax
collector, deduct and deposit income-tax at the specified rates from the sums paid or payable to the
recipient. The logic of TDS provisions is to capture and collect attributable income-tax on an adhoc or
estimated basis at the source level at the time the transaction originates rather than having to wait
for the recipient to declare and pay the tax himself. Mechanisms have also been put in place to allow
non-deduction of tax or to grant lower rates of deduction in certain cases where the recipient feels
deduction of tax is not justified or is required to be made at a lower rate having regard to his income
levels for the year in question.

Significance to the government:

Prepones the collection of tax: Collect the tax at the time of payment of various assesses such as
contractors, professionals, etc.
Get funds throughout the year and ensure a regular source of revenue and run the government
smoothly.
Provides for a greater reach: Spread the tax net wide enough to include persons who might otherwise
have evaded taxes.
Significance to the tax payer:
Distributes the incidence of tax: Avoids the burden of lump sum payment.
Ease for salaried people as tax is being paid in easy installments.
Provides for a simple and convenient mode of payment.

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PAYMENTS COVERED UNDER THE SCHEME OF TDS

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.

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 Deposits under National saving scheme etc. (Sec. 194EE)
Payments in respect of Repurchase of units of Mutual Funds or Unit Trust of India (Sec.194F)
Commission, etc., on Sale of Lottery Tickets (Sec.194G)
Commission or Brokerage (Sec.194H)
Rent (Sec.194I)
Payment on transfer of certain immovable property other than agricultural land (Sec
194IA) New section introduced from 1st June 2013
Fees for Professional or Technical Services (Sec.194J)
Payment of Compensation on acquisition of certain immovable property (Sec.194LA)
Income by way of interest from infrastructure debt funds (Sec. 194LB)
Income by way of interest from Indian company (Sec. 194LC)
Income by way of interest on certain bonds and government securities (Sec. 194LD)
Other Sums (Sec.195)
Interest or dividend or other sum payable to government, Reserve bank or certain corporations
(Sec. 196)
Income from units (Sec.196B)
Income from Foreign Currency bonds shares of Indian Company (Sec.196C)
Income of Foreign Institutional Investors from Securities (Sec.196D)

Sections emphasized in bold above are discussed in this article.

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SECTION 192 TDS ON SALARIES

Who is responsible for withholding

Tax?

Any person responsible for paying salaries which is chargeable

to tax in India.

Payment Covered

Salary, benefits and allowances for the year

At what time TDS to be deducted?

At the time of payment of salary#

Rate at which tax to be deducted

At the average rate of income tax calculated on the basis of

income tax slab rates in force for that financial year##

Maximum amount which can be

paid without tax deduction

The amount of exemption limit as per slab rates defined in the

Income Tax Act, 1961.

Example: Salary for month of April 13 is debited in the Companys books in the month of April 13 but
payment was made, say in June 13, then the liability to deduct tax would arise in the month of June 13
rather than April 13, in which the expenditure was actually booked. Thus, when advance salary and
arrears of salary are paid, the employer has to take the same into account while computing the tax
deductible.
##

Example: Mr. A is earning Rs. 50,000 per month in FY 13-14, then

Total Income Chargeable under the head Salaries after deductions [a]
Tax on Total Salaries(including Cess) as per slab rate [b]
Average Rate of Tax c=[(b/a) 100]

Rs. 600,000
Rs.51,500
8.58%

TDS on salary to be deducted every month (50,000*c)

Rs. 4,290

TDS on simultaneous employment with more than one employer or on change of

employment [Section 192(2)]
Where a person is simultaneously employed with more than one employer, he may furnish the particulars
of salary payments and TDS to the employer of his choice. Similarly, on change of employment the
particulars of salary and TDS of earlier employment may be furnished to the subsequent employer. These
particulars are to be furnished in Form 12 B in accordance with Rule 26A of the Income Tax Rules. The
employer on receipt of such information is required to take into account the particulars of such salary and
TDS and then deduct tax at source considering the aggregate salary from all sources.
Salary paid in Foreign Currency
For the purposes of deduction of tax on salary payable in foreign currency, the value in rupees of such
salary shall be calculated at the telegraphic transfer buying rate adopted by State Bank of India of such
currency as on the date on which tax is required to be withheld. [Rule 26 read with rule 115 of the

income tax rules, 1962]

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Salary to Non-Residents
In case of an expatriate/non-resident working in India, the remuneration received by him, assessable
under the head Salaries, is deemed to be earned in India, being income accruing or arising in India, if it
is payable to him for services rendered in India, irrespective of the residential status of the
recipient. Thus, such remuneration will be subject to TDS regardless of the place where the
salary is actually received.
FEW IMPORTANT CASE LAWS
1) Hero Honda Motors Ltd. vs. ITO[2000]
The employer had deducted very negligible amount as tax from salary of employees in the initial
months and high amount of tax in the last months i.e. the taxes were not deducted uniformly during
the year.
AO levied interest under section 201 (1A) saying the assessee failed to deduct taxes properly.
It was held that TDS installment of each month need not necessarily be accurate. The
assessee reasonably estimated the annual income and deducted tax on it. Hence interest was held to
be levied incorrectly.
Also there is an express provision under Section 192(3) authorizing the person responsible for
deducting the tax to increase or reduce the amount to be deducted under section 192 for the
purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to
deduct during the financial year.
However on the same facts in an another case (Madhya Gujarat Vij co. ltd. V ITO(2011), as
mentioned below, it was held that in the absence of bona fide reasons for deducting lesser tax in the
earlier months, interest would be levied on the assesse.
2) Madhya Gujarat Vij co. ltd. V ITO(2011)
The intention of Section 192(3) is not that an employer can casually take deduction of tax from
payments of salary in different months and resort to a lump sum deduction at the end of relevant
financial year for making good deficiency.
If there were bona fide reasons in deducting a lesser tax during the earlier months of the Financial
Year and is made good immediately after noticing such short-fall, then section 192(3) would save the
employer from liability of making payment of interest otherwise assessee would be liable to pay
interest u/s 201(1A) for the deficiency.
3) CIT vs. Larsen & Toubro Ltd (313 ITR 1) (SC)
Leave Travel Allowance/Conveyance allowance - The employer should check whether the amounts
were actually spent and be responsible for not having deducted tax at source on the amount
additionally liable on the savings, if any made by the employee.
SC held that there has been no previous circular from CBDT requiring employer to collect
and analyse evidence from their employees to support an LTC exemption. Hence employer
is not under any statutory obligation to check that the employees had actually utilized the amount
paid towards travel concession or conveyance allowance.
However a new circular no. 08/2012 dated 05/10/12 issued by CBDT specifies that
employer must check whether the conditions are met for exemption from tax in respect
of LTC claimed by the employees. Also the employer must gather and retain evidence to
support that the conditions for claiming LTA have been met.
Henceforth the employer must take due care while accepting and approving the claims for Leave
travel allowance/conveyance allowance.

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4) CIT vs. Woodward Governor India Pvt. Ltd (295 ITR 1) (Del. HC)
The assessee had 26% shareholding in a joint venture with Woodward Governor India Pvt. Ltd of
USA. The assessee had engaged a managing director [MD]. In the relevant year the MD was paid a
sum of Rs.66.19 lakhs by the American collaborator by way of annual salary. Assessee was not aware
that the foreign collaborator was paying salary to the MD. On its part, the assessee deducted tax at
source on the salary paid by it to MD. The MD however paid advance tax on his global salary received
from the assessee as well as from the foreign collaborator. The Assessing Officer held that the
assessee was required to deduct tax at source even on the salary component paid by the foreign
collaborator. The Tribunal held that the assessee was not liable to deduct tax on the amount paid by
the foreign collaborator.
The Delhi High Court upheld the decision of the Tribunal and held as under:
As regards the liability to deduct tax at source in terms of S. 192 of the Income-tax Act, 1961, the
assessee was only liable to deduct tax at source on the payment that it made to its managing
director and it could not be burdened with the liability of deducting tax at source on any other
payment, either by way of salary or otherwise which MD received from some other sources. Thus,
the assessee was not liable to deduct tax at source on payments received by its managing director
from foreign collaborator by way of salary.
5) CIT vs. Eli Lilly & Co. (India) Pvt. ltd. (SC)
It was held that salary paid by a foreign company needs to be subject to tax withholding in India if
the salary is chargeable to tax in India. Section 192 has extra territorial operations.

Picture courtesy: Presentation by Ms. Tapati Ghosh (Deloitte)

It can be seen that the above decisions are conflicting but the Supreme Courts decision would prevail.
Therefore, TDS has to be deducted by an employer not only from the salary paid by him to such
employee but also from the salary, if any, paid to such employee by any other person whether in India or
outside India.
Effect of Non-Deduction of TDS
If TDS under section 192 is not deducted on the salaries paid to the residents, the relevant salary
expense would be allowed as deduction. However, if there is non-deduction of TDS on salary paid to
Non-residents or Expatriates, the amount of the salary would be inadmissible under section 40(a) (iii).
HRA: Reporting of Landlords PAN to the employer now mandatory
If living in a rented house, taxpayers are required to submit rent receipt from landlords to claim the
exemption. Till the FY 2012-13, an assessee paying rent of less than Rs 15,000 per month did not have
to submit Permanent Account Number (PAN) details of the landlord along with the rent receipt for
claiming exemption.

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However, the income tax department, in its drive to tighten the leash on tax evaders, in the month of
October, 2013, amended the rule by issuing Circular No. 08/2013 F.No. 275/192/2013-IT (B) dated
10.10.2013. So, now, instead of Rs 15,000 per month, assesses paying a rent of Rs 8,333 a month or Rs.
1 lakh yearly will have to submit the PAN of their landlords along with the rent receipts. However,
salaried employees drawing HRA of up to ` 3,000 per month are exempted from production of rent
receipts.
If the landlord does not have a PAN, the assessee has to submit a declaration to this effect along with
name and address of the landlord.

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SECTION 194C - TDS ON PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS

Who is responsible for withholding Tax?

Specified person1

Who is the recipient?

A resident person

Rate of TDS

1% where payment/credit is made to an individual/ HUF;

2% where payment/credit is made to any other person.

Payment Covered

Consideration for carrying out any work2 (including supply

of labour)

At what time TDS has to be deducted

At the time of payment or credit, whichever is earlier

Maximum amount which can be paid

without tax deduction

If a single payment for a contract exceeds Rs. 30,000/- or if

the aggregate payments exceed Rs. 75,000/- per annum
under one or multiple contracts

Meaning of specified person

1.
2.
3.
4.
5.
6.

Central Government or any State Government;

Local authority; or
Corporation established by or under a Central, State or Provincial Act; or
Company ; or
Co-operative society ; or
Authority , constituted in India by or under any law ,engaged either for the purpose of dealing
with and satisfying the need for housing accommodation or for the purpose of planning,
development or improvement of cities, towns and villages, or for both; or
7. society registered under the Societies Registration Act, 1860(21 of 1860) or under any law
corresponding to that Act in force in any part of India; or
8. trust; or
9. University established or incorporated by or under a Central State or Provincial Act and an
institution declared to be university under section 3 of the University Grants Commission Act, 1956(3
of 1956); or
10. Government of a foreign State or a foreign enterprise or any association or body established
outside India; or
11. Firm; or
12. Person, being an individual or a Hindu undivided family or an association of persons or a body of
individuals, if such person
does not fall under any of the preceding sub clauses; and
is liable to audit of accounts under clause (a) or clause (b) of section 44 AB during the financial year
immediately preceding the financial year in which such sum is credited or paid to the account of
the contractor;
It implies that an Individual or aHUF is not required to deduct TDS in the First year of operation of business.

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The word work in this section would include

a) advertising;
b) broadcasting and telecasting including production of Programmes for such broadcasting or
telecasting;
c) carriage of goods and passengers by any mode of transport other than railways;
d) catering;
e) Manufacturing or supplying a product according to the requirement or specification of a
customer by using the material purchased from such customer,
But does not include manufacturing or supplying a product according to the requirement or
specification of a customer by using the material purchased from a person, other than such
customer.
Job Work
TDS on job work to supply/
manufacture product as per
customer/payer specifications

Material supplied by the

customer to the contractor to
manufacture product as per
his specifications

Contractor sent gross invoice,

no detail of material used

Material not supplied by

customer to contractor

Contractor sent invoice, with

detail of material used

TDS is applicable on Gross

invoice [Sec 194C (3)]

NO TDS is to be deducted as
it is a "Sale of goods contract"

TDS on gross value (-)

Material value [Sec 194C(3)]

For instance,
A wants to purchase uniforms for its employees. So, he enters into a contract with B under which B is
required to supply the uniform as per the specification provided by A. B purchases the material from the
market and prepares the uniforms as per the specification and delivers the same to A against payment.
In such a case, the dominant object is supply. Hence, section 194C would not apply. On the other hand,
if A provides the material to B and B agrees to execute the preparation of uniforms with the material
provided, the provisions of Section 194C would apply as the dominant object is the execution of work
irrespective of the fact that property in goods passes in the course of executing the work.

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Exemption
1. Personal Purposes [Sec 194C(4)]: Payment by an individual or HUF to a resident contractor for
personal purposes is not subject to tax deduction.
2. Payment or credit to transport operator [Sec 194C(6)] :If recipient is a transport contractor, no
deduction of tax at source is to be made for sum credited/paid to a contractor during the course of
business of plying/hiring/leasing of goods/carriages on furnishing PAN to the payer/ deductor.

East India Hotelsvs.CBDT 320 ITR 526: The services rendered by a hotel to its customers by making
available certain facilities/amenities like providing multilingual staff , 24 hour service for reception,
telephones, select restaurants, bank counter, beauty salon, barber shop, car rental, shopping centre,
laundry, health club, business centre services etc. do not involve carrying out any work which results
into production of the desired object and therefore, would be outside the purview of section 194C of the
Act.

