CU-MBA-SEM-III-Tax Planning and Management- Second Draft-converted

UNIT 13: DEDUCTION OF TAX AT SOURCE Structure 13.0 Learning Objectives 13.1 Introduction 13.2 TDS Chart 13.3 Applicability and Rates of TDS 13.4 Time schedule for TDS 13.5 Consequences of Noncompliance 13.6 Summary 13.7 Keywords 13.8 Learning activity 13.9 Unit End Questions 13.10 References 13.0 LEARNING OBJECTIVES After studying this unit students will be able: • Explain modes of recovery of Income tax from an Assessee • Examine the provisions governing Tax deducted at source • State the when Advance Tax is to be paid • Identify persons responsible for paying Tax deducted at source 13.1 INTRODUCTION Income Tax Act provides for scope of the total income of a person chargeable to tax on an annual basis. The tax liability is determined as per the provisions of the Income-tax Act and such tax liability is discharged vide any of the following mode: 1. Tax Deducted at Source (TDS) 2. Tax Collected at Source (TCS) 3. Advance Tax 4. Self-Assessment Tax (SAT) 5. Tax on regular assessment Liability for TDS Any person responsible for making payment of certain category of incomes is liable to deduct tax at source at an appropriate occasion. The law prescribes time when the TDS is to be made, rate at which it should be made and, when TDS should be paid to the Government and associated administrative responsibilities of payer (tax deductor) and payee (tax deductee) have been prescribed. 201 CU IDOL SELF LEARNING MATERIAL (SLM)

The following chart states at a glance income from which TDS should be made: 13.2 TDS CHART Section Nature of Income/Threshold Person Rate at which to be 192 Payment Limit Responsible todeducted 193 Make TDS Salary Maximum Any person being average rate of amount not liablean Employer income- tax to tax for computed on the employee basis of rates in force for the financial year in which the payment is made, on the estimated salary income of the employee for that financial year Interest on securities 10,000, if Any person issuing Discussed later income the security from 8% Saving Bonds, 2003 194 Dividend 5,000, if interest @10% if PAN is 194A on debenture provided @20% if Nil Company PAN is not provided @10% if PAN is Any interest otherExceeding Any person other provided @20% if PAN is not provided than interest on₹ 5,000 in a year than individual or securities or 10,000 in case HUF payer is banking company or co- operative society or deposit with post office 202 CU IDOL SELF LEARNING MATERIAL (SLM)

194B Winnings from₹ 10,000 Any person 30% [Sec. 115BBB] 194BB lottery or crossword Puzzle or card game and other game of any sort including television game Winnings from horse₹ 5,000 Winning from 30% [Sec. 115BBB] horse race race 194C Any Payment inIf a contract Central or State If the recipient is an 194D pursuance of anyexceeds contract Government, Local individual/HUF = 1% contract for₹ 30,000 or total Authority, If the recipient is any consideration in a year Central/State or other person = 2% contracts with Provincial Corpn., 20%, if PAN is not the same Company Co- provided (in the both contractor or operative Society the cases). sub- contractor Housing Board, If the receipt is a exceed ₹ 75,000. Trustor University, transport operator and Firm eligible to compute in come u/s 44AE and he furnishes his PAN to payer, TDS Insurance ₹ 20,000 Any person rate = Nil PAN 10% if commission furnished 20%, if PAN not furnished 194DA Any person made₹ 1,00,000 Any person 2% payment to a resident person under Life Insurance Policy, including bonus on such policy, except income u/s 10(10D) 203 CU IDOL SELF LEARNING MATERIAL (SLM)

194E Income for Nil Any person 20% participation in any game or sport in India; by way of remuneration for articles on sorts, etc Guaranteed sum inNil Any person 20% relation to any game or sport played in India. 194EE Any sum out of₹ 2,500 Any person 20% National Savings Scheme u/s 80CCCA 194F Amount on accountNil Any person 20% Section of repurchase relevant of units covered u/s. 80CCB Nature of Income/Threshold Limit Person ResponsibleRate at which to be Payment to Make TDS deducted 194G Commission, Exceeding Any person 10% remuneration ₹ 1,000 or prize – relating to lottery tickets 194H Commission orExceeding Other than10%, if PAN Brokerage ₹ 5,000 p.a individual and HUF furnished 20%, if PAN not furnished 204 CU IDOL SELF LEARNING MATERIAL (SLM)

194-I Rent ₹ 1,80,000 p.a Other than2% on Machinery or 194J Fees for Professional₹ 30,000 p.a individual and HUF plant equipment or technical services 10%, any land or building or furniture or fittings. Other than10%, if PAN individual & HUF furnished 20%, if PAN not furnished 94LA Immovable Property₹ 2,00,000 p.a Any person 10% 194LB 5% + EC + SHEC (other than(w.e.f. 1-7-2012) agricultural land) Acquisition Compensation. Interest payable onNil Any person Infrastructure debt fund 194LBA Where anyNil Person responsible10% (1) for making the distributed income is payment payable by a business trust to its unit holder 194LBA Where anyNil Person responsible5% (2) for making the distributed income is payment payable by a business trust to its unit holder 194LBB Income in respect ofNil Business Trust 10%, if PAN units of Investment furnished 20%, if Fund (w.e.f. 1st June, PAN not furnished 2015) 205 CU IDOL SELF LEARNING MATERIAL (SLM)

194LC Interest paid orNil Specified Company5% +EC+SHEC Payable to a non- or a Business Trust resident/ Foreign Company 195 Any interest or anyNil Any person If the NR is resident Any person of a country with sum chargeable as which India has Double Tax income (other than Avoidance Agreement, (DTAA) salary) (Except beneficial of the rate as per FA or DTAA. interest u/s 194LB or 10% 194LC or 194LD) 196B Income in respect ofNil Notes: units referred to in Sec. 115AB purchased in foreign currency or income of long-term capital gains from such units. 1. Threshold Limit: payments in a year up to this limit are not liable for TDS. If the amount of payment exceeds threshold limit, then provisions of TDS apply. 2. Rate of TDS is prescribed by the Finance Act (FA) that is applicable during the year when TDS is to be made. For example, for the current year from 1st April, 2014 to 31st March, 2015 (2014-15) TDS rates will be available in the Finance (No. 2) Act, 2014. 3. TDS rates specified herein above are rates of income tax. These are required to be increased by surcharge specified in The Finance Act applicable. Education cess and secondary and higher education cess is applicable when salary is paid to a resident or non-resident and when any amount (other than salary) is paid to a non-resident or a foreign company. 4. Individual and HUF: An individual or a Hindu Undivided Family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income is credited or paid, shall be liable to deduct Income-tax under this section. 206 CU IDOL SELF LEARNING MATERIAL (SLM)

Payments made by way of fees which are exclusively for personal purposes will not attract provisions of Sec. 194J. 13.3 APPLICABILITY & RATES OF SURCHARGE Assessee Income Rate of Surcharge 10% Every Individual or Hindu undivided family orExceeding ₹1 crore 5% AOP/BOI (whether incorporated or not), or every 10% 2% artificial judicial person, Co-operative society, 5% Firm (including limited liability partnership) Domestic companies Exceeding ₹1 crore Foreign company Exceeding ₹10 crore Exceeding ₹1 crore Exceeding ₹10 crore Rationalisation of provisions relating to Tax Deduction at Source (TDS) [W.e.f. 1-10 2009] Tax deduction at source is a method of collecting taxes on behalf of the Government at the time of payment or credit. The Income-tax Act casts a legal responsibility on the deductor to deduct tax on the correct amount, at the correct rate and deposit it to the Government account. The TDS rates are specified partly in the Finance Act and partly in the provisions of the Income-tax Act. Deductors are also required to compute surcharge and cess over and above some of the prescribed rates of TDS. If the deductor fails to deduct the tax or fails to deposit the tax after deduction, interest, penalty and prosecution provisions may get attracted. Further, under the provisions of section 40(a)(ia), if the deductor fails to deduct tax on a prescribed payment or fails to deposit the tax deducted in time, the 30% of the expenditure is disallowed while computing his total income. To assist deductors in complying with their TDS obligations and reduce their compliance burden, it is proposed to rationalise the provisions of TDS as under: Amendment in Section 193: At present, no tax is required to be deducted at source if interest payable to a resident individual on debentures issued by a listed company does not exceed ₹ 2,500 in a year. This limit is increased to ₹ 5,000 w.e.f. 1-7-2012. This concession will now apply to debentures issued by unlisted public companies as well as to interest payable to resident HUF. The existing exemption in respect of interest paid on debentures issued by listed companies which are held in Demat Account will continue without any limit. The amendment in this section comes into force on 1-7-2012. 207 CU IDOL SELF LEARNING MATERIAL (SLM)

Amendment in TDS rates and other provisions of section 194C i) Rate of TDS under section 194C rationalized [W.e.f. 1-10-2009]: Under the existing provisions of section 194C of the Income-tax Act, TDS at the rate of 2% is deducted on payment for a contract in case of recipient is other than Individual/HUF and 1% in case of Individual/HUF. In order to reduce the scope for disputes regarding classification of contract as sub contract, the Act has specified the same rate of TDS for payments to both contractors as well as sub- contractors. To rationalise the TDS rates and to remove multiple classifications the Act has provided same rate of TDS in the case of payment for advertising contracts. To avoid hardship to small contractors/sub-contractors most of whom are organized as individuals/HUFs, the Act has prescribed following rates of TDS: a) 1% where payment for a contract is to individuals/HUF b) 2% where payment for a contract is to any other person. The nil rate will be applicable if the transporter quotes his PAN. If PAN is not quoted the rate will be 1% for an individual/HUF transporter and 2% for other transporters up to 31.3.2010. The rate of TDS will be 20% in all the above cases, if PAN is not quoted by the deductee w.e.f. 1-4-2010. i) Provisions for payments and tax deducted at source to transports [W.e.f. 1-10-2009]: Under section 194C, tax is required to be deducted on payments to transport contractors engaged in the business of plying, hiring or leasing goods carriages. However if they furnish a statement that they do not own more than two goods carriages, tax is not to be deducted at source. Transport operators report problem in obtaining TDS certificates as these are not issued immediately by clients and they are not able to approach the client again as they may have to move across the country for their business. The Act has inserted sub-section (6) to section 194C and has exempted payments to transport operators (as defined in section 44AE) from the purview of TDS. However, this would only apply in cases where the operator furnishes his Permanent Account Number (PAN) to the deductor. As per section 194(7), the deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income Tax Department in the prescribed format. Amendments in section 194C (6): As there is no rationale for exempting payment to all transporters, irrespective of their size, from the purview of TDS, the Act has amended the provisions of section 194C of the Act to expressly provide that the relaxation under section 194C(6) of the Act from non-deduction of 208 CU IDOL SELF LEARNING MATERIAL (SLM)

tax shall only be applicable to the payment in the nature of transport charges (whether paid by a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is eligible to compute income as per the provisions of section 44AE of the Act (i.e. a person who is not owning more than 10 goods carriage at any time during the previous year) and who has also furnished a declaration to this effect along with his PAN. ii) Clarification regarding “work” under section 194C [W.e.f. 1-10-2009]: There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, the Act has provided that “work” shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer ns such a contract is a contract for ‘sale’. This will however not apply to a contract, which does not entail manufacture or supply of an article or thing (e.g. a construction contract). The Act has included manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, within the definition of ‘work’. It is further provided in section 194C(3) that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. Further, in a case where the payment is made by an individual or HUF to the contractor exclusively for personal purposes of such individual or member of HUF, there will be no need to deduct tax at source under section 194C. Payment in respect of Life Insurance Policy [Section 194DA] As per newly inserted section 194DA by the Finance (No.2) Act, 2014, any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of two per cent. Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees. Rate of TDS reduced in case of section 194-I: Under the existing provisions of section 194- I of the Income-tax Act, TDS on rental payments is prescribed at the rate of— a) 2% for the use of any machinery or plant or equipment, 209 CU IDOL SELF LEARNING MATERIAL (SLM)

b) 10% for the use of any land or building or furniture or fittings, if the payee is an individual or HUF, and The Act has rationalised and reduced the TDS rates on rental payments as under: a) 2% for the use of any machinery or plant or equipment, b) 10% for the use of any land or building or furniture or fittings for all persons. The rate of TDS will be 20% in all the above cases, if PAN is not quoted by the deductee w.e.f. 1-4- 2010. Amendment to section 194-I by the Finance Act, 2015 No deduction shall be made under section 194-I where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in section 10(23FCA), owned directly by such business trust. Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land) [Section 194-IA] [w.e.f. 1.6.2013] There is a statutory requirement under section I39A of the Income-tax Act read with rule 114B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of ₹5 lakh or more. However, the information furnished to the department in Annual Information Returns by the Registrar or Sub-Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at ₹30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of the property. Under the existing provisions of the Income-tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties. In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, the Act has inserted a new section 194-IA which provides as under: i) Transferee to deduct tax at source: Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall deduct an amount equal to 1% of such sum as income-tax thereon: a) at the time of credit of such sum to the account of the transferor, or b) at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, 210 CU IDOL SELF LEARNING MATERIAL (SLM)

whichever is earlier, However, no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than ₹50,00,000. ii) Deductor not required to obtain tax deduction and collection account number [Section 194- IA (3)]: The provisions of section 203A relating to obtaining tax deduction and collection account number shall not apply to a person required to deduct tax in accordance with the provisions of this section. Meaning of agricultural land: “Agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of section 2(14)(iii). Meaning of immovable property: “Immovable property” means any land (other than agricultural land) or any building or part of a building. In other words, TDS shall not be applicable in case of transfer of rural agricultural land. Section 194J — TDS on fees from professional or technical services: This section is now amended w.e.f. 1-7-2012. It will now be necessary for a company to deduct tax at source from any remuneration, fees or commission paid or payable to a director, if no tax is deductible u/s.192 under the head salary. The rate for TDS is 10%. It may be noted that the manner in which the section is amended indicates that this deduction is to be made irrespective of the quantum of such payment in the year. As regards professional fees, technical service fees, royalty, etc. to which this section applies, it is provided that tax is to be deducted only if payment under each head exceeds ₹ 30,000 in the financial year. Therefore, in case of payment of fees to non-executive directors and independent directors as ‘Director’s Fees’, the tax at 10% will be deductible even if the total payment in the F.Y. is less than ₹ 30,000 to each of them. Example 1 Examine the applicability of TDS provisions and TDS amount in the following cases: (a) Rent paid for hire of machinery by B Ltd. to Mr. Raman ₹ 2,60,000 on 27.9.2020. (b) Fee paid on 1.12.2020 to Dr. Srivatsan by Sundar (HUF) ₹ 35,000 for surgery performed on a member of the family. (c) ABC and Co. Ltd. paid ₹ 19,000 to one of its Directors as sitting fees on 01-01-2021. Answer (a) Since the rent paid for hire of machinery by B. Ltd. to Mr. Raman exceeds ₹ 2,40,000, the provisions of section 194-I for deduction of tax at source are attracted. The rate applicable for deduction of tax at source under section 194-I on rent paid for hire of plant and machinery is 1.5%, assuming that Mr. Raman had furnished his permanent account number to B Ltd. 211 CU IDOL SELF LEARNING MATERIAL (SLM)

Therefore, the amount of tax to be deducted at source: = ₹ 2,60,000 x 1.5% = ₹ 3,900. Note: In case Mr. Raman does not furnish his permanent account number to B Ltd., tax shall be deducted @ 20% on ₹ 2,60,000, by virtue of provisions of section 206AA. (b) As per the provisions of section 194J, a Hindu Undivided Family is required to deduct tax at source on fees paid for professional services only if the total sales, gross receipts or turnover form the business or profession exceed ₹ 1 crore in case of business or ₹ 50 lakhs in case of profession, as the case may be, in the financial year preceding the current financial year and such payment made for professional services is not exclusively for the personal purpose of any member of Hindu Undivided Family. Section 194M, provides for deduction of tax at source by a HUF (which is not required to deduct tax at source under section 194J) in respect of fees for professional service if such sum or aggregate of such sum exceeds ₹ 50 lakhs during the financial year. In the given case, the fees for professional service to Dr. Srivatsan is paid on 1.12.2020 for a personal purpose, therefore, section 194J is not attracted. Section 194M would have been attracted, if the payment or aggregate of payments exceeded ₹ 50 lakhs in the P.Y.2020-21. However, since the payment does not exceed ₹ 50 lakh in this case, there is no liability to deduct tax at source under section 194M also. (c) Section 194J provides for deduction of tax at source @7.5% from any sum paid by way of any remuneration or fees or commission, by whatever name called, to a resident director, which is not in the nature of salary on which tax is deductible under section 192. The threshold limit of ₹ 30,000 up to which the provisions of tax deduction at source are not attracted in respect of every other payment covered under section 194J is, however, not applicable in respect of sum paid to a director. Therefore, [email protected]% has to be deducted at source under section 194J in respect of the sum of ₹ 19,000 paid by ABC Ltd. to its director. Therefore, the amount of tax to be deducted at source: = ₹ 19,000 x 7.5% = ₹ 1,425 Certain income from units of a Business Trust [Section 194LBA] As per the newly inserted section 194LBA by the Finance (No.2) Act, 2014 provided that – 1. Where any distributed income referred to in section 115UA, being of the nature referred to in clause (23FC) of section 10, is payable by a business trust to its unit holder being a resident, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate often per cent. 212 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Where any distributed income referred to in section 115UA, being of the nature referred to in clause (23FC) of section 10, is payable by a business trust to its unit holder, being a non-resident (not being a company) or a foreign company, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment; thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 5%. 3. Where any distributed income referred to in section 115UA, being of the nature referred to in clause (23FCA) of section 10, is payable by a business trust to its unit holder, being a non-resident (not being a company), or a foreign company, the person responsible for making the payment shall at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Tax deduction from income in respect of units of investment fund [Sec. 194LBB] Section 194LBB has been inserted with effect from June 1, 2015. Provisions of this section are given below – Time of tax deduction - Tax deduction is applicable if a business trust distributes any income referred to in section 115UB [not being business income of the nature referred to in section 10(23FBB)] to its unit holders. Tax is deductible at the time of credit of such payment to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier. Rate of TDS - Tax is deductible at the rate of 10 per cent. If the recipient does not have PAN, tax is deductible at the rate of 20 per cent. Lower TDS certificate - Provisions of section 197 or section 197A are not applicable. Income by way of interest from Indian company [Section 194LC] 1. Where any income by way of interest referred to in sub-section (2) is payable to a non-resident, not being a company or to a foreign company by a specified company or a business trust, the person responsible for making the payment, shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five per cent. 2. The interest referred to in sub-section (1) shall be the income by way of interest payable by the specified company or the business trust, — i) in respect of monies borrowed by it in foreign currency from a source outside India, — 213 CU IDOL SELF LEARNING MATERIAL (SLM)

a) under a loan agreement at any time on or after the 1st day of July, 2012 but before the 1st day of July, 2017; or b) by way of issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of October, 2014; or c) by way of issue of any long-term bond including long-term infrastructure bond at any time on or after the 1st day of October, 2014 but before the 1st day of July, 2017, as approved by the Central Government in this behalf; and ii) to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan or the bond and its repayment. Income by way of interest on certain bonds and Government securities [Section 194LD] [w.e.f. 1.6.2013] i) Person responsible for paying interest to deduct tax at source [Section I94LD(1)]: Any person who is responsible for paying to a person being a Foreign Institutional Investor or a Qualified Foreign Investor, any income by way of interest referred to in sub-section (2), shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon. Rate of TDS: The rate shall be 5% Notes: 1. Surcharge as applicable, education cess & SHEC shall be added to the above rates. 2. The rate of TDS will be 20% in all cases, if PAN is not quoted by the deductee. 3. As tax cannot be deducted at lower rate, section 197 shall not be applicable in this case. ii) Income on which tax is to be deducted [Section 194LD (2)]: The income by way of interest referred to in sub-section (1) shall be the interest payable on or after 1.6.2013 but before 1.6.2017 in respect of investment made by the payee in— a) a rupee denominated bond of an Indian company; b) a Government security. However, the rate of interest in respect of bond referred to in clause (i) shall not exceed the rate as may be notified by the Central Government in this behalf. Since, tax on such interest is deductible under section194LD, corresponding amendments have been made in sections 195 and 196D to exclude such interest under those provisions. 214 CU IDOL SELF LEARNING MATERIAL (SLM)

Meaning of “foreign institutional investor”: “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD; Meaning of “Government of security”: “Government security” shall have the meaning assigned to it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956; Meaning of “Qualified Foreign Investor: “Qualified Foreign Investor” shall have the meaning assigned to it in the Circular, No. CIR/IMD/DF/14/2011, dated 9.8.2011, as amended from time to time, issued by the Securities and Exchange Board of India, under section 11 of the Securities and Exchange Board of India Act, 1992. Rate of TDS on unlisted debentures or security or on Interest other than securities reduced to 10%. Rate of TDS has been reduced by the Finance (No. 2) Act, 2009 from 20% to 10% in case of the following: i) TDS on interest on unlisted debentures and on any income other than mentioned in Para l(o) of Part II of Schedule I to the Finance (No. 2) Act, 2009 relating to TDS rates in case of a person other than a company who is resident in India has been reduced from 20% to 10%. ii) Similarly, TDS on interest other than interest on securities and on any income other than mentioned in Para 2(a) of Part II of the Schedule I to the Finance (No. 2) Act, 2009 in case of a domestic company has also been reduced from 20% to 10%. TDS to be deducted at basic rates In order to ease the computation of TDS, the Act has removed surcharge and education cess & SHEC on tax deducted on any payment made to resident taxpayers except in case of salary. In case of salary TDS shall be deductible after including education cess and SHEC. This provision shall be effective after the Finance (No. 2) Act becomes the Act. Case Law: i) The directors of the assessee company have routed the loan taken in their individual capacity in the name of company. The company was merely acting as the agent of the directors for receiving & disbursing the loans to the directors. It was held that as per the provisions of section 194A, TDS is to be made at the time of credit of such income to the account of the payee. So the company was liable to deduct tax on the interest payment to lenders as there was no resolution passed by the Board of Directors which empowered the company to merely act as a medium for routing the borrowing & repayment - CIT vs. Century Building Industries P. Ltd. 293 ITR 194. ii) The assessee has entered into an agreement for use of the premise for storage of goods. While making payment the assessee deducted tax at 2% u/s 194C considering that it was a contractual payment. However it was concluded that the payment made by the assessee is in the nature of rent u/s 194I of the Act & TDS should have been 215 CU IDOL SELF LEARNING MATERIAL (SLM)

made @ 20%. The Apex court held that once tax is paid by the deductee on the income received from the deductor, the deductor cannot be once again called upon to pay the tax on same income. However the assessee is liable to pay interest u/s 201(1A) for delay or non-payment of tax to the Government within prescribed time. Hindustan Coca Cola Beverages P. Ltd. vs. CIT 293 ITR 226 (SC). Example 2 Examine the applicability of tax deduction at source provisions, the rate and amount of tax deduction in the following cases for the financial year 2020-21: (1) Payment of ₹ 27,000 made to Jacques Kallis, a South African cricketer, by an Indian newspaper agency on 02-07-2020 for contribution of articles in relation to the sport of cricket. (2) Payment made by a company to Mr. Ram, sub-contractor, ₹ 3,00,000 with outstanding balance of ₹ 1,20,000 shown in the books as on 31-03-2021. (3) Winning from horse race ₹ 1,50,000 paid to Mr. Shyam, an Indian resident. (4) ₹ 2,00,000 paid to Mr. A, a resident individual, on 22-02-2021 by the State of Uttar Pradesh on compulsory acquisition of his urban land. Answer (1) Section 194E provides that the person responsible for payment of any amount to a non- resident sportsman who is not a citizen of India for contribution of articles relating to any game or sport in India in a newspaper has to deduct tax at source@20%. Further, since Jacques Kallis, a South African cricketer, is a non-resident, health and education cess @4% on TDS should also be added. Therefore, tax to be deducted = ₹ 27,000 x 20.80% = ₹ 5,616. (2) Provisions of tax deduction at source under section 194C are attracted in respect of payment by a company to a sub-contractor. Under section 194C, tax is deductible at the time of credit or payment, whichever is earlier @ 0.75% in case the payment is made to an individual. Since the aggregate amount credited or paid during the year is ₹ 4,20,000, tax is deductible @ 0.75% on ₹ 4,20,000. Tax to be deducted = ₹ 4,20,000 x 0.75% = ₹ 3,150 (3) Under section 194BB, tax is to be deducted at source, if the winnings from horse races exceed ₹ 10,000. The rate of deduction of tax at source is 30%. Hence, tax to be deducted = ₹ 1,50,000 x 30% = ₹ 45,000. (4) As per section 194LA, any person responsible for payment to a resident, any sum in the nature of compensation or consideration on account of compulsory acquisition under any law, of any immovable property, is required to deduct tax at source, if such payment or the 216 CU IDOL SELF LEARNING MATERIAL (SLM)

