CA Final Course Paper 7 Direct Tax Laws Chapter 28 Rajeev Khandelwal FCA, DISA(ICAI)

Tax Deduction / Collection at Source

(TDS/ TCS) Part 2

Sectionwise TDS

Issues for each section

TCS

Learning Objective

2

An Intro.

3

Salary [Sec 192]

Applicable to: ALL Employers. ALL Employees. ◦ Resident. ◦ Non-Resident

Taxable Salary > Exemption limit. Value of Perquisites included in salary. Salary in Foreign Currency? Convert in Rs. at prescribed rate. (Rule 26)

4

TDS on Salary only on Payment. (Not credit)

Lower Deduction Certificate from AO.

Employer may bear TDS on Non Monetary Perks.

Arrears or Advance Salary?

Relief u/s 89(1).

Any Other Income & TDS reported by employee.

No Loss other than from House Property.

Salary [Sec 192]

5

Salary [Sec 192] Employer can give benefit of deduction u/s :

Section Particulars

80C Payment of LIC, PPF etc. 80CCC Contribution to certain Pension Funds. 80CCD Contribution to Pension Scheme of Central Govt. 80D Mediclaim Premium. 80DD Maintenance of Disabled Dependent. 80DDB Medical Treatment. 80E Interest on Loan for Higher Education. 80GG Rent paid by Non-salaried. 80U Deduction for Disabled Person. 80TTA Savings Bank interest upto 10,000/- (AY 2013-14)

6

Salary [Sec 192]

Deduction u/s 80G for donations :

◦ PM’s National Relief Fund

◦ Chief Minister's Relief Fund etc.

Claim other donations in ITR.

Yearly CBDT Circular of TDS on Salary.

Monthly TDS at Average Rate of Tax.

Monthly TDS = Total Tax for the year/12.

7

Assessee changes job during FY :

◦ First Employer : To deduct TDS at Av. Rate.

◦ New Employer : To take into account for TDS (in

remaining months) :

Salary of Previous Employer &

TDS of Previous Employer

Salary [Sec 192]

8

Salary Details in Form 24Q

9

Interest on Securities [Sec 193]

Securities : Debentures, bonds etc.

◦ Fixed Rate of Interest &

◦ Repayment secured by some tangible assets.

Interest on Securities to Resident.

TDS @ 10%.

For Non-residents TDS u/s 195.

10

Interest on Securities [Sec 193] Exceptions

No TDS on interest on :

Debentures (listed or not) if : (listed till 30-6-12)

Issued by a company in which public substantially

interested.

Interest paid/payable :

◦ to Resident Individual or HUF. (Individual till 30-6-12)

◦ By A/c payee cheque.

◦ <= Rs.5,000 p.a. (Rs. 2,500 till 30-6-12) 11

Interest on Securities [Sec 193]

Exceptions

No TDS on interest on :

Securities of Central or State Government.

Specified Bonds.

Securities beneficially owned by Insurance Cos.

Any Listed Security in Dematerialised Form.

12

Income from DDBs

Circular 2/2002 of 15-2-2002 TDS u/s 193 or 195 only on Redemption.

Interest on Deep Discount Bonds?

Cash basis : No issue.

Accrual Basis (Original Subscriber): ◦ Apply to AO in Form 13 for No or Lower Deduction u/s 197.

◦ Form 15H by Resident Senior Individual if Income < Taxable Limit.

◦ Form 15G by other residents if Accumulated Interest < Taxable Limit.

13

Dividends [Sec 194]

Dividend income is Exempt for Shareholders.

No TDS on Dividend on which Dividend

Distribution Tax (DDT) paid.

TDS @ 10% on Deemed Dividend u/s 2(22)(e).

14

Interest other than on Securities [Sec 194A]

Intererest on Loans other than Securities. TDS @ 10%. Exceptions No TDS in following cases : Interest TO banks, LIC, UTI & other notified institutions. Interest on Savings Bank/ Recurring Deposit accounts with

banks. Interest provision in banks on daily/monthly basis for macro

monitoring. (CBDT Circular 3/2010 of 2-3-2010).

15

Interest other than on Securities [Sec 194A]

Exceptions

Bank Interest on FDs <=Rs. 10,000 pa.

Other Interest <= Rs. 5,000.

Interest to Partners by Firm.