Circular 715 dated 08/08/1995

Advertising Contract
TDS would apply when a client makes payment to an advertising agency and not when an advertising
agency makes payment to the media, which includes both print and electronic media. It was further
clarified that when an advertising agency makes payments to their models, artists, photographers, etc.,
the tax shall be deducted under section 194J of the Act.
Payment to print or Electronic media: The payments made directly to print and electronic media
would be covered under section 194C as these are in the nature of payments for advertising.
Payment for putting up a hoarding: M/s. ABC Ltd. is an advertisement agency. It hires hoardings
for display of advertisements of its clients. It is a contract of work for advertisement. Section 194C
specifically defines advertisement as work, and provides for deduction of tax at specific rate applicable.
Payment made to Travel Agent or an airline
The payments made to a travel agent or an airline for purchase of a ticket for travel would not be
subjected to tax deduction at source as the privity of the contract is between the individual passenger
and the airline/travel agent, notwithstanding the fact that the payment is made by an entity
mentioned in section 194C(1). The provisions of section 194C shall, however, apply when a plane or
a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of
the Act.
Payment to clearing/ forwarding agents
Payments to clearing and forwarding agents for carriage of goods are subject to tax deduction at source
under Section 194C. They act as independent contractors. They would also be liable to deduct tax at
source while making payments to a carrier of goods.
Carriage of Documents
The carriage of documents, letters etc., is in the nature of carriage of goods and, therefore, provisions
of section 194C would be attracted in respect of payments made to the couriers.
Printed material: Section 194C would apply in respect of supply of printed material as per prescribed
specifications if the material is provided by the customer itself.
Souvenirs: Deduction of tax u/s 194C is required to be made on payments for cost of advertisements
issued in the souvenirs brought out by various organizations.
Payments made to an electrician: The payments made to an electrician or to a contractor who
provides the service of an electrician will be in the nature of payment made in pursuance of a contract for
carrying out any work, accordingly, provisions of section 194C will apply in such cases.

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Contract for catering: TDS is not required to be made when payment is made for serving food in a
restaurant in the normal course of running of the restaurant/cafe.
Serving the food to the customers is part and parcel of the duty of the hotel staff in pursuance of the
contract for the provision of food. TDS shall not be deducted.
Arrangement of the dinner within the companys own premises and the company has hired the hotel
staff to manage the service of eatables, etc. at the party, the hoteliers are clearly "carrying out a piece
of work" outsourced to them. The TDS will have to be deducted on the entire amount paid to the
hoteliers.
Also if a party or other food arrangement is made by the company for its guests or employees in a
restaurant or hotel. TDS shall be deducted.
Sponsorship: Sponsorship of debates, seminars and other functions held in colleges, schools and
associations with a view to earn publicity through display of banners, etc., put up by the organizers,
provisions of section 194C shall apply. The agreement of sponsorship is, in essence, an agreement for
carrying out a work of advertisement. Therefore, provisions of section 194C shall apply.

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Section 194H - TDS on Commission & Brokerage

Who is responsible for

withholding Tax?
Who is the recipient?
On what amount
At what time TDS to be deducted.
Rate at which TDS to be
deducted
Maximum amount which can be
paid without tax deduction

Any person (not being an individual or a HUF whose books

of account are not required to be audited under section
44AB in the immediately preceding FY).
Any resident person
Income by way of Commission or brokerage (not being
insurance commission)
At the time of payment or credit, whichever is earlier
10%
If the amount of payment is Rs. 5,000 or less than Rs. 5,000

Meaning of Commission or Brokerage

Commission or Brokerage includes any payment received or receivable, directly or indirectly, by a person
acting on behalf of another person for services rendered (except professional services) or for any services in
the course of buying or selling or in relation to any transaction relating to any asset; valuable article or thing
(except securities).
As TDS on Commission is not liable to be deducted in relation to transactions related to securities, the
provision of section 194H may not get attracted on:
1. Brokerage or Commission paid to underwriters
2. Brokerage and sub-brokerage on public issue of securities
3. Brokerage on stock exchange transactions of securities
Exceptions to TDS on Commission/Brokerage
1. Payment is being made by BSNL or MTNL to their public call center franchisees [3rd proviso as per
Section], or
2. Commission paid by an employer to his employees. Such commission would be subjected to TDS on
Salary.
3. Commission paid by employer to executive director would be considered as salary and shall attract
provisions of section 192, however Commission paid by company to non-executive director would be
subject to TDS u/s 194J.
4. TDS on Insurance Commission shall not be deducted under this section as that has been specifically
covered under Section 194D

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TDS on Commission paid to banks

Attention is drawn to the following circular:
In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of
1961), the Central Government hereby notifies that no deduction of tax under Chapter XVII of the said Act
shall be made on the payments of the nature specified below, in case such payment is made by a person to a
bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), excluding a foreign
bank, namely. Notification no. 56/2012 [F. NO. 275/53/2012-IT(B)], DATED 31-12-2012:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

bank guarantee commission;

cash management service charges;
depository charges on maintenance of DEMAT accounts;
charges for warehousing services for commodities;
underwriting service charges;
clearing charges (MICR charges);
credit card or debit card commission for transaction between the merchant establishment and acquirer
bank.

This notification shall come into force from the 1st day of January, 2013. Accordingly, commissions paid to
a foreign bank, say for guarantee issued, would be subject to TDS.
OTHER CLARIFICATIONS
Travel Agent (CIT v. Singapore Airlines Ltd. [2009])
Commission and supplementary commission received by the travel agents from Airlines are liable to tax
deduction at source under sec 194H. However payment made by the companies to the travel agents for
booking of tickets would not fall under the scope of section 194H.
When Commission is retained by agent
A question may rise whether there would be deduction of tax at source under section 194H where
commission or brokerage is retained by the consignee/agent and not remitted to the consignor/principal while
remitting the sale consideration. It may be clarified that since the retention of commission by the
consignee/agent amounts to constructive payment of the same to him by the consignor/principal, deduction
of tax at source is required to be made from the amount of commission. Therefore, the consignor/principal
will have to deposit the tax deductible on the amount of commission income to the credit of the Central
Government, within the prescribed time. [Circular No. 619, dated 4-12-1991]
This may pose practical problem as the event of cash outflow of commission is not actually occurring still the
principal is responsible to deduct TDS on such commission. To deal with such situation one of the following
measures can be adopted:
a) It might be communicated to the agent that the TDS amount on commission must be remitted to the
principal along with the sale consideration.
b) It may be decided between the agent & principal that the amount of TDS be deposited to the credit
of central government by the agent itself using the TAN of the principal.
c) The agent should later remit the total amount of tax deposited by the principal on commission.
d) The principal have to bear the incidence of TDS.

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In the absence of PrincipalAgent relationship, payment though called commission, not

covered:
Kotak Securities limited vs DCIT (ITAT Mumbai)
The assesse obtained a bank guarantee and paid bank guarantee commission. The AO & CIT (A) took the
view that since the payment was characterized as commission it fell within the ambit of sec 194H and the
assesse ought to have deducted TDS. The assesse was held liable as assesse in default u/s 201.On appeal by
the assesse, held reversing the AO & CIT (A):
Sec 194H defines the expression commission or brokerage to include any payment received by a person
acting on behalf of another person for services rendered or for any services in the course of buying & selling
of goods, the expression commission must be confined to a payment made to agents etc. for effecting sales
and carrying out business transactions and cannot extend to payments which are for services rendered or
products offered on a principal to principal basis. A principalagent relationship is an essential action for
invoking the provision of section 194H. As there is no principal agent relationship between bank issuing the
bank guarantee and the assesse, the payment, though termed commission, is not covered by sec 194H.
ISSUE
The section includes the word income by way of commission or brokerage same as being used in Section
194I, so treatment for chargeability of TDS on service tax portion could be the same as that of rent but no
clarification has been provided on this matter.