aggregate amount of such payments to the resident during the financial year exceeds ₹ 2,50,000. In the given case, there is no liability to deduct tax at source as the payment made to Mr. A does not exceed ₹ 2,50,000. 13.4 TIME SCHEDULE FOR TDS Nature of Activity Time Frame Time of Deduction Salary: At the time of payment Others: When income paid or credited to the account including “payable” or “suspense” account whichever is earlier. Time of deposit of tax(a) If credited on the date on which accounts are made, within two (Other than on behalf of months from the end of the month in which income is credited. Government) (b) Any other case, within one week from the end of the month in which deduction is made. Statement For each Quarter TDS Type Form For all category due date of submission of quarterly returns Q1: April – June – 15th July Salary No 24Q Q2: July – September – 15th October Q3: October – December – 15th January Non-Resident No 27Q All Others No 26Q Q4: January - March - 15th May Electronic For every office of Government and the principal officer in the case of every company, firm, whose total sales, gross receipts or turnover from the business or profession carried on by it exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income is credited or paid. 1. Copies of Form Nos. 15G and 15H received by the payer have to be filed with the Chief Commissioner / Commissioner within 7 days of the succeeding month. 2. If the person responsible for deducting and paying tax fails to do so, he shall be considered as an assessee in default, liable to pay interest @ 12% p.a. on the amount of such tax from the date on which such tax was deductible to the date of actual payment, and penalty, not exceeding the amount of tax and rigorous imprisonment ranging from 3 months to 7 years and fine. The interest payment needs to be paid before filing of Quarterly Return. 3. Sec. 199 – Credit for tax deducted: 217 CU IDOL SELF LEARNING MATERIAL (SLM)

a) Credit will be given for the Assessment Year in which such income is assessable. b) Where such income is assessable in the hands of any other person, credit shall be given to such other person. c) When any security, property etc. is jointly owned by two or more persons not constituting partnership, credit for TDS on income there from shall be given to such persons in the proportion in which the income is distributed. 4. A payee from whose income TDS is made must intimate his PAN to tax deductor. Tax deductor must to quote PAN of payees in TDS Certificate and TDS return [Sec. 139A]. 5. TAN/TDCAN to be quoted on all quarterly statements of TDS/ TCS section 203A(ba). The requirement of obtaining and Quoting of TAN under section 203A of the Act shall not apply to the notified deductors or collectors [Amended by Finance Act, 2015]. 6. A declaration for non-deduction of tax u/s. 197A can be furnished by the assessee only if his aggregate income is less than threshold limit. Senior Citizens can file declaration if tax on their estimated total income is likely to be NIL. 7. Disallowance due to non-deduction: If tax deductible under sections 193, 194A, 194C, 194H, 194J and 195 is not deducted/paid before applicable due dates, the relevant expenditure otherwise allowable in computing Total Income of the payer would be liable for disallowance u/s 40(a)(i)/(ia). The deduction will be allowed in the year in which TDS is paid. For details see section 40(a). 8. Salary TDS: TDS by Employer: In respect of any perquisite which is not provided for by way of monetary payment, the Employer, at his option, may pay tax on the whole or part of such income without making any deduction there from, For the purpose of paying tax as aforesaid, tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head “Salaries”. Simultaneous employment / Successive employment: the employee may furnish to one of the many or successive employers such details of the income under the head “Salaries” due or received by him from the other employer or employers, the tax deducted at source there from and such other particulars and thereupon such employer shall take into account the details so furnished for the purposes of making the TDS. Relief Under Section 89(1): Government servant or an employee in a company, co-operative society, local authority, university, institution, association or body is entitled to the relief 218 CU IDOL SELF LEARNING MATERIAL (SLM)

under section 89(1), he may furnish to the employer, such particulars and thereupon the said Employer shall compute the relief and take it into account in making the TDS. Other Income: Employee has any income chargeable under any other head of income for the same financial year, not being a loss under any such head other than the loss under the head “Income from House Property”, he may send to the Employer the particulars of— a) such other income and of any tax deducted thereon under any other provision of this Chapter; b) the loss, if any, under the head “Income from House Property”, and thereupon the Employer shall take— i) such other income and tax, if any, deducted thereon; and ii) the loss, if any, under the head “Income from House Property”, also, into account for the purposes of making the TDS. After considering such other information there should be no reduction in TDS from Salary, except reduction on account of loss from “House Property” head. PF, Superannuation Trusts: The trustees the fund at the time an accumulated balance due to an employee is paid, make there from the deduction provided in rules. Salary payable in foreign currency: Value in rupees of such salary shall be calculated at the prescribed rate of exchange. Income payable “net of tax”: In a case where, the tax chargeable on any income referred subject to TDS, the amount of TDS is to be borne by the person by whom the income is payable, then, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such income is payable, be equal to the net amount payable under such agreement or arrangement. [Sec. 195A] Procedure for TDS i) To obtain Tax Deduction and Collection Account Number (TAN) by applying in Form No. 49B [sec. 203A and Rule 114A] ii) To deduct tax at source as per provisions. TDS should be at an appropriate time and at appropriate rate. iii) To deposit tax in the Government treasury within the time in proper challan. iv) To submit quarterly TDS statements. 13.5 CONSEQUENCE OF NON-COMPLIANCE OF TDS PROVISIONS: 219 CU IDOL SELF LEARNING MATERIAL (SLM)