Interest to Members by Co-operative Society .

Interest by a Co-operative Society to another.

16

Exceptions Interest on Deposits by non-members with Primary

Agricultural Credit Society etc. Interest to Depositors of various PO Schemes. Interest paid by Income Tax Department. Interest on Compensation <= Rs. 50,000/- awarded

by Motor Accidents Claims Tribunal. Interest on Zero Coupon Bonds.

Interest other than on Securities [Sec 194A]

17

Prize Money of 5 cr?

18

Winnings from Lottery [Sec 194B] Winning from Lottery or Crossword Puzzles. Shows like Kaun Banega Crorepati, Jhalak Dikhlaja, Nach Baliye etc. TDS @ 30%. No TDS if amount <= Rs 10,000. Prize = 7 nights & 8 days tour to Mauritius. TDS can’t be deducted as no amount paid. Duty of Responsible Person to ensure tax payment.

19

Winning from Horse Races [Sec 194BB]

No TDS if amount <=Rs 5,000.

TDS @ 30%.

20

Payment to Contractors [Sec 194C]

Applicable for Payments to Resident Contractors

/Sub-contractors.

Payments to Non-resident Contractors u/s 195.

TDS on any Contract of Work.

Includes Supply of Labour.

21

Work includes : ◦ Advertising ◦ Broadcasting & Telecasting including production of

programmes ◦ Carriage of Goods & Passengers by any mode of

transport (other than Railways ) ◦ Catering ◦ Manufacturing a product : As per Client Specification Using Material purchased from such Client. Note : If raw material purchased from another person, not work.

Payment to Contractors [Sec 194C]

22

No distinction of Contractor or Sub contractor.

Individuals & HUF : 1%.

Others : 2%.

TDS on Total Bill Value if Value of Materials not

separately mentioned.

TDS applicable on Reimbursement of Expenses

also. (Circular 715 of 8-8-95).

Payment to Contractors [Sec 194C]

23

Exceptions

No TDS in the following cases :

Single payment <=Rs. 30,000.

Multiple payments in a financial year <= Rs. 75,000.

Payment made by Individual or HUF for Personal

Purposes.

Payment made to Goods Transport Contractor who

has furnished PAN. (TDS @ 20% if no PAN).

Payment to Contractors [Sec 194C]

24

Insurance Commission [Sec 194D]

Applicable on : ◦ Insurance Commission or ◦ Other Remuneration for soliciting insurance.

For New or Existing/Lapsed Policies. TDS only if amount > Rs. 20,000 p.a. TDS @ 10%.

25

Payment to Non-resident Sportsman etc. [Sec 194E]

Applicable on payments made to Non-resident :

◦ Sportspersons (including athletes).

◦ Sports Association.

◦ Entertainer. (Wef 1-7-12)

26

Payment to Non-resident Sportsman etc. [Sec 194E]

Applicable incomes : ◦ Taking part in any game in India. ◦ Advertisement. ◦ Contribution of Sports related articles in

newspapers or magazines. ◦ Performance by Entertainer. ◦ Guarantee amount to a Sports Association

for any sports played in India. TDS @ 20%. (10% till 30-6-12)

27

Payments for Deposits under NSS [Sec 194EE]

Applicable on payments made from National Savings Scheme u/s 80CCA. TDS if amount > Rs. 2,500 p.a. Tax @ 10%. Exception No TDS on payments made to Legal Heirs of

deceased.

28

Repurchase of Units by Mutual Fund [Sec 194F]

Applicable on Payments made on

Repurchase of Units u/s 80CCB(2).

Tax @ 20%.

29

Commission on Sale of Lottery Tickets [Sec 194G]

Applicable on Commission, Remuneration on Sale

of Lottery Tickets.

TDS if amount > Rs. 1,000 p.a.

Tax @ 10%.

30

Commission /Brokerage [Sec 194H]

TDS if amount > Rs. 5,000 p.a. TDS @ 10%. Exceptions No TDS by Individual or HUF to whom Tax Audit

NA in immediately preceding FY. No TDS on Commission to PCO Operators by

BSNL & MTNL.

