PRECAUTIONS TO BE TAKEN WHILE DEDUCTING TDS ON OTHER PAYMENTS
TDS ON INTEREST OF SECURITIES (SECTION 193)
There are two types of Interest first interest on securities and interest other than on securities. There are separate provisions for both of them in Income Tax Act.TDS for interest on securities is deducted under section 193 while TDS on interest other than on securities is deducted u/s. 194A. The provisions of section 194 apply on TDS on dividend.
If any person pays any interest to any resident person then TDS is deducted on such payment. It is mandatory to deduct TDS on payment of interest or on crediting the same in account or on crediting the amount in suspense account or interest due account.
There are provisions for non-deduction of TDS on some securities:
Provisions for deduction of TDS do not apply on some types of securities:
(1) Provisions of TDS do not apply on payment of interest on debentures of any institution or authority or public sector company or cooperative society notified by Central Government.
(2) Interest due on any securities of Central or State Government. It is mandatory to deduct TDS on interest over Rs. 10,000/- on 8% saving (Taxable) Bond, 2003 also known as Relief Bond since 1st June 2007 irrespective of period for investment.
(3) Profit giving securities of Life Insurance Corporation or General Insurance Company and its four subsidiary companies.
(4) Any De mat securities after 1st June 2008.
Rate of TDS:
The rate of TDS on interest of securities is 10% and from 1st. April, 2010, if any person getting interest does not furnishes PAN then TDS @ 20 % shall be deducted.
TDS is not applicable in some cases of interest on Debentures:
On compliance of certain conditions, there is no need to deduct TDS. No TDS is deductible if following conditions are complied with:
(1) Debentures issued by such company in which public are substantially interested.
(2) Debenture is listed in any Stock Exchange.
(3) The Company pays interest through A/c payee cheque.
(4) The amount of interest paid to the debenture holder should not exceed Rs. 2,500/-.
TDS on 8% Savings (Taxable) Bonds, 2003:
There are some clarifications concerning TDS on 8% saving (taxable) bonds, 2003 which are as follows:
(1) TDS on 8% savings (taxable) bonds has been applied from 1st.June, 2007. If the amount of interest exceeds Rs.10,000/- then TDS is deductible. This provision will apply to all such bondholders irrespective of the date of investment.
(2) If the income of person receiving interest is less than taxable income then form 15H or 15G is issued to avoid deduction of TDS.
(3) If the payment of interest is cumulative in this investment then for any annual interest payment up to Rs. 10,000/- no TDS is deducted. However, the payment of interest is on maturity in case of cumulative bonds but the provisions of TDS shall apply on yearly basis and if the amount of interest exceeds Rs. 10,000/- on maturity of cumulative bonds then no TDS shall be deducted.
TDS ON INTEREST OTHER THAN INTEREST ON SECURITIES (SECTION 194A)
It is mandatory to deduct TDS on payment of any interest or before entering the same in books, whichever is earlier. It will be applicable even if the entry regarding interest is made in interest due account or suspense account in the books. TDS is deductible on total interest even if the actual payment is less due to any adjustment.
Rate of TDS:
For the financial year 2012-13, the rate of TDS for all types of interest is 10% and if PAN of person receiving interest is not given, then TDS @ 20% shall be deducted.
When the TDS shall not be deducted on interest:
According to the provisions of sections 194A (3) and 197(1C) no TDS shall be deducted on payment of interest in following cases:
(1) On payment of interest by any Banking company, Cooperative society doing banking business or Post office is not over Rs. 10,000/- in a financial year and if interest paid by any person other than above does not exceeds Rs. 5,000/- then no TDS shall be deducted.
(2) If the interest paid to any Banking company, Public financial institution, Life insurance corporation. Unit Trust of India, any Insurance company or any Cooperative society doing insurance business then no TDS is deductible on such interest payment.
(3) There is no need to deduct interest on interest paid to its partners by any firm.