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SECTION 194IA TDS ON PAYMENT MADE FOR TRANSFER OF IMMOVABLE PROPERTY

Applicability

1st June 2013

Who is responsible for

withholding Tax?

Any person making payment on transfer of immovable property

Who is the recipient

Any resident transferor

Payment covered

Consideration for purchase of residential or commercial immovable

property1 other than agricultural land

At what time TDS to be deducted.

At the time of payment or credit, whichever is earlier

Maximum amount which can be

paid without tax deduction

Consideration is less than Rs. 50 Lacs.

Rate at which TDS to be deducted

1% of the purchase value of the immovable property2

Immovable Property means any land, building or part of building situated in India or outside India .
If seller does not have a PAN then TDS to be deducted at 20% (Sec 206AA)

Objective of Section 194IA

Transactions of immovable property are usually undervalued and under-reported. Also almost half of the
transactions do not even carry the PAN of the parties concerned. To improve the reporting of such
transactions and to ensure that the resultant capital gains get taxed, this section was introduced.
Other Important points

The purchaser of the immovable property is exempt from the obligation of obtaining TAN, which is
otherwise mandatory for a deductor under other sections covered under the scheme of TDS. Purchaser
has to use his PAN to deposit the TDS.

TDS is to be deposited by way of challan cum statement in Form 26QB [Annexure 1].

TDS Certificate to be issued by the deductor in Form 16B. [Annexure 2]

Form 16B has to be issued within 15 days from the due date of depositing the tax i.e. 22nd of the
following month.

If the credit to the account of the transferor was given before 01/06/13 then the provisions of
the section shall not apply even if payment made after 01/06/13. Similarly, the provisions shall
not apply if the payment was made before 01/06/2013 (as section says credit or payment
whichever is earlier).

In case of installment system of payment TDS is required to be deducted on all such installments
individually which fall due after 01/06/13.

The threshold limit of Rs. 50 Lacs is with reference to each and every property separately. If a
property transaction involves more than one buyer and share of each buyer in the property is less than
Rs. 50 Lacs but the value of the property in aggregate is more than Rs. 50 lacs then provisions of section
194-IA will be applicable. In such case, TDS will be deducted and deposited by each buyer in respect of
their respective share in the property.
Similarly, in case of a property transaction involving more than one seller, TDS will be deducted in
respect of amount paid to each seller and their respective PAN will be quoted while making payment.

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Annexure 1

Form No.26QB
[See section 194-IA, rule 30 and rule 31A]
Challan cum statement of deduction of tax under section 194-IA
Financial Year

Major Head Code*

Minor Head Code*

Permanent Account Number (PAN) of Transferee/ Payer/ Buyer

Category of PAN*

Status of PAN*

Full Name of Transferee/ Payer/ Buyer*

Complete Address of Transferee/Payer/Buyer

PIN
Mobile No.
Email ID
Whether more than one transferee/payer/buyer (Yes/No)
Permanent Account Number (PAN) of Transferor/ Payee/ Seller
Category of PAN*
Full Name of Transferor/ Payee/ Seller

Status of PAN*

Complete Address of Transferor/Payee/Seller

PIN
Mobile No.

Email ID

Whether more than one transferor/payee/seller (Yes/No)

Complete Address of Property transferred

Date of
Agreement/Booking**
Amount Paid/Credited (in Rs.)

PIN
Payment in instalment or lump-sum

Total Value of Consideration

(Amount in Rs.)
Date of payment/credit**

Rate at which deducted

Date of Deposit**

Amount of tax
deducted at source

Mode of payment

Date of Deduction**

Simultaneous e-tax payment

e-tax payment on subsequent date

Details of Payment of Tax Deducted at Source (Amount in Rs.)

TDS (Income Tax)(Credit of tax to the deductee shall be given for this amount)
Interest
Fee
Total payment
Total Payment in Words (in Rs.)
Crores

Lakhs

Thousands

Unique Acknowledgement no. (generated by TIN)

* To be updated automatically.
** In dd/mm/yyyy format.

Page | 16

Hundreds

Tens

Units

Annexure 2

FORM NO. 16B

[See rule 31(3A)]
Certificate under section 203 of the Income-tax Act, 1961 for tax deducted at source
Certificate No.

Last updated on

Name and address of the Deductor

(Transferee/Payer/Buyer)

PAN of the Deductor

Name and address of the Deductee

(Transferor/Payee/Seller)

PAN of the Deductee

Financial Year of deduction

Summary of Transaction (s)

S. No.

Unique
Acknowledgement
Number

Amount
Paid/Credited

Date of
payment/credit
(dd/mm/yyyy)

Amount of tax deducted and

deposited in respect of the
deductee

Total (Rs.)
DETAILS OF TAX DEPOSITED TO THE CREDIT OF THE CENTRAL GOVERNMENT FOR WHICH
CREDIT IS TO BE GIVEN TO THE DEDUCTEE
S. No.

Amount of tax
deposited in respect
of deductee (Rs.)

Challan Identification number (CIN)

BSR Code of the
Bank Branch

Date on which tax

deposited
(dd/mm/yyyy)

Challan Serial Number

1.
2.
Total (Rs.)
Verification
I,.., son/daughter of . in the capacity of . (designation) do hereby certify that a sum of
(Rs.) .. [Rs. .(in words)] has been deducted and deposited to the credit of the Central
Government. I further certify that the information given above is true, complete and correct and is based on the
books of account, documents, challan-cum-statement of deduction of tax, TDS deposited and other available
records.
Place
Date

(Signature of person responsible for deduction of tax)

Full Name:

Page | 17

SECTION 194I TDS ON RENT

Who is responsible for withholding

Tax?

Any person (not being an individual or a HUF whose books of

account are not required to be audited under section 44AB in
the immediately preceding FY).

Who is the deductee?

A resident person

Payment Covered

Rent

At what time TDS to be deducted?

Rate at which TDS to be deducted
Maximum amount which can be paid
without tax deduction

At the time of credit of such income or at the time of payment

thereof, whichever is earlier
For use of Machinery/Plant/Equipment 2%
For use of any other Asset 10%
Rs. 180,000 p.a.

Meaning of the word Rent [as explained in section]

Rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other
agreement or arrangement for the use of (either separately or together) any

Land
Building (including factory building)
Land appurtenant to a building (including factory building)
Machinery

Plant
Equipment
Furniture
Fittings

TDS on Advance Rent

In cases where Advance Rent is being paid by the tenant to the landlord, TDS on Advance Rent is also liable to
be deducted. However, the Income Tax Department via Circular No. 5/2001 dated 2-3-2001 has clarified that
in cases where
1. The advance rent is spread over more than 1 financial year, credit of TDS on Rent shall be allowed in the
same proportion in which such income is offered for tax based on the single tax credit certificate issued (i.e.
Form 16A) for the entire advance rent, or
2. The asset is sold/ transferred by one person to another, credit for the TDS on rent which has not been availed till
the date of sale/transfer shall be allowed to the new owner.
Moreover in some cases advance rent is paid and TDS on rent is also deducted but later the rent agreement
gets cancelled resulting in refund of balance amount to the tenant. In such case landlord shall state in his ITR
that TDS deducted has not been claimed because of cancellation of rent agreement.
TDS on Non Refundable Deposit
Where the tenant makes a non-refundable deposit or if the deposit is adjustable against future rent, the
deposit is in the nature of advance rent subject to TDS and the tax would have to be deducted at source as
such deposit represents the consideration for the use of the land or the building etc. and therefore, partakes
the nature of rent as defined in Section 194I. If, however, the deposit is refundable, no tax is deductible at
source. [Circular No. 718, dated August 22, 1995.]

Page | 18

Composite agreement
In a case of a composite arrangement for use of premises and provision of manpower for which consideration
is paid as a specified percentage of turnover, section 194-I would be attracted if the arrangement is in
essence for taking premises on rent. [Circular No. 715, dated August 08, 1995.]
Warehousing Charges
Warehousing charges will be subject to deduction of tax under Section 194I. [Circular No. 718, dated August
22, 1995.]
Rent inclusive of municipal tax, ground rent
If the municipal taxes, ground rent etc., are borne by the tenant, no tax will be deducted on such amount.
[Circular No. 718, dated August 22, 1995.]
TDS on rent exclusive of Service Tax
Service tax paid by tenant doesnt partake the nature of income of the landlord. The landlord only acts as a
collecting agency for Government for collection of service tax. Therefore it has been decided that TDS under
section 194-I of Income Tax Act would be required to be made on the rent paid / payable excluding the
amount of service tax. [Circular no. 4/2008, Dated 28-4-2008]
Therefore in the present scenario, the Tax on Rent would only be on the Actual Rent paid and the computation
has been shown below:
Particulars
Rent
Add: Service Tax @12.36%
Less: TDS on Rent @ 10%

Amount (in Rs.)

20,00,000
2,47,200
2,00,000

Splitting of Lease agreement

In case a lessor enters into a consolidated lease agreement with a tenant for providing office space and
common area services, TDS will be charged under Section 194I on the entire amount. On the other hand, if
there are separate agreements for the office space and the supplementary common area services, TDS needs
to be deducted under Section 194I for the office space and under section 194C for the maintenance services.
Building let out along with furniture/fittings
If a building is let out along with furniture/fittings but rent is payable under two separate agreements (one
for building and another for furniture/fittings) the composite rent is subject to tax deduction under Section
194I.
The payee may not be the owner of the building
Section 194I is applicable even if the person to whom rent is paid is not the owner of the building. In other
words, tax is deductible even in the case of sub-lease of a building.
If a person has taken a particular space on rent and thereafter sublets the same fully or in part for putting up
a hoarding, he would be liable to TDS under section 194I and not under Section 194C. [Circular No. 715,
dated August 08, 1995.]
When payees are different
Under section 194-I, the tax is deductible from payment by way of rent, if such payment to the payee during
the year is likely to be Rs. 180,000 or more. If there are a number of payees, each having a definite and
ascertainable share in the property, the limit of Rs. 180,000 will apply to each of the payees/co-owners
separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS
provisions. Evidence of multiple ownership for the hired space must be obtained and kept on record by the
payer if the landlord insists on rental payments to more than one person for the same premises.

Page | 19

Payments for hotel accommodation

Payment made to hotels for hotel accommodation, whether in the nature of lease or license agreements are
covered, so long as such accommodation has been taken on regular basis. Where earmarked rooms are
let out for a specified rate and specified period, they would be construed to be accommodation made
available on regular basis. Similar would be the case, where a room or set of rooms are not earmarked, but
the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.
However, often, there are instances, where corporate employers, tour operators and travel agents enter
into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their
executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature
of rate-contract agreements. Where an agreement is merely in the nature of a rate contract, it cannot be said
to be accommodation taken on regular basis, as there is no obligation on the part of the hotel to provide a
room or specified set of rooms. The occupancy in such cases would be occasional or casual. Consequently,
the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply
to rate contract agreements.Circular: No. 5/2002, dated 30-7-2002.
Payment made by a company to intermediaries/underwriters for booking of hotel rooms for its guests or
employees may come into the ambit of provisions of section 194I if the rooms are earmarked.
TDS on taxi charges u/s 194I is applicable if user has control over Taxi
When vehicles are hired with driver and control of the vehicle remain with the owner of the vehicle through
driver, then it generally means that vehicle is for a specific job and not hired as such, warranting deduction of
TDS under 194C. However, if a vehicle is hired over which the hirer has full control, section 194-I will come
into play. Further, if running & maintenance expenses like petrol, repair etc. has been incurred by the person
who has hired the vehicle, then the said arrangement would be covered under section 194-I. [SKIL

Infrastructure Ltd vs. ITO (TDS) (ITAT Mumbai) 2011]

Page | 20

SECTION 194J FEES FOR PROFESSIONAL OR TECHNICAL SERVICES

Who is responsible for withholding

Tax?

Any person paying professional charges (not being an individual or HUF

whose books of account are not required to be audited under section 44AB
in the immediately preceding financial year).

Payment covered

Professional services, technical services, Royalty, any remuneration or fees

or commission by whatever name called, other than those on which tax is
deductible under section 192, to a director of a company, and any sum
referred under clause (va) of section 28 of Income Tax Act, 1961

At what time TDS to be deducted

Maximum amount which can be
paid without tax deduction

At the time of payment or credit, whichever is earlier

If the amount of payment during the financial year is Rs. 30,000 or less
than Rs. 30,000*

Rate at which TDS to be deducted

10%

*The threshold limit of Rs. 30,000 would be checked individually professional service, technical service, Royalty & for sum
referred under clause (va) of section 28. The threshold limit would not be applicable in case of remuneration to directors.

Meaning of Professional/ Technical Service/Royalty [as explained in the section]

Professional Services means services rendered by a person in the course of carrying on legal, medical,
engineering or architectural profession or the profession of accountancy or technical consultancy or interior
decoration or advertising or such other profession as is notified by the Board for the purposes of Sec 44AA.
Other professions notified by the board are: profession of authorized representative, profession of film
artist and profession of company secretary
Central Board of Direct Taxes has also notified the services rendered by following persons in relation to the
sports activities as Professional Services for the purpose of the said section, namely Notification No.

88/2008/F.NO. 275/43/2008-IT (B), Dated 21-8-08:

Sports Persons
Coaches and Trainers
Team Physicians & Physiotherapists
Event Managers

Sports Columnists
Umpires and Referees
Commentators
Anchors

Fees for Technical Services means fees for rendering of any managerial, technical or consultancy services
(including provision of services of technical or other personnel).

