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CircularNo.715,dated881995

1119. Clarifications on various provisions relating to tax deduction at source regarding changes introduced through
FinanceAct,1995
TheFinanceAct,1995,hasenlargedthescopeofincometaxdeductionatsourcebymakingvariousamendments.Inregard to the changes
introducedthroughtheFinanceAct,1995,anumberofquerieshavebeenreceivedfromthevariousassociationsandprofessionalbodiesonthe
scopeoftaxdeductionatsource.Itwouldbedesirabletoclarifythedoubtsbyissuingapubliccircularintheformofquestionanswersas
under:
Question1:Whatwouldbethescopeofanadvertisingcontractforthepurposeofsection194CoftheAct?
Answer:ThetermadvertisinghasnotbeendefinedintheAct.DuringthecourseoftheconsiderationoftheFinanceBill,1995,theFinance
MinisterclarifiedontheFlooroftheHousethattheamendedprovisionsoftaxdeductionatsourcewouldapplywhenaclientmakespayment
toanadvertisingagencyandnotwhenadvertisingagencymakespaymenttothemedia,whichincludesbothprintandelectronicmedia.The
deductionis requiredto bemade at the rate of 1 per cent. It was further clarified that when an advertising agency makes payments to their
models,art
ists,photographers,etc.,thetaxshallbedeductedattherateof5percentasapplicabletofeesforprofessionalandtechni
calservices
undersection194JoftheAct.
Question2:Whethertheadvertisingagencywoulddeducttaxatsourceoutofpaymentsmadetothemedia?
Answer:No.ThepositionhasbeenclarifiedintheanswertoquestionNo.1above.
Question3:Atwhatrateis tax to be deducted if the advertising agencies give a consolidated bill including charges for art work and other
relatedjobsaswellaspaymentsmadebythemtomedia?
Answer:Thedeductionwillhavetobemadeundersection194Cattherateof1percent.Theadvertisingagenciesshallhavetodeducttaxat
sourceattherateof5percentundersection194Jwhilemakingpaymentstoartists,actors,models,etc.Ifpay
mentsaremadeforproductionof
programmesforthepurposeofbroadcastingandtelecasting,thesepaymentswillbesubjectedtoTDS@2percent.Eveniftheproductionof
suchprogrammesisforthepurposeofpreparingadvertisementmaterial,notforimmediateadvertising,thepaymentwillbesubjecttoTDSat
therateof2percent.
Question 4 : Where the tax is required to be deducted at source on payments made directly to the print media/Doordarshan for release of
advertisements?
Answer:Thepaymentsmadedirectlytoprintandelectronicmediawouldbecoveredundersection194Castheseareinthenatureofpayments
forpurposesofadvertising.Deductionwillhavetobemadeattherateof1 per cent. Itmay, however, be clarified that the payments made
directlytoDoordarshanmaynotbesub
jectedtoTDSasDoordarshan,beingaGovernmentagency,isnotliabletoincometax.
Question5:Whetheracontractforputtingupahoardingwouldbecoveredundersection194Cor194IoftheAct?
Answer:Thecontractforputtingupahoardingisinthenatureofadvertisingcontractandprovisionsofsection194Cwouldbeapplicable.It
may,however,beclarifiedthatifapersonhastakenaparticularspaceonrentandthereaftersubletsthesamefullyorinpartforputtingupa
hoarding,hewouldbeliabletoTDSundersection194Iandnotundersection194CoftheAct.
Question6:Whetherpaymentunderacontractforcarriageofgoodsorpassengersbyanymodeoftransportwouldincludepay
mentmadetoa
travelagentforpurchaseofaticketorpaymentmadetoaclearingandforwardingagentforcarriageofgoods?
Answer:Thepaymentsmadetoatravelagentoranairlineforpurchaseofaticketfortravelwouldnotbesubjectedtotaxdeductionatsource
astheprivityofthecontractisbetweentheindividualpassengerandtheairline/travelagent,notwithstand
ingthefactthatthepaymentismade
byanentitymentionedinsection194C(1).Theprovisionofsection194Cshall,however,applywhenaplaneorabusoranyothermodeof
transportischarteredbyoneoftheentitiesmentionedinsection194CoftheAct.Asregardspaymentsmadetoclearingandforwardingagent
forcarriageofgoods,thesameshallbesubjectedtotaxdeduc
tionatsourceundersection194CoftheAct.
Question7:Whetheratravelagent/clearingandforwardingagentwouldberequiredtodeducttaxatsourcefromthesumpayablebytheagent
toanairlineorothercarrierofgoodsorpassengers?
Answer:Thetravelagent,issuingticketsonbehalfoftheair
linesfortravelofindividualpassengers,wouldnotberequiredtodeducttaxat
sourceasheactsonbehalfoftheairlines.Thepositionofclearingandforwardingagentsisdifferent.Theyactasindependentcontractors.Any
paymentmadetothemwould,hence,beliablefordeductionoftaxatsource.Theywouldalsobeliabletodeducttaxatsourcewhilemaking
paymentstoacarrierofgoods.
