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Deduction of Tax 26

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STUDY NOTE - 26 DEDUCTION AND COLLECTION OF TAX AT SOURCE This Study Note includes • •

Prov Provis isio ions ns rel relat atin ing g to TDS TDS Prov Provis isio ions ns rela relati ting ng to TCS TCS

COLLECTION AND RECOVERY OF TAX COLLECTION OF TAX IN ADVANCE OF LIABILITY Income earned during any year is taxed in a year next succeeding. The former year is called: ‘Previous Year’ or also called as ‘Current Year’ while the later on is called ‘Assessment Year’. Income-tax on income earned in the current year is subjected to tax in the corresponding assessment year. For example, income earned during the t he current year from 1 st April, 2008 to 31st March, 2009 (2008-09) is taxed in the assessment year 2009-10. However, Chapter XVII of the Act provides that amