The Hindu Business Line : A primer on TDS

Tax is to be deducted on salary (Section 192) by an employer only at the time of payment of salary. The deduction is to be at the rates of tax applicable to an individual. The benefit of deductions under Chapter VI-A and rebates under Chapter VIII (Sections 88, 88B and 88C) may be allowed over and above the exemptions under Section 10, standard deduction and deduction for professional tax while deducting tax. The Central Board of Direct Taxes (CBDT) every year issues a circular on TDS on salaries where it clarifies the deductions under Chapter VI-A, which can be reckoned by the employer.

The employer can also take cognisance of a loss incurred under the head "Income from House Property". No cognisance can be taken of loss under any other head of income.

The employer shall also take into account any other income under the head salaries or other heads if the same is given by the employee. The employer may also in such cases take cognisance of the tax already deducted on such income while deducting tax at source. However, this should not have the effect of reducing the tax deductible below the amount of tax deductible under the head "salaries" except where there is a loss under the head income from house property.

The forms relevant for obtaining such disclosure are Form 12B and Form 12C. Tax is normally to be deducted in 12 equal monthly instalments. The shortfall/excess deduction may, however, be adjusted within the same financial year.

Apart from the requirement for an employer to issue a Form 16, it is now also mandatory for the employer to issue Form No.12BA which will be a statement showing particulars of perquisites, other fringe benefits or amenities and profits in lieu of salary with the value thereof.

It may be noted that all persons must deduct tax at source under Section 192.

Query

Should all persons deduct tax at source on payments to contractors and sub-contractors? What is the ceiling limit for tax deduction in such cases?

Reply

Under Section 194C, any person other than an individual or HUF must deduct tax at source at the time of payment or credit whichever is earlier to a contractor for any work.

In the case of payments or credit to a sub-contractor for any work, any person other than an individual or HUF not being an individual or HUF subject to tax audit under Section 44AB in the immediate preceding previous year by reason of exceeding the specified turnover/sales/gross receipts must deduct tax at source.

Such deduction is to be made when the contract is in excess of Rs 20,000. The contracts that are included in tax deduction are:

Advertising.

Broadcasting and telecasting.

Goods or passenger carriages.

Catering.

Tax is to be deducted not only on the income but also on all reimbursements made to the contractor/sub-contractor.

Tax is to be deducted at the following rates:

Payment to contractor: 2 per cent (excluding surcharge).

Payment to sub-contractor: 1 per cent (excluding surcharge).

Payment in case of advertising contracts: 1 per cent (excluding surcharge).

Query

Should tax be deducted on commission payments? If so, who should deduct tax on the same?

Reply

Under Section 194H, any person other than an individual or HUF not being an individual or HUF subject to tax audit under Section 44AB in the immediate preceding previous year by reason of exceeding the specified turnover/sales/gross receipts must deduct tax at source at the time of payment or credit whichever is earlier when payment is made by way of commission other than insurance commission or brokerage.

The requirement to deduct arises only where the payment or credit in a previous year exceeds Rs 2,500 p.a. There is no requirement to deduct tax at source under this Section in respect of fees for professional services and this would fall only under Section 194J. Similarly, no tax needs to be deducted at source on commission or brokerage in respect of transactions relating to securities. Tax is to be deducted at 5 per cent (excluding surcharge).

Query

What are the provisions relating to tax deduction on rent?

Reply

Section 194I talks of the tax deduction requirement on rent. Under this section, any person other than an individual or HUF not being an individual or HUF subject to tax audit under Section 44AB in the immediate preceding previous year by reason of exceeding the specified turnover/sales/gross receipts is to deduct tax at source on the payment of rent.

The deduction is to be made at the time of payment or credit whichever is earlier, where the rent paid/credited is in excess of Rs 1,20,000 p.a.

The payment of rent includes payment under lease or sub-tenancy for use of land or building or furniture and fittings provided along with the building or land. Where the property is under co-ownership the monetary ceiling of Rs 1,20,000 is to be taken in respect of each co-owner.

Under this Section tax is to be deducted at the following rates:

Where the payee is an individual or HUF: 15 per cent (excluding surcharge).

Where the payee is any other person: 20 per cent (excluding surcharge).

Query

Who should deduct tax on payments by way of fees for professional or technical services and when?

Reply

Any person other than an individual or HUF not being an individual or HUF subject to tax audit under Section 44AB in the immediate preceding previous year by reason of exceeding the specified turnover/sales/gross receipts responsible for paying any sum by way of fees for professional or technical services must deduct tax at source.

Tax is to be deducted where the aggregate payment/credit for the year is in excess of Rs 20,000 (Section 194J).

No tax, however, needs to be deducted by an individual or HUF where the payment or credit is exclusively for personal purposes of such individual or any member of the HUF.

The deduction is to be done at the time of payment or credit whichever is earlier. Tax is to be deducted at 5 per cent (excluding surcharge).

...on interest

WHO are the persons required to deduct tax at source on interest and beyond what limit does this requirement arise?

Reply

Any person other than an individual or HUF not being an individual or HUF subject to tax audit under Section 44AB in the immediate preceding previous year by reason of exceeding the specified turnover/sales/gross receipts must at the time of payment or credit of interest, whichever is earlier, deduct tax at source (Section 194A).

Such deduction of tax will have to be done where the payment or credit by way of interest exceeds Rs 5,000 per annum. This ceiling limit for tax deduction is an aggregate ceiling and not in respect of each payment.

Tax deduction at source in case of banking companies or co-operative societies engaged in banking or housing finance companies arises only at the time of payment of credit of interest on time deposits.

Further the limit is in respect of each branch of the banking company, co-operative society or housing finance company. This provision was not attracted when income is credited or paid to:

A bank.

A financial institution established under any Act.

Life Insurance Corporation.

Unit Trust of India.

Any company or co-operative society engaged in insurance business.

A partner of the firm.

A member of a co-operative society

Tax is to be deducted under this section at the following rates:

Where the payee is a domestic company: 20 per cent (excluding surcharge).

Where the payee is any other resident: 10 per cent (excluding surcharge).

(The author is a Chennai-based Chartered Accountant and tax consultant.)

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