31

Rent [Sec 194I]

TDS if Rent > Rs. 1,80,000. Limit of Rs. 1,80,000/- for each Co-owner separately. No TDS on Refundable Security Deposit. TDS applicable on : ◦ Advance Rent. ◦ Warehousing Charges (as it is in the nature of rent). ◦ Hotel Accommodation taken on Regular basis. CBDT Circular 5/2002 of 30-7-2002. No TDS on rate

contracts for getting lower rates if no regular hiring.

32

Rent [Sec 194I]

Use of Cold Storage Facility? Contract u/s 194C. (CBDT Circular 1/2008 of 10-1-2008). TDS on Rent : ◦ Plant, Machinery or Equipment : 2%. ◦ Land & Building : 10%.

No TDS on Service Tax on Rent. (CBDT Circular 4/2008 of 28-4-2008).

Exception No TDS by individual or HUF to whom Tax Audit not

applicable in immediately preceding FY.

33

TDS on Transfer of Property [Sec 194IA]

Purchase of Property ◦ >= 5 lacs : PAN Mandatory(Rule 114B) ◦ >=30 lacs : AIR

Many Buyers don’t provide PAN. Sec. 194-IA Wef 1-6-2013. TDS @ 1%. On Purchase of Immovable Property. Value >=Rs. 50 lacs.

34

Resident Seller.

Individuals etc. not in business.

First/ Subsequent Sale.

NA to Agricultural land in Rural Area. (Sec 2(14))

TDS on Transfer of Property [Sec 194IA]

35

Professional or Technical Fees [Sec 194J]

Following payments are covered: ◦ Fees for Professional Services. ◦ Fees for Technical Services. ◦ Royalty. ◦ Non-compete fee etc. ◦ Any Remuneration, Fee or Commission paid

to Director of Co. (not covered u/s 192). (wef 1-7-12)

36

Professions • CA

• Medical

• Engineering

• Architecture

• Technical Consultancy

• Interior Decoration

• Legal

• Advertising 37

Notified Professions

• Authorised Representative • Company Secretary • Information Technology

38

Notified Professions • Sportspersons

• Umpires and Referees

• Coaches and Trainers

• Team Physicians

• Physiotherapists.

• Event Managers

• Commentators

• Anchors

• Sports Columnists 39

Notified Professions

Film Artist Actor Cameraman Director/ Assistant Director Music Director/Assistant Music

Director Art Director/ Assistant Art

Director Dance Director/Assistant Dance

Director Editor

40

Notified Professions

Singer Lyricist Story writer Screen-play writer Dialogue writer Dress designer

Professional Fees

Photography, Dancing etc.? Not covered as not notified. Payments made by TPAs to Hospitals etc. covered

(for medical services). Payment made for Use of Computer Software? Covered under Royalty. Sitting Fee to Director. (irrespective of amount) Other cases : TDS only if amount > Rs. 30,000 p.a. TDS @ 10%.

42

Professional Fees Exceptions No TDS by Individual or HUF to whom Tax Audit NA

in immediately preceding FY. No TDS on Professional Fee for personal

purposes by Individual or HUF to whom Tax Audit applicable in immediately preceding FY.

No TDS on professional fee : ◦ paid by non-residents to CAs, lawyers etc. ◦ through normal banking channels ◦ if they don’t have any agent or business connection in India.

43

Professional Fees Exceptions No TDS on subsequent sale of computer

software if : ◦ No Modification in Software. ◦ TDS already deducted u/s 194J or 195 in any

previous sale. ◦ Undertaking by Seller that TDS deducted. ◦ Seller provides PAN to Buyer.

44

Compulsory Acquisition of Immovable Property [Sec 194LA]

Applicable on Compensation /Enhanced

Compensation. For Compulsory Acquisition. Immovable Property : Any Land or Building or part .

45

Compulsory Acquisition of Immovable Property [Sec 194LA]

No TDS for Compensation <= Rs. 2 lacs pa. (Rs. 1 lac upto 30-6-12)

TDS @ 20%.

Exceptions No TDS in case of Compulsory Acquisition of

Agricultural Land. (Sec 2(14)(iii))

46

Interest from Infrastructure Debt Fund [Sec 194LB]

Applicable on Interest paid by Infrastructure Debt

Fund. (Sec 10(47)). To Non-resident or Foreign Co. TDS @ 5%.