(4) On interest paid on Term deposit or any other deposit of members of any Cooperative society (Circular number 9/2009 dated 11.09.2009)
(5) On interest paid on Post office Term deposit, Recurring deposit, Monthly income account, Kisan vikas patra, National Saving certificate ( eighth issue ) and Indira vikas patra.
(6) On interest paid by Central Government under different provisions of Income Tax.
(7) On interest paid by any Primary agricultural society, Primary credit society, or any Cooperative land mortgage bank or Cooperative land development bank to any person other than members.
(8) On any Award made by Motor Accident Claim Tribunal not exceeding Rs. 50,000/-.
(9) Amount of interest on zero coupons issued by any Infrastructure company or Public sector company from 1st June, 2005.
Other useful information with regards to TDS on interest :
TDS on Interest paid to any Financer:
The provisions of TDS will apply on payment of interest on the loan obtained from any Finance company. TDS is not deducted on interest paid to a Banking company but if interest is paid to any non Banking Finance company then TDS should be deducted. For example if the loan has been obtained from India Bulls Security, Reliance Finance etc. then the interest exceeding Rs. 5,000/- should be paid after deducting TDS.
TDS on interest paid to Commission Agent:
Central Board of Direct Taxes vide its circular number F no. 12/12-68 (A-11) dated 23.09.1968 has clarified that when any commission agent reimburses the remaining amount to the consignor after deducting interest due towards him, then the consigner shall deduct TDS amount on such interest.
Deposit in Joint name:
If any deposit is in joint name the TDS should be deducted from First holder. But if the joint holders have separate accounts also then the person whose earnings of interest is more in respect to separate deposits, the TDS shall be deducted from such person. This has been clarified by Central Board of Direct Taxes vide its circular number 256 dated 29.05.1979 that on separate deposits, TDS shall be deducted from the person having more interest earnings.
Interest received on acquisition of land:
According to circular number 526 date 05.12.1988 issued by Central Board of Direct Taxes that TDS on any payment of interest concerning Land Acquisition Act, shall be deducted as per the provisions of section 194A. Hon'ble Supreme Court in Vikram Singh v/s. Land Acquisition Collector (1996) 89 Taxman 119 decided that if any interest is paid on delay in payment of compensation and if the acquisition was necessary then the provision of sec. 194A shall not be applied.
TDS on payment of interest on documents retired on hundi:
When goods are dispatched to other place by any company then the documents regarding such goods are sent through the Bank and buyer gets such documents released after making full payment to the Bank. There is a hundi written for such transaction through which the documents are released after making payment within a certain period. If there is late release of hundi then interest is charged on it by the seller of goods through the Bank. Does this payment of interest attract the provision of TDS? There are diverse opinions in this regard. A section of opinion says that as the interest is paid to Bank and there is no provision for deducting TDS on any payment to Bank thus, no TDS is deductible. Central Board of Direct Taxes vide its circular no. 48 dated 07.11.1970 has clarified that in such cases the payment of interest is not made to Bank but is made to the seller through the Bank, therefore, the provisions of TDS shall apply.
TDS on the interest of Insurance compensation:
If any Insurance company pays any interest on late payment of compensation then it will have to deduct TDS on such interest.
The provisions of section 194A do not apply on Chit fund:
If under any Chit fund in which the discount of chit is distributed among the members is not treated as interest u/s. 2 (28a) and the Chit fund company will not deduct TDS on it.
TDS ON PAYMENT OF DIVIDENT (SECTION 194)
When a company disburses dividend to Indian resident u/s. 115-O then it shall not deduct TDS on such dividend. Company shall disburse dividend after paying Dividend tax. If any company pays deemed dividend u/s. 2(22) E, then TDS shall be deducted on such dividend. The rate of TDS shall be 10% and on non furnishing of PAN it shall be 20%.