Page | 21

Royalty means consideration for:

the imparting of any information concerning the working of, or the use of, or the transfer of all or any rights
(including the granting of a license) in respect of a patent, invention, model, design, secret formula or
process or trade mark or similar property ;
the imparting of any information concerning technical, industrial, commercial or scientific knowledge,
experience or skill ;
Further Clarification to the above [explanation 6 to section 9 of the act]:
The expression "process" includes and shall be deemed to have always included transmission by satellite
(including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any
other similar technology, whether or not such process is secret;
TDS on Remuneration to Director
As per new clause (1)(ba) of section 194J (inserted by Finance Act 2012) any remuneration or fees or
commission by whatever name called, other than those on which tax is deductible under section 192, to a
director of a company shall liable to deduct 10%.
NOTE:
However, an individual or HUF shall not be liable to deduct TDS on the amount paid by way of professional
or technical services in case such sum is paid exclusively for personal purposes of such individual or any
member of HUF. [3rd proviso to the sub-section (1) of the section]

OTHER CLARIFICATIONS
Payments to recruitment agencies
Payments to recruitment agencies are in the nature of payments for services rendered, and hence will be
subject to TDS under section 194J of the Act, and not under section 194C of the Act. [Circular no. 715 dated

8-8-1995]

Payments to a share registrar

Payments made by a company to a share registrar will also similarly be liable to tax deduction at source
under section 194J and not under section 194C. [Circular no. 715 dated 8-8-1995]
Payments made to hospitals
Payments made to a hospital for rendering medical services will attract deduction of tax at source under
section 194J. [Circular no. 715 dated 8-8-1995]
Commission paid to advertising agency by media
Commission received by the advertising agency from the media would require deduction of tax at source
under section 194J. [Circular no. 715 dated 8-8-1995]
Maintenance contracts
Routine/normal maintenance contracts which include supply of spares will be covered under section 194C.
However, where technical services are rendered, the provisions of section 194J will apply in regard to tax
deduction at source. [Circular no. 715 dated 8-8-1995]
Reimbursement of Expenses
As per circular no. 715 dated 08-08-1995, since section 194J refers to any sum paid, reimbursement of
actual expenses cannot be deducted out of the bill amount for the purpose of tax deduction at source. It
means that if a single bill is raised for the professional fee inclusive of reimbursement of expenditure, TDS is to
be deducted on the gross amount. But if separate bills are raised for professional fee and for reimbursement of
expenditure, then TDS is not required to be deducted on the reimbursements. (As decided in the case of ITO v.
Dr. Willmar Schwabe India (P) Ltd., 3 SOT 71)
Deduction of Tax at source on Service Tax
Until recently, CBDT had clarified that the payments made under section 194-I differ significantly from
payment made under section 194J in the way that in the case of 194-I, TDS has to be deducted on any
income paid as rent. However, in the case of section 194J TDS has to be deducted on any sum paid as
professional and technical fees. The Board had decided to exclude TDS on service tax component on rental
payment because it was construed that service tax payment cannot be regarded as income of the landlord.

Page | 22

Since section 194J covers any sum paid, therefore the board has decided not to extend the scope of Circular
No. 4/2008, dated April 28, 2008 to such payment under section 194J - Letter F.No. 275/73/2007-IT(B),
dated 30-6-2008.
However, based on a recent judgment of Rajasthan High Court in the case of CIT (TDS), Jaipur Vs. Rajasthan
Urban Infrastructure [DTRJ 2013 0857] dated 1 July 2013, the CBDT has revised its view and issued Circular
No. 1/2014 dated 13 January 2014 in respect of payments of the nature of fees for professional service
payable to a resident that are subject to TDS under S. 194-J. The CBDT has clarified that wherever in terms
of the agreement/contract between the payer and the payee, the service tax component comprised in the
amount payable to a resident is indicated separately, tax shall be deducted at source on the amount
paid/payable without including the service tax component. In other words, no tax needs to be withheld on
payments released towards service tax component of the fees, if service tax is indicated separately in the
agreement. In any case, R.4A of the Service Tax Rules makes it mandatory to indicate the service tax amount
separately in the invoices raised.
Fees received from abroad
In respect of fees for professional services received from foreign companies or foreign law and accountancy
firms, any fees paid through regular banking channels to any chartered accountant, lawyer, advocate or
solicitor who is resident in India by non-residents who do not have any agent or business connection or
permanent establishment in India may not be subjected to deduction of tax at source under section 194J.

[Circular No. 726, dated 18-10-1995]

TDS on Software
Software is made available to end users by software developers either directly or through distributors. In
case of direct transfer, the End user License Agreement prevents the end user from effecting resale of such
software. Hence there is no question of multiple level deduction of tax at source. Tax has to be deducted at
source either u/s 194J or u/s 195 of Income-tax Act.
However in case of transfer through distributor, the chain followed is Software developer-Distributor-Enduser. In such cases, the modality of deduction of TDS has been laid down in Notification no. 21/2012
[F.No.142/10/2012-SO (TPL)] S.O. 1323(E), dated 13-6-2012 refer below:
No deduction of tax shall be made on the following specified payment under section 194J of the Act,
namely:Payment by a person (hereafter referred to as the transferee) for acquisition of software from another
person, being a resident, (hereafter referred to as the transferor), wherei.

the software is acquired in a subsequent transfer and the transferor has transferred the software without
any modification,
tax has been deducted(a) Under section 194J on payment for any previous transfer of such software; or
(b) under section 195 on payment for any previous transfer of such software from a non-resident, and
The transferee obtains a declaration from the transferor that the tax has been deducted either under subclause (a) or (b) of clause (ii) along with the Permanent Account Number of the transferor.

ii.
iii.

The scope of the notification is captured in the following table in a simplified manner:
S. Software
No developer

Distributor

End-user

Resident

Resident

Resident

Non-Resident Resident

Resident

Non-Resident Non-Resident Resident

Non-Resident Resident

NonResident

TDS u/s

Benefit of
Notification

194J by Distributor to Software Developer. End

Available
user need not deduct Tax at source
195 by distributor to Software developer. End user
Available
need not deduct tax at source
195 by distributor to Software developer and by
Not Available
End-user to distributor.
195 by Distributor to Software Developer. End-user
Available
need not deduct Tax at Source

Page | 23

Section 195 - Withholding Tax on Foreign Remittances

Who is responsible for

withholding Tax

Any person responsible for making payment to a nonresident (not being a company), foreign company

On what Amount

In respect of interest or any other sum chargeable under

the Income Tax Act, 1961

At what time TDS to be deducted

At the time of credit or payment, whichever is earlier

Rate at which tax to be deducted

Rates in force*

Applicability

Does not apply to salaries and exempt dividends

* Rate or rates in force under relevant Finance Act or at the rates prescribed/specified in relevant treaty
[Agreement for avoidance of double taxation (AADT)], whichever is beneficial to the assessee.
Objective of Section 195
The objective of section 195 is to avoid revenue loss/leakage due from a foreign resident. Capturing and
collecting the tax at source will avoid the difficulty in chasing foreign nationals / non-residents for recovery of
their tax dues at a later date which can pose difficulties due to jurisdictional and other operational issues.
It is very pertinent to note that this section is wider in scope than all the other TDS sections in so far as all
payers are covered and there is also no threshold exemption.
As regards the recipient, the section covers all Non-residents in its ambit. Persons having the tax status of
a Resident and / or a Resident but not ordinarily resident (RNOR) are not covered by the section.
Section 9: Income deemed to accrue or arise in India
Section 195 derives its form and substance completely from section 9. It includes the concept of business
connection, royalty and fees for technical services etc.