Question8:Whethersection194Cwouldbeattractedinrespectofpaymentsmadetocouriersforcarryingdocuments,letters,etc.?
Answer: The carriage of documents, letters, etc., is in the nature of carriage of goods and, therefore, provisions of section 194C would be
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CircularNo.715,dated881995

attractedinrespectofpaymentsmadetothecouri
ers.
Question9:Incaseofpaymentstotransporters,caneachGRbesaidtobeaseparatecontract,eventhoughpaymentsfor several GRs are
madeunderonebill?
Answer:Normally,eachGRcanbesaidtobeaseparatecontract,ifthegoodsaretransportedatonetime.Butifthegoodsaretransported
continuouslyinpursuanceofacontractforaspecif
icperiodorquantity,eachGRwillnotbeaseparatecontractandallGRsrelatingtothat
periodorquantitywillbeaggregat
edforthepurposeoftheTDS.
Question10:Whetherthereisanyobligationtodeducttaxatsourceoutofpaymentoffreightwhenthegoodsarereceivedon"freighttopay"
basis?
Answer:Yes.Theprovisionsoftaxdeductionatsourceareap
plicableirrespectiveoftheactualpayment.
Question11:Whetheracontractforcateringwouldincludeserv
ingfoodinarestaurant/saleofeatables?
Answer: 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.
Question12:Whetherpaymenttoarecruitmentagencycanbecoveredbysection194C?
Answer: Provisions of section 194C apply to a contract for carrying out any work including supply of labour for carrying out any work.
Paymentstorecruitmentagenciesareinthenatureofpaymentsforservicesrendered.Accordingly,provisionsofsection194Cshallnotapply.
Thepaymentwill,however,besubjecttoTDSundersection194JoftheAct.
Question13:Whethersection194Cwouldcoverpaymentsmadebyacompanytoashareregistrar?
Answer:Inviewofanswertotheearlierquestion,suchpaymentswillnotbeliablefortaxdeductionatsourceundersection194C.Butthese
willbeliabletotaxdeductionatsourceundersection194J.
Question14:WhetherFDcommissionandbrokeragecanbecoveredundersection194C?
Answer:No
Question15:Whethersection194Cwouldapplyinrespectofsupplyofprintedmaterialasperprescribedspecifications?
Answer:Yes.
Question16:Whethertaxisrequiredtobedeductedatsourceundersection194Cor194Jonpaymentofcommissiontoexternalpartiesfor
procuringordersforthecompanysproduct?
Answer:Renderingofservicesforprocurementofordersisnotcoveredundertheprovisionsofsection194C.However,renderingofsuch
servicesmayinvolvepaymentoffeesforprofessionalortechnicalservices,inwhichcasetaxmaybedeductibleundertheprovisionsofsection
194J.
Question17:Whetheradvertisementcontractsarecoveredundersection194Conlytotheextentofpaymentofcommissiontothepersonwho
arrangesreleaseofadvertisement,etc.,orwhetherdeductionistobemadeonthegrossamountincludingbillofmedia?
Answer:Taxistobedeductedattherateof1percentofthegrossamountofthebill.
Question18:Whetherdeductionoftaxisrequiredtobemadeundersection194Cforsponsorshipofdebates,seminarsandotherfunctions
heldincolleges,schoolsandassociationswithaviewtoearnpublicitythroughdisplayofbanners,etc.,putupbytheorganisers?
Answer:Theagreementofsponsorshipis,inessence,anagreementforcarryingoutaworkofadvertisement.Therefore,provisionsofsection
194Cshallapply.
Question19:Whetherdeductionoftaxisrequiredtobemadeonpaymentsforcostofadvertisementissuedinthesouvenirsbroughtoutby
variousorganisations?
Answer:Yes.
Question20:Whetherpaymentsmadetoahotelforroomshiredduringtheyearwouldbeofthenatureofrent?
Answer:Paymentsmadebypersons,otherindividualsandHUFsforhotelaccommodationtakenonregularbasiswillbeinthenatureofrent
subjecttoTDSundersection194I.
Question21:WhetherthelimitofRs.1,20,000perannumwouldapplyseparatelyforeachcoownerofaproperty?
Answer:Undersection194I,thetaxisdeductiblefrompaymentbywayofrent,ifsuchpaymentofthepayeeduringtheyearislikelytobe
Rs.1,20,000ormore.Ifthereareanumberofpayees,eachhavingdefiniteandascertainableshareintheproperty,thelimitofRs.1,20,000
willapplytoeachofthepayee/coownerseparately.Thepayersandpayeesare,however,advisednottoenterintoshamagreementstoavoid
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TDSprovi
sions.
Question22:Whethertherentpaidshouldbeenhancedfornotion
alincomeinrespectofdepositgiventothelandlord?
Answer:Thetaxistobedeductedfromactualpaymentandthereisnoneedofcomputingnotionalincomeinrespectofadepositgiventothe
landlord.Ifthedepositisadjustableagainstfuturerent,thedepositisinthenatureofadvancerentsubjecttoTDS.
Question23:Whetherpaymentsmadebycompanytakingpremisesonrentbutstylingtheagreementasabusinesscentreagreementwould
attracttheprovisionsofsection194I?