TDS ON LOTTERY AND CROSS WORD PUZZLE (SECTION 194B)
If the payment for any Lottery and Cross word puzzle is over Rs 10,000/- then it is mandatory for the person making such payment to deduct TDS on it. The rate of TDs is 30%. If the amount of Lottery is in kind instead of cash then it is the liability of the person-giving prize to obtain the amount of TDS form the receiver of prize and then disburse the prize. For example, if any person has won a Motor Cycle as prize and its cost is Rs. 60,000/- then the prizewinner shall deposit Rs. 18,000/- in lieu of TDS to the prize giver who will in turn deposit the same and issue TDS certificate to the prizewinner.
TDS ON PRIZE MONEY FROM HORSE RACING (SECTION 194BB)
It will be mandatory for the person paying prize money of Horse racing to deduct TDS if the amount exceeds Rs. 5.000/-. The rate of TDS is 30%. The liability to deduct TDS is upon the Bookmaker or the person to whom the Government has issued License to conduct Horse racing.
TDS ON PAYMENT TO CONTRACTOR (SECTION 194C)
Who is liable to deduct:- Central Government, State Government, Company, Local Bodies, Corporation, Partnership firm, University, Charitable trust, Housing Board and such Individual & HUF for whom audit is mandatory u/s. 44AB are liable to deduct TDS from payment made to Contractor or Sub-contractor.
When TDS should be deducted:- When a single payment or an entry exceeds Rs. 30,000/- or in case of payment in parts it exceeds Rs. 75.000/- in a year.
Rate of TDS:- The rate for TDS shall be same for Contractor and Sub-Contractor and for all type of contracts. It may differ on the basis of status which is as follows:
On payment made to Individual and HUF 1%
On payment made to other than above 2%
In the case of transport contractor, no TDS is deductible on submission of PAN otherwise, TDS @ 20% is deductible.
In the case of other contractors, provision for TDS deduction @ 20% will apply from 1st. April 2010 on non submission of PAN.TDS shall be deducted on total amount in which Service Tax is deemed to be included.
No surcharge, education cess, higher education cess shall apply.
There is provision to deduct TDS from payment made to Contractor or Sub-Contractor if any single payment to contractor exceeds Rs. 30.000/- or total payment exceeds Rs. 75,000/- in a year then TDS should be deducted on such payment.
Definition of Works Contract:
In the difinition of Works Contract given in sec. 194C the contract to supply labour for works and other contract are only included. Contract for sale of goods are not included in it. Section 194C says-
(1) Any person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work.) …………….
The definition of work is given in clause 7 (iv) (e) of this section which is as below—
Work includes following:
(A) Advertising
(B) Broadcasting and Telecasting which includes making of programme for Broadcasting and Telecasting.
(C) Transport of goods or passenger through any transport excluding Railways.
(D) Catering
(E) To supply goods as per the specification and need of the customer made from raw material purchased from the customer. If the goods are tailor made for the customer and raw material is not procured from the customer, then the same is not defined as works.
Advertising Contract: When an advertisement is placed in a newspaper, magazine etc. then TDS is deductible. TDS is deductible when an advertisement is placed directly or through an advertising agency with any newspaper.
Clarification regarding any advertising contract:
1) According to circular no. 715 dated 08.08.1995 TDS @ 1%or @ 2% is deductible on payment made to any advertising agency and advertising agency on making payments to its models, photographer, artist etc. shall deduct TDS u/s. 195J @ 10%.
2) If the print or electronic media is directly paid for advertising, then TDS @ 1% or 2% is deductible. No TDS is deductible when payment is made to Doordarshan due to it being a Government agency. Vide circular number 715-dated 08.08.1995.
3) According to circular no.715, dated 08.08.1995 if any payment is made by any advertising agency to any print or electronic media, then the provisions of section194C shall apply.
4) Provision of sec. 194C shall apply on placing an advertisement in any magazine or souvenir. Circular no. 715 date 08.08.1995.
5) According to circular no. 715 dated 08.08.1995, if a contract for hoisting hoarding then the provisions u/s. 194C shall apply. The provision u/s. 194I shall not apply when the hoisting of hoardings are on any rented site.
6) When payment is for sponsoring any debate competition, seminar and other functions of School, College or any Institution, then it is treated to be advertising and provision of sec. 194C shall apply.