Page | 24

Indias Tax Treaties with other countries

India has entered into a number of agreements with many countries with respect to taxes on income and on
capital, wherein the countries agree to:
1. Avoid double taxation
2. Provide relief for taxes paid in the other treaty country
Treaty provisions may be beneficial in many ways:
1. Rate of tax may be lower
2. Definition may be narrower
3. Exemptions may be built in
More often than not the amount of TDS to be withheld and deposited under S. 195 will have to be
determined by seeking an order from the tax officer to determine the applicable rate of tax. This would
require, first, characterisation of income w.r.t the various artciles in the relevant Agreement for Avoidance of
Double Taxation (AADT), the provisions of the Income-Tax act, 1961 etc. The more beneficial of the
provisions between the act and the AADT would apply [S. 90(2) of the Act]. Sometimes the rate of tax is
clearly evident in the relevant AADT (especially where no Permanent Establishment of the recipeint exists in
India) in which case, such rate can be used for deducting TDS without having to approach the tax officer for
an order. In such cases, certain procedural formalities like filing of an online declaration in Form 15CA and
obtaining a certificate from a Chartered Accountant in Form 15CB will have to be complied with (elaborated
later in this write up).
Determination of Taxability

Ascertain Nature of Income and its categorization.

Check Residential Status under the Act.
Check Taxability under the Act.
Check if the payee has a Permanent Establishment in India.
Check for any Exemption under Act.
Determine whether the payee is entitled to avail the DTAA Benefits
Determine Rate of Tax Applicable.
Check whether Payee has PAN.

Permanent Establishment [PE] under the Act

Permanent Establishment is defined under Income Tax Act to include a fixed place of business through
which the business of the enterprise is wholly or partly carried on.

Determining the existence or otherwise of a PE is a complex process and will depend on the definition of a PE
contained in the applicable AADT. Typically, the following chart will help in understanding PE nuances.

Page | 25

Picture courtesy: Presentation by Mr Darpan Mehta (BMR Advisors)

Certificate of Foreign Remittance (Circular No. 4/2009)

The Reserve Bank of India has also mandated that the person making the remittance should furnish
an undertaking (addressed to the Assessing Officer) [Form 15CA] accompanied by a certificate
from an Accountant in a specified format [Form 15CB]. The certificate and undertaking are to be
submitted (in duplicate) to the Reserve Bank of India / authorized dealers who in turn are required to forward
a copy to the Assessing Officer. Earlier a no objection certificate has to be obtained from the Income Tax
Department for making the remittance.
There has been a substantial increase in foreign remittances, making the manual handling and tracking of
certificates difficult. To monitor and track transactions in a timely manner, section 195 was amended
vide Finance Act, 2008 to allow CBDT to prescribe rules for electronic filing of the undertaking. The
format of the undertaking (Form 15CA) which is to be filed electronically and the format of the certificate of
the Accountant (Form 15CB) have been notified vide Rule 37BB of the Income-tax Rules, 1962.
Rule 37BB (Amended via notification 67/2013 effective 1st Oct 2013)
The person responsible for making any payment to a non-resident, not being a company, or to a foreign
company shall furnish the following, namely:
(i) the information in Part A of Form No.15CA [Self Declaration], if the amount of payment does not exceed
Rs. 50,000 and the aggregate of such payments made during the financial year does not exceed Rs.
250,000;
(ii) the information in Part B of Form No.15CA for payments other than the payments referred in clause (i)
after obtaining:
(a) a certificate in Form No. 15CB from an accountant; or
(b) a certificate from the Assessing Officer under section 197 (Lower Deduction Certificate); or
(c) An order from the Assessing Officer under sub-section (2) or sub-section (3) of section 195.

Page | 26

TAX RESIDENCY CERTIFICATE (TRC)

Obtaining a TRC is important to determine the country of residence of the non-resident payee and to identify
the applicable AADT. The Income-tax Act in India requires a non-resident assessee to obtain a tax residency
certificate (TRC) from the tax authorities of the relevant country. The relevant provision contained in the IT
Act, 1961 is reproduced below.
Sub-section (4) of Section 90:

An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be
entitled to claim any relief under such agreement unless a certificate, containing such particulars as may be
prescribed, of his being a resident in any country outside India or specified territory outside India, as the case
may be, is obtained by him from the Government of that country or specified territory.
A notification has been issued by the Indian tax authorities in this regard requiring non-resident assessees to
obtain a TRC containing the following information.
(i) Name of the assessee;
(ii) Status (individual, company, firm etc.) of the assessee;
(iii) Nationality (in case of individual);
(iv) Country or specified territory of incorporation or registration (in case of others);
(v) Assessees tax identification number in the country or specified territory of residence or in case no such
number, then, a unique number on the basis of which the person is identified by the Government of the
country or the specified territory;
(vi) Residential status for the purposes of tax;
(vii) Period for which the certificate is applicable; and
(viii) Address of the applicant for the period for which the certificate is applicable;
Further, the above certificate should be duly verified by the Government of the country or the specified
territory of which the non-resident assessee claims to be a resident for the purposes of tax.
PROCEDURE FOR REMITTANCE TO NON-RESIDENTS

Obtain certificate in Form No. 15CB from a Chartered Accountant.

Tax has to be deducted at rates prescribed under relevant Finance Act or at the rates
prescribed/specified in the AADT, whichever are beneficial to the assessee.
Exchange rate on the day on which TDS is required to be deducted has to be considered.
In case treaty rates are opted by the remittee/payee/recipient, take tax residency certificate of
payee/receiver to determine DTAA of which country has to be applied.
Furnish the information in Form 15CA, verified in the manner prescribed. Rule 37BB.
Form No. 15CA to be then electronically uploaded on Income tax department website
Take printout of Form No. 15CA, sign and manually file with bankers/authorized dealers of the payee
along with copy of Form 15CB. Approach Bank and ask them for remittance with cheque/account debit.
Payer can make a reference by simple letter on letter head/plain paper to Assessing Officer u/s. 195(2) of
the Act (under Rule 10) if he opines that only portion of payment is going to be taxed and hence a
request is made for determination of the amount on which tax has to be deducted.
TDS on salary to non-residents (including Indian NR) is governed by sec. 192 and not 195.

The revised Rule also empowers any tax authority to obtain a copy of Self-Declaration from the remitting
Bank for the purpose of any proceedings under the Income Tax Law.

Page | 27

OTHER APPLICABLE PROVISIONS

APPLICABILITY OF SURCHARGE & CESS ON TDS
Payment to
Resident

Payment
Salary (up to 1 Crore)

Surcharge

Cess

No

3%

Salary (> 1 Crore)

10%

3%

other than salary

No

No

Salary (up to 1 Crore)

No

3%

Salary (> 1 Crore)

Non-Resident

10 %

3%

other than salary up to 1 Crore

No

3%

other than salary (> 1 Crore to 10 crore)

2%

3%

other than salary (> 10 Crore)

5%

3%

DUE DATES FOR DEPOSITION OF TDS DEDUCTED (RULE 30)

When Tax is deducted by an office of Government:

S. No.

Particulars

Due Date

Tax deposited without challan

Same day

Tax deposited with challan

On or before 7th of next month

Tax on perquisites opt to be deposited by the employer [192(1A)]

On or before 7th of next month

When Tax is deducted by other than an office of Government:

S. No.

Particulars

Due Date

Month of April to February

7th of next month

Tax deductible in month of March

30th April of next year

Tax on perquisites opted to be deposited by employer [192(1A)]