Sr. Section Default Consequence No. or Section Effect Chapter 1 197A Delay, no submission of no272A(2)(j) ₹ 100 per day / Max. Tax Amount TDS declarations on Declaration 2 Chapter Fails to deduct the whole or271C(1)(a) Penalty of a sum equal to the XVII - B any part of TDS amount of TDS not so deducted. 3 200 Delay in payment of TDS 201(1A) Interest @ 1% p.m. 4 200 Delay, no submission of272A(2)(k) ₹ 100 per day / Max. Tax Amount Quarterly TDS Statement or of TDS in of Quarterly TDS correction statement Statement 5 203A Default in the matter of TAN 272BB Penalty ₹ 10,000 Improving compliance with provisions of quoting PAN through the TDS regime [Section 206AAJ] [W.e.f. 1-4 2010] In order to strengthen the PAN mechanism, the Act has made amendments in the Income Tax Act to provide that any person whose receipts are subject to deduction of tax at source i.e. the deductee, shall mandatory furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates: i) The rate prescribed in the Act; ii) At the rate in force i.e., the rate mentioned in the Finance Act; or iii) At the rate of 20%. TDS would be deductible at the above-mentioned rates even in a case where the taxpayer files a declaration in form 15G or I5H (under section 197A) but does not provide his PAN. Further, no certificate under section 197 will be granted by the Assessing Officer unless the application contains the PAN of the applicant. These provisions will also apply to non-residents where TDS in deductible on payments or credits made to them. To ensure that the deductor knows about the correct PAN of the deductee it is also provided for mandatory quoting of PAN of the deductee by both the deductor and the deductee in all correspondence, bills and vouchers exchanged between them. Processing of statements of tax deducted at source [Section 200A] 1. Where a statement of tax deduction at source or a correction statement has been made by a person deducting any sum (hereafter referred to in this section as deductor) under section 200, such statement shall be processed in the following manner, namely:— 220 CU IDOL SELF LEARNING MATERIAL (SLM)

a) the sums deductible under this Chapter shall be computed after making the following adjustments, namely: — i) any arithmetical error in the statement; or ii) an incorrect claim, apparent from any information in the statement. b) the interest, if any, shall be computed on the basis of the sums deductible as computed in the statement. c) the fee, if any, shall be computed in accordance with the provisions of section 234E. d) the sum payable by, or the amount of refund due to, the deductor shall be determined after adjustment of the amount computed under clause (b) and clause (c) against any amount paid under section 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee; e) an intimation shall be prepared or generated and sent to the deductor specifying the sum determined to be payable by, or the amount of refund due to, him under clause (d); and f) the amount of refund due to the deductor in pursuance of the determination under clause (d) shall be granted to the deductor. Provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed. Explanation. —For the purposes of this sub-section, “an incorrect claim apparent from any information in the statement” shall mean a claim, on the basis of an entry, in the statement— i) of an item, which is inconsistent with another entry of the same or some other item in such statement; ii) in respect of rate of deduction of tax at source, where such rate is not in accordance with the provisions of this Act. 2. For the purposes of processing of statements under sub-section (1), the Board may make a scheme for centralised processing of statements of tax deducted at source to expeditiously determine the tax payable by, or the refund due to, the deductor as required under the said sub-section. Providing time limits for passing of orders under section 201(1) holding a person to be an assessee in default Currently, the Income Tax Act does not provide for any limitation of time for passing an order under section 201(1) holding a person to be an assessee in default. In the absence of such a time limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. 221 CU IDOL SELF LEARNING MATERIAL (SLM)

As per newly substituted sub-section (3) of section 201 by the Finance (No.2) Act, 2014 no order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given. Further, Explanation to section 153 regarding exclusion of certain period (like injunction by Court) to calculate time limit shall also be applicable while determining the above time limit. Similarly, like section 153(3) there will be no time limit in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260A, 262, 263 or 264 or order of a Court. To provide sufficient time for pending cases, the Act has provided that such proceedings for a financial year beginning from 1-4- 2007 and earlier years can be completed by the 31-3-2011. However, no time-limits have been prescribed for order under section 201(1) where— a) The deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of Government dues, b) The employer has failed to pay the tax wholly or partly, under section 192(1A), as the employee would not have paid tax on such perquisites c) The deductee is a non-resident as it may not be administratively possible to recover the tax from the non-resident. These amendments shall be effective from 1-4-2010. Accordingly it will apply to such orders passed on or after the 1-4-2010. Meaning of “person responsible for paying” Section 204(iia) [W.e.f. A.Y. 2013-14] As per existing clause (iia) of section 204, in the case of any sum payable to a non-resident Indian, being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 and any rules made thereunder is the person responsible for paying. The words “authorized dealer” mentioned above shall be substituted by the words “authorized person”. “Authorized person” shall have the meaning assigned to it in section 2(c) of the Foreign Exchange Management Act, 1999. Section 206AA not applicable in respect of payment of interest on long-term infrastructure bonds [Section 206AA (7)] [w.e.f. 1.6.2013] 222 CU IDOL SELF LEARNING MATERIAL (SLM)