TDS on payment made to Airlines or Travel agent:
If any payment is made to Airline of Travel agent against purchase of ticket then no TDS shall be deducted on it. It is deemed as a contract between an individual and Airline even if the payment is made by any company. If any air plane is chartered or a bus is hired then the provisions of sec. 194C shall apply.
On payment made to Clearing and Forwarding agent.:
If any payment to clearing and forwarding agent is made for transportation of goods then provisions of sec. 194C shall apply on it. TDS for clearing and forwarding agent should be deducted u/s. 194C.
TDS on payment to Courier service:
When payment is made to any courier service the TDS shall be deducted u/s. 194C as carrying of parcels falls under definition of transportation of goods.
Provisions of TDS do not apply on Sale of Goods: Provisions of section 194C do not apply on contract for sale of goods. Circular no. 781 dated 08.08.1995.
On payment made to Restaurant: When payment is made to any restaurant then no TDS shall be deducted.
On supply of any printed material: Provisions of sec. 194C shall apply on supply of any printed material.
Maintenance Contract: Provisions of sec. 194C shall apply on all maintenance contracts.
Civil Constructions: Provisions of sec. 194C shall apply on all civil construction.
Service of providing Guards: If any agency provides guard or other labour then TDS on payment made to it shall be deducted u/s 194C.
TDS shall be deducted on reimbursement of Expenses: If reimbursement of any expenses is done along with amount of contract then TDS shall be deducted on it as phrase ' Paying any sum ' is given in section 194C.
No deduction of TDS on Transporter: If any transporter is made payment for freight of goods then no TDS shall be deducted if the proof of PAN is submitted to the payer.
TDS on non furnishing of PAN : If any contractor including transport contractor does not furnishes PAN to the payee then TDS @ 20% shall be deducted from the payment so made.
TDS ON COMMISSION & BROKERAGE (SECTION 194H)
It is mandatory for any person to deduct TDS from any payment of commission or brokerage amount. TDS shall be deducted on any payment exceeding Rs. 5,000/-.
If for any service, excluding professional service any amount is received for transaction regarding sale/purchase of goods or property, valuable articles etc. then TDS shall be deducted. Provisions of sec. 194D shall apply on Insurance commission while the provisions u/s. 194J applies on fee for professional services.
Rate of TDS: TDS @ 10% is deductible on commission & brokerage. From 01.04.2010 if the payee does not furnishes PAN then TDS @ 20% is deductible.
There should be an agency: It is mandatory that person getting commission or brokerage is agent for payer for application of section 194H. The service regarding sale-purchase is covered by this section while sale of goods directly is not covered by this section. Thus for obtaining commission it is necessary to provide related service. When a travel agent gets commission from any airlines against booking of passanger then TDS is deductible from such amount. The decision of Delhi High Court in CIT v/s. Singapore Airlines Ltd. (2009) 180 Taxman 128 is a landmark in this regard.
When any cellular company pays any commission to its distributor for sale of pre-paid Sim card then the provisions of sec. 194H shall apply. The decision of Delhi High Court in CIT vs. Idea Cellular Ltd. s(2010) 189 Taxman 118 is a land mark in this regard.
TDS ON INCOME FROM RENT (SECTION 194I)
TDS on rental income is deducted u/s 194-I from 01.06.1994.
Who is liable to deduct TDS? Except Individual and HUF all other persons are liable to deduct TDS under this section. If any Individual or HUF is audited u/s. 44AB then they are also liable to deduct TDS. The person paying rent shall be liable to deduct TDS and in the case of Company, Principal officer of the company and company itself shall be liable for deduction.
When to deduct Tax? The person liable to deduct tax shall do the same before the following:
(i) Before making any entry regarding payment of rent.
(ii) At the time of paying rent through cash, cheque or Bank draft.
If the amount of rent is made up in Suspense account or Rent payable account and the amount is not credited in land lord's account even then the liability to deduct tax arises.