7th of next month

PROVISIONS FOR FILING E-TDS RETURN

Forms for submitting Returns of TDS (Rule 31A)
(a) Salary - Form No. 24Q
(b) Payment (other than salary) to a resident Form 26Q
(c) Payment (other than salary) to a non-resident - Form 27Q
Due Dates for submitting Returns of TDS (Rule 31A)
Date of ending of the

Due date, if deductor is an office of

quarter of the financial year

the Government

30th June

31st July

15th July

30th September

31st October

15th October

31st December

31st January

15th January

31st March

15th May

15th May

Page | 28

Due Date for others

PROVISIONS RELATED TO TDS CERTIFICATES

Particulars
Salary
Other than salary

Form no
16
16A

Periodicity
Annual
Quarterly

Transfer of
Immovable Property

16B

Monthly

Cut-off Date
31st May of following financial year
Within 15 days from due date of furnishing the TDS returns
(i.e. 30th July, 30th Oct, 30th Jan & 30th Apr)
22nd of the following month

CONSEQUENCES OF DEFAULT
The following chart indicates the nature of default and its consequences which range from interest, fine, and
penalty to prosecution:
Default/ Failure

Under
section

201(1)
Failure to deduct tax at source
201(1A)
(Non Deduction)
271C
201(1)
Failure to deposit tax
deducted at source
(Non-Deposition)

For delay in furnishing the

TDS returns. (Late Filing of
Return)

201(1A)
276B

234E

For not filing the TDS

statement with in one year
271H
from the specified date
within which it was supposed
Failure
to issue TDS
to be filed.
272A(2)(g)
Certificate u/sec 203

Nature of
demand

Quantum of demand/penalty

Tax demand Equal to tax amount deductible but not deducted

Interest
Penalty

@ 1% p.m. of tax deductible

Equal to amount of tax deductible but not deducted

Tax demand Equal to tax amount not deposited

Interest

@1.5% p.m. of tax not deposited

Rigorous imprisonment for a term which shall not be less

than 3 months but which may extend to 7 years and with
Prosecution
fine 3 months but which may extend to 7 years and with
fine.

Fine

Rs. 200 per day till the failure to file TDS return continues.
The total fees should not exceed the total amount of TDS for
the quarter.

Penalty

Minimum Rs.10,000 to maximum Rs.100,000

Penalty

Rs. 100 for every day during which the failure continues shall
be levied subject to the maximum of TDS amount.

Failure to mention PAN of

the deductee in the TDS
statements and certificates

272B

Penalty

Rs. 10,000

Failure to apply for tax

deduction account number
(TAN) u/sec. 203A

272BB

Penalty

Rs. 10,000

For furnishing incorrect

information (Like Wrong
PAN, TDS amount etc.) in
quarterly returns of TDS.

271H

Penalty

Minimum Rs.10,000 to maximum Rs.100,000

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In addition to the above, there are other consequences in certain cases, as enumerated below;

Inadmissibility of specified expenditure (while computing the income of the deductor) if TDS is not
deducted from the payment. (Section 40a).

Where the tax has not been paid after its deduction it shall be charge on the asset of the defaulter to
recover the amount of TDS. (Section 201(2)).

Inadmissibility of specified expenditure where tax has been deducted but not paid before the due date of
filing return of income.

Requirement to furnish PAN Section 206AA

Deductee shall furnish his PAN to the deductor, failing which tax shall be deducted at the higher of the
following rates:
(i) at the rate specified in the relevant provision of this Act;
(ii) at the rate or rates in force;
(iii) at the rate of 20%.

The deductee shall furnish his Permanent Account Number to the deductor and both shall indicate the
same in all the correspondence, bills, vouchers and other documents which are sent to each other.

Where the 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 provisions of section
206AA shall apply accordingly.

Amounts not Deductible Section 40 (for defaults in withholding or depositing TDS)

Section 40(a) (i)
Any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938),
royalty, fees for technical services or other sum chargeable under this Act, which is payable,
(A) Outside India; or
(B) In India to a non-resident, not being a company or to a foreign company,
On which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after
deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the
time prescribed under sub-section (1) of section 200:
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has
been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed
under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of
the previous year in which such tax has been paid.
Section 40(a)(ia)
Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical
services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, on
which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after
deduction, has not been paid on or before the due date specified in sub-section (1) of section 139, the same
would be inadmissible.
Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been
deducted during the previous year but paid after the due date specified in sub-section (1) of section 139,
such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has
been paid.
Not specified in the Section: Inadmissibility on non-deduction of TDS on directors remuneration
and any sum referred under clause (va) of section 28 of Income Tax Act, 1961.

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Circular no. 10/DV/2013 dated 16th Dec. 2013

Section 40(a)(ia) would cover not only the amounts which are payable as on 31 st March of a previous year
but also amounts which are payable at any time during the year. Term Payable would include amounts
which are paid during the previous year.
Assessee in default (amendment in section 201(1) by Finance Act 2012)
Any person who fails to deduct the whole or part of the tax in accordance with the provisions of this chapter
will not be treated as assessee in default if:
The resident payee has furnished his return of income u/s 139;
has taken into account such amount for computing income in such Return of Income;
has paid the Tax Due on the income declared by him in such return of income; and
Deductor furnishes a certificate to this effect, duly certified by a CA, in form 26A.
In case all the above conditions are satisfied, the said amount shall be allowed as deduction in
the succeeding financial year.
However, the interest for not deducting tax would be payable from the date on which such tax was collectible
till the date of furnishing of return of income by the resident payee.
Section 40(a)(iii)
Any payment which is chargeable under the head "Salaries", if it is payable
(A) Outside India; or
(B) To a non-resident,
And if the tax has not been paid thereon nor deducted therefrom under Chapter XVII-B.
Tianjin Tianshi India Pvt ltd Vs ITO [TS-217-ITAT-2013(Del)]
Facts
Assessee made payment of salary to non-resident staff working in India for AY 2007-08. The tax amount
was withheld but was deposited in Oct 08, after the due date of filing of return of income under section
139(1).
AO disallowed the expenditure.
Assessee contended that section 40(a)(iii) provides for disallowance of salary expenditure where taxes
have not been paid or deducted. The section is silent on the time of the payment of withholding tax.
Held
Under section 40(a)(ia) of the act, tax is required to be paid on or before the due date of filing of tax return
and where the withholding tax was paid after the due date of filing of tax return, the amount of expense
would be allowed as a deduction in the previous year in which the tax was paid. Tribunal held that above
position would equally applies to section 40(a)(iii) of the act, as both provisions - section 40(a)(ia) and
section 40(a)(iii) were required to be read in harmony with each other.
TDS Compliance must be made with diligence and Care
It can be seen from the above discussion that the provisions relating to deduction and deposition of tax at
source are very exhaustive and cast an onerous responsibility on the payer of income. Non-compliance can
have significant financial consequences and therefore, it is pertinent for all businessmen and business houses
to fully understand and be abreast with all applicable provisions of TDS under the Income-tax Act, 1961.

About the Authors

1.
2.

Apar Jain is an Associate Member of the Institute of Chartered Accountants of India working with VSA. He can be reached at aparjain@vsasso.com
Sonal Sapra and Gungun Yadhuvanshi are budding professionals undergoing articleship training with VSA.

Disclaimer
This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subject discussed.
Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as the sole
basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues. VSA is
neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions based on such
views or opinion.

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