47

Interest from Indian Company [Sec 194LC]

Applicable on Interest paid by Indian Co. To Non-resident or Foreign Co. Loan taken from 1-7-2012 to 30-6-2015. Loan borrowed in Foreign Currency. Loan Agreement or Long Term Infrastructure Bonds. Approved by Central Government. Rate of Interest <= notified rate. TDS @ 5%.

48

Other Payments to Non-residents [Sec 195]

Applicable on Payments to Non-residents/ Foreign Cos.

NA to Salaries(Sec 192) & other payments under specific sections.

No Threshold Limit. Responsibility to deduct tax ON ANY PERSON. Both Residents & Non-residents to deduct tax.

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Other Payments to Non-residents [Sec 195]

Non-resident may not have : ◦ Residence ◦ Place of Business ◦ Business Connection in India ◦ Any other presence in any manner in India.

Explanation to Sec 195 (in view of Vodafone case

judgement of SC)

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Other Payments to Non-residents [Sec 195]

Income Chargeable to tax in India. CA certificate in Form 15CB E-filing details of Foreign Remittance in Form 15CA

on www.tin-nsdl.com . Different Rates for Different Types of Payments. Direct Tax Avoidance Agreement (DTAA) with

various countries. Applicable Rate : Lower of Rate as per Income Tax

Act & Rate in DTAA.

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Circular 7/2011 of 27-9-2011. Refund in following cases : ◦ Income does not accrue to Non-resident. ◦ No Tax is due. ◦ Tax is due at Lower Rate. ◦ TDS deducted as per DTAA but lower tax in IT

Act.

Refund of Excess Tax u/s 195

52

53

Details in Form 26Q/27Q

Tax Collection at Source [Sec 206C]

Every Seller

at the time of debiting amount

receivable or receiving payment

whichever is earlier,

shall collect Tax at Source

From Buyers at following rates:

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Tax Collection at Source S. No.

Specified goods Rate of TCS

1. Alcoholic liquor for human consumption 1% 2. Tendu leaves 5% 3. Timber obtained under a forest lease 2.5% 4. Timber obtained by any mode other than under a

forest lease 2.5%

5. Any other forest produce not being timber or tendu leaves

2.5%

6. Scrap 1% 7. Minerals being coal, lignite or iron ore 1% Wef 1-7-12

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Tax Collection at Source

(1C) Every person granting a Lease/Licence or Otherwise Transferring any Right or Interest in following shall at time of debiting amount receivable or

receiving payment whichever is earlier, collect tax at source as follows :

56

Tax Collection at Source

S. No. Specified rights Rate of TCS

1. Parking lot 2% 2. Toll Plaza 2% 3. Mining & Quarrying 2%

Exception • Licensee/ Lessee is Public Sector Co.

57

Tax Collection at Source

(1D) Every Seller Shall Collect Tax at Source From Buyers in case of CASH Sale at following rates :

S. No. Specified goods Rate of TCS 1. Bullion > Rs. 2,00,000/- 1% 2. Jewellery > Rs. 5,00,000/- 1%

Wef 1-7-12

58

Surcharge & Education Cess on TCS (AY 2013-14)

Buyer Surcharge (2%) Education Cess (3%)

Residents No No

Foreign Co. (Amount collected up to 1 cr.) No Yes

Foreign Co. (Amount collected more than 1 cr.) Yes Yes

Other Non-residents (Irrespective of amount ) No Yes

59

TCS at Lower /Nil Rate

Buyer furnishes Certificate from AO. Application by Buyer in Form 13. AO to grant certificate if Total Income of Buyer

justifies Lower or Nil TCS. No TCS if buyer furnishes declaration in Form 27C

(in duplicate) that goods shall be utilised for : ◦ Manufacturing, ◦ Processing or Producing Articles or Things & ◦ NOT for Trading.

Collector to furnish copy of declaration to ITD by 7th of next month.

60

Deposit of TCS

Government

Deposit by Due date of Deposit Transfer Voucher Same day Challan By 7th of the month

subsequent to the month of deduction

61

Deposit of TCS

Other Collectors Can deposit TCS by Challan only. By 7th of month subsequent to month of collection. No extra time for tax collected during March.

62

Quarterly Statement of TCS

Quarter Government Others

Q1 (Apr-Jun) 31 Jul 15 Jul

Q2 (Jul-Sep) 31 Oct 15 Oct

Q3 (Oct-Dec) 31 Jan 15 Jan

Q4 (Jan-Mar) 15 May 15 May

Note : E-filing mandatory in some cases as in TDS.

63

Certificate of TCS

Form 27D.

Quarterly within 15 days of due date of TCS

Returns. (Same as in TDS).

Prepared & issued by Collector.

Not downloaded from IT website.

64

TDS on Different Payments.

Important issues in each section.

Exceptions.

TCS

Various compliances in TCS.

Lesson Summary

65

66

TDS on Salary is to be deducted at the time of :

MCQ – 1

A. Credit. B. Payment.

C. Earlier of Credit or Payment.

D. None of the above.

Solution : B

67

TDS on Salary is be deducted at :

MCQ – 2

A. Average Rate of Tax B. 10%

C. 20%

D. 30%

Solution : A

68

Non-Salary TDS is to be deducted at the time of :

MCQ – 3

A. Credit. B. Payment.

C. Earlier of Credit or Payment.

D. None of the above.

Solution : C

69

TDS should be claimed in the year in which :

MCQ – 4

A. Income is offered to tax

B. Payment received

C. Payment credited

D. None of the above.

Solution : A

70

Certificate for lower or no deduction can be applied to AO for sections :

MCQ – 5

A. 192

B. 194A

C. 194C

D. All the above

Solution : D

71

If deductee does not furnish PAN, TDS is to be deducted at :

MCQ – 6

A. Average Rate of Tax B. 10%

C. Minimum 20%

D. Maximum 20%

Solution : C

72

Government deductor can deposit TDS/TCS by :

MCQ – 7

A. Challan

B. Transfer Voucher

C. Either A or B

D. None of above

Solution : C

73

TDS on Commission is covered by section :

MCQ – 8

A. 194J B. 192

C. 194C

D. 194H

Solution : D

74

75

Question 1

Is TDS liable to be deducted on prize money won in KBC contest by Naman?

Is Naman liable to claim benefit of exemption limit of Rs. 2,00,000?

Solution : Yes, TDS to be deducted u/s 194B. Tax is deducted at flat rate of 30% without any

exemption.

76

Question 2

Sonal Haldia wins a flat in Andheri Mumbai as prize money for winning Big Boss.

Is TDS applicable? Solution : Yes, TDS is liable to be deducted @30% u/s 194B. The organisers have to ensure that she pays tax on it beforehand as the prize money is in kind.

77

Question 3 Payments to Contractor Sanju during 2012-13 :

Whether TDS applicable? On which amount? Solution : TDS NA as no individual payment > 30,000 & aggregate payments don’t exceed 75,000. If further payments made, then TDS @ 1 % on total.

5-4-2012 25,000

26-6-2012 30,000

12-12-2012 10,000

24-01-2013 10,000

78

Question 4

Is TDS applicable on payment received by Chris Gayle for playing T -20 matches in India? What is the threshold limit? Solution : Yes, TDS to be deducted u/s 194E. TDS is applicable irrespective of amount.

79

Question 5

Is TDS applicable on any payment made to Chris Gayle for modelling in India? What is the threshold limit? Solution : Yes TDS is applicable u/s 194E. TDS is applicable irrespective of amount.

80

Question 6

Rent paid @ Rs 30,000 for 6 months in FY

2012 – 2013 to Krishan Kumar.

Is TDS applicable?

Solution : No. TDS is liable to be deducted if rent

payment exceeds Rs. 1,80,000 during FY.

81

Question 7

Is TDS applicable on Landing & Parking charge paid by Jet airways to Airport Authorities of India? Under which Section? Solution : Yes u/s 194I. CIT vs Japan Airlines Co. Ltd.(2010) 325 ITR 298.

82

Question 8

Is TDS applicable on payment made to Farhan Akhtar for directing a movie?

Under which Section? Solution : Yes , TDS is liable to be deducted u/s

194J as Film Direction is a Profession notified u/s 194J.

83

Question 9

By which date TDS is be deposited by challan if it has been deducted : ◦ On 1-3-2013 ◦ On 31-3-2013 ◦ Any other date in March

Solution : By 30-4-2013.

84

Question 10

Is TCS applicable on Gold Ornaments worth 10 Lacs purchased in cash by Sunita on 30-6-2012?

Solution : No. TCS on gold ornaments & bullion applicable wef 1-7-2012.

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Thank You

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