Answer:Thetaxistobedeductedfromrentpaid,bywhatevernamecalled,forhireofaproperty.Theincidenceofdeductionoftaxatsource
doesnotdependuponthenomenclature,butonthecontentoftheagreementasmentionedinclause(i)ofExpla
nationtosection194I.
Question24:Whetherinacaseofacompositearrangementforuserofpremisesandprovisionofmanpowerforwhichconsiderationispaidas
aspecifiedpercentageofturnover,section194IoftheActwouldbeattracted?
Answer:Ifthecompositearrangementisinessencetheagreementfortakingpremisesonrent,thetaxwillbedeductedundersection194I
frompaymentsthereof.
Question25:Whetherthereceiptspriorto171995aretobeaggregatedtodeterminelimitofRs.20,000foreachfinancialyear?
Answer:Clause(B)ofprovisotosection194J(1)makesitclearthattaxshallbedeductedatsourceiftheaggregatesumscreditedorpaidor
likelytobecreditedorpaidduringthefinancialyeararelikelytoexceedRs.20,000.Therefore,inregardtofinancialyear199596,thelimitof
Rs.20,000willhavetobeworkedouttakingintoaccountallthepaymentsfrom141995to3131996.Butthedeductionoftaxatsource
wouldbemadeatthespecifiedrateonlyfromthepaymentmadeonorafter171995.
Question26:Whetherpaymentsmadetoahospitalforrenderingmedicalserviceswillattractdeductionoftaxatsourceundersection194J?
Answer:Yes.
Question27:Whethercommissionreceivedbytheadvertisingagencyfromthemediawouldrequiredeductionoftaxatsourceundersection
194JoftheAct?
Answer:Yes.
Question28:Whethertheservicesofaregularelectricianoncontractbasiswillfallintheambitoftechnicalservicestoattracttheprovisionsof
section194JoftheAct?Incasetheservicesoftheelectricianareprovidedbyacontractor,whethertheprovisionsofsection194Cor194J
wouldbeapplicable?
Answer:Thepaymentsmadetoanelectricianortoacontractorwhoprovidestheserviceofanelectricianwillbeinthenatureofpaymentmade
inpursuanceofacontractforcarryingoutanywork.Accordingly,provisionsofsection194Cwillapplyinsuchcases.
Question29:Whetheramaintenancecontractincludingsupplyofspareswouldbecoveredundersection194Cor194JoftheAct?
Answer : Routine, normal maintenance contracts which includes supply of spares will be covered under section 194C. However, where
technicalservicesarerendered,theprovisionofsection194Jwillapplyinregardtotaxdeductionatsource.
Question30:Whetherthedeductionoftaxatsourceundersec
tions194Cand194Jhastobemadeoutofthegrossamountofthebillincluding
reimbursementsorexcludingreimbursementforactualexpenses?
Answer:Sections194Cand194Jrefertoanysumpaid.Obviously,reimbursementscannotbedeductedoutofthebillamountforthepurpose
oftaxdeductionatsource.
Question31:WhetherTDSfromincomeinrespectofunitsisapplicabletodividendorisitapplicabletocapitalapprecia
tiondistributedatthe
timeofrepurchase/redemptionoftheunits?
Answer: The provisions of section 194K regarding deduction of tax at source from income in respect of units are applicable to periodical
distributionofincome,whichisinthenatureofdividend.Theseprovisionsdonotapplytocapitalgainsarisingatthetimeofrepurchaseor
redemptionoftheunits.
Question32:WhetherTDSonreinvestmenttermdepositshouldbemadeonaccrualbasis,whichisquarterly,oronceinafinancialyear?
Answer: Tax has to be deducted at source at the time of credit of interest to the account of the payee or at the time of payment thereof,
whicheverisearlier.Ifcreditisgiventotheaccountofthepayeeorpaymentismadetohimannually,thetaxmaybedeductedannually.Itmay
beclarifiedthatacredittointerestpayableaccountorsuspenseaccount,etc.,isalsotakenascredittotheaccountofthepayee,eventhoughthis
creditisnotreflectedseparatelyinthepayeesaccount.
Question33:Whethervariabledepositschemesareliabletodeductionoftaxatsourcefrominterest?
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Answer:Undersection194A,taxistobedeductedfrominterestfrombanksontimedeposits.Asvariabledepositsareinthenatureoftime
deposits,taxisdeductibleatsourcefrominter
estonsuchdeposits.
Question34:Whethertaxhastobedeductedfromprincipalonrenewalofdepositsmadeafter171995butwhichmaturedonorbefore306
1995whentherenewalismaderetrospectively?
Answer:Taxhastobedeductedfrominterestcreditedorpaid,whicheverisearlier,ontimedepositswithabankmadeonorafter171995.
Whenatimedepositisrenewedretrospectively,therelevantdatefordecidingtheapplicabilityofsection194Awouldbethatdateofrenewal.
Thus,ifthetimedepositisrenewedafter171995,thetaxdeductionatsourcewillhavetobemadefrominterestpaidorcreditedinrespectof
suchatimedeposit.
Circular:No.715,dated881995.

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