If the rent payable in a financial year is not more than Rs. 1, 80, 000/- then TDS is not deductible. According to this provision, if the monthly rent is less than Rs. 15,000/- then no TDS is deductible. If the rent received is for short term but is Rs. 1, 80,000/- in any financial year then deduction of TDS is mandatory.
Definition of Rent: The clarification (1) of section 194 I define rent as follows:
Rent is any payment under lease, sub-lease, renting or any other agreement for use of following:
(i) Land.
(ii) Building, including factory building.
(iii) Land attached to any building including attached to factory building.
(iv) Machinery
(v) Plant.
(vi) Equipment.
(vii) Furniture.
(viii) Fittings.
Even if all these are not rent receiver's property.
It is clear from the above that the following three important elements should be there in rental income for deducting TDS:
(i) Payment is made for Lease, Sub-Lease, renting or others.
(ii) Payment is made only for rent regarding land or building or any machinery, plant, equipment, furniture, fittings etc.
(iii) It is of no consequence that the rent receiver is owner of those assets.
Other important information regarding TDS on Rent:
(i) If rent is paid in advance then TDS should be deducted on such advance payment.
(ii) The provisions of TDS shall apply even on non-refundable deposits. If any deposit is refundable than no TDS should be deducted.
(iii) The payment of Warehousing charges is included in the definition of Rent and the provisions for TDS shall apply on it.
(iv) If any rent is paid for keeping goods in any cold storage then it will be treated u/s. 194C instead of section 194I because goods are kept in cold storage under a contract and cold storage is not hired.
(v) If any accommodation is taken in a Hotel on permanent basis then the provisions of TDS shall apply on it.
(vi) If any building has more than one stakeholders and each have a separate portion then no TDS is deductible for payment up to Rs. 1.80 lakhs to each stakeholder.
(vii) When any Airlines pays for landing or parking of airplane to Airport Authority of India then it should do so after deducting TDS u/s 194I.
(viii) On renting of Cinema Hall for exhibiting any film the provisions u/s. 194I will not apply.
Rate of Tax:
On renting of Machinery, Plant or Equipment - 2%
On renting of Land, Building, Furniture etc. - 10%
Provisions do not apply on Government Local Bodies: If the receiver of rent is any Government or Local Authority then the provisions of TDS shall not apply. In such cases, a certificate will be issued to rent payer.
TDS ON PROFESSIONAL FEE (SECTION 194J)
TDS on Professional & Technical Fee is deducted u/s. 194J.
Who is liable to deduct TDS? Any person who pays any Professional fee, Technical fee, Royalty, fee for non-competition, and fee of Doctor then the Tax at source should be deducted by him. Following persons shall not deduct TDS.
(i) Individual and HUF who are making payment of Royalty and non-competition fee.
(ii) Individual and HUF who were audited u/s. 44AB during previous financial year. make payment for personal work.
Rate of Tax: The rate of TDS u/s. 194J is 10% and it will be deductible on total amount including amount of reimbursement of expenses. If the total payment does not exceed Rs. 30,000/- in any financial year then there will no liability to deduct TDS.
Definition of Professional /Technical Fee: This includes any service provided under legal, medical, Engineering or Architectural profession or Accountancy or Technical consultancy or services provided for the profession of Interior Decoration. The services provided by Models, Artists, Photographer to any Advertising agency are covered in the definition. The Board has covered Authorized person, Film artists, Company Secretary, or Information Technology under it. Sports persons, Umpires & referees, Commentators, Coaches, Physician and Physiotherapist of team, Event Manager, Anchors and Sport column Writers are covered in this service.
TDS is deductible on reimbursement of expenses: If any bill for reimbursement is not presented along with professional fee then the provisions of sec. 194J shall not apply on it. According to Board's circular numbered 715 dated 08.08.1995, on payment of any amount. the sum of reimbursement should be added while deducting TDS. But Delhi Bench of Tribunal in the case of ITO v/s. Willmar Schwa be India (P) Ltd. (2005) 3 SOT 7 said that if the bill for expenses and bill for fee is submitted separately then TDS can not be deducted on the amount of reimbursement.