As per section 206AA, the deductee shall furnish his Permanent Account Number to the person responsible for deducting the tax at source, failing which tax shall be deducted at the higher of the following rates, namely: — i) at the rate specified in the relevant provision of this Act; or ii) at the rate or rates in force; or iii) at the rate of twenty per cent. The above provisions of section 206AA shall not apply in respect of payment of interest, on long-term bonds, as referred to in section 194LC, to a non-resident not being a company, or to a foreign company. ADVANCE PAYMENT OF TAX Tax Payable by An Assesses Shall be paid in Advance [Section 4] Who is liable to pay AdvanceWhen the Advance Tax-payable by any person for the Tax (Section 208) Assessment Year immediately following the financial year is ₹ 10,000 or more. Tax on Total Income Amount of Advance TaxLess: Rebate and relief payable Add: Surcharge Less: Tax deducted at source and Tax collected at source. Due Date of Instalment in aAmount payable byAmount payable by Non- relevant Previous Year Corporate Assesses Corporate Assesses On or before June 15 15% of Advance tax payableNot Applicable On or before September 15 45% of Advance tax payable30% of Advance tax payable On or before December 15 75% of Advance tax payable 60% of Advance tax payable On or before March 15 100% of Advance tax payable 100% of Advance tax payable Note: Any amount paid by way of advance tax on or before 31st March of the relevant Previous Year shall also be treated as Advance Tax paid during the financial year ending on that day. If the due date of payment of advance tax is a banking holiday, the Assessee can make the payment on the next immediately following working day. In such cases, no interest shall be leviable u/s 234B or 234C. No Advance tax payable by senior citizens u/s.207 This section provides for payment of Advance Tax in instalments. It is now provided, w.e.f. 1-4-2012, that a senior citizen who has no income from business or profession will not be required to pay any Advance Tax. 223 CU IDOL SELF LEARNING MATERIAL (SLM)

13.6 SUMMARY • Any person responsible for making payment of certain category of incomes is liable to deduct tax at source at an appropriate occasion. • Threshold Limit: payments in a year up to this limit are not liable for TDS. If the amount of payment exceeds threshold limit, then provisions of TDS will apply. • Rate of TDS is prescribed by the Finance Act (FA) that is applicable during the year when TDS is to be made. • Tax deduction at source is a method of collecting taxes on behalf of the Government at the time of payment or credit. • To ease the computation of TDS, the Act has removed surcharge and education Cess & SHEC on tax deducted on any payment made to resident taxpayers except in case of salary. 13.7 KEYWORDS • TDS- Tax deducted at source • TCS- Tax collected at source • SHEC- Secondary ang Higher Education cess • FA – Finance Act 13.8 LEARNING ACTIVITY 1. Govt has given relaxation in the rate of TDS to be deducted due to COVID 19 pandemic prepare a chart containing general rates and reduced rates of TDS ___________________________________________________________________________ ___________________________________________________________________________ 13.9 UNIT END QUESTIONS A Descriptive Questions Short Questions 1. What is the meaning of the term professional services in the context of Section 194J of Income Tax Act 1961? 2. Discuss briefly about the provisions relating to Section 197 of Income Tax Act 1961 relating to certificate for deduction of TDS at a lower rate? 3. State the consequences of non-compliances relating to TDS provisions. 224 CU IDOL SELF LEARNING MATERIAL (SLM)

4. ABC Ltd. makes the following payments to Mr. X, a contractor, for contract work during the P.Y.2020-21– ₹ 20,000 on 1.5.2020 ₹ 25,000 on 1.8.2020 ₹ 28,000 on 1.12.2020 On 1.3.2021, a payment of ₹ 30,000 is due to Mr. X on account of a contract work. Discuss whether ABC Ltd. is liable to deduct tax at source under section 194C from payments made to Mr. X. Long Questions 1. What is Advance Tax, who is liable to pay Advance Tax and the Due Dates for payment of Advance Tax? 2. Discuss the provisions relating to applicability of TDS for professional and Technical services in detail. 3. Mr. Jay having total income of ₹ 8,70,000, did not pay any advance tax during the previous year 2020-21. He wishes to pay the whole of the tax, along with interest if any, on filing the return in the month of July, 2021. What is total tax which Mr. Jay has to deposit as self-assessment tax along with interest, if he files the return on 29.07.2021? Assume that he does not exercise the option under section 115BAC. B. Multiple choice Questions 1. What is the applicable rate of TDS for Fee for Professional and Technical services a. 10% b. 2% c. Both a and b d. None of these 2.What is the threshold limit of Rent paid by individuals or HUF for deduction of TDS is Rs.? a. 30,000 b. 50,000 c. 10,000 d. None of these 3. When the Advance Tax-payable by any person exceeds Rs. _________ for the Assessment Year immediately following the financial year the liability to pay advance Tax arises. a. 10,000 225 CU IDOL SELF LEARNING MATERIAL (SLM)

b. 15,000 c. 20,000 d. None of these 4. Under section 194BB, tax is to be deducted at source, if the winnings from horse races exceed a. 10,000 b. 15,000 c. 20,000 d. 25,000 5. Advance tax amount payable by a corporate assessee on or before 15th December of the respective year is a. 15% of advance tax payable b. 30% of advance tax payable c. 75% of advance tax payable d. None of these Answers 1-c 2-b 3-a 4-a 5-c 13.10 REFERENCES • Prasad, Bhagabati: Direct Tax Law & Practice, New Age Publ., N. Delhi. • H.C. Mehrotra –Income Tax Law & Practice • H.P. Ranina: Corporate Taxation: A Hand Book (Tax Mann). • V.S. Datey: Indirect Taxes – Law and Practice (Tax Mann Publications Limited) • Ahuja, Girish & Gupta, Ravi: Systematic Approach to Income Tax; Central Sales Tax, Bharat Law House, N. Delhi. 226 CU IDOL SELF LEARNING MATERIAL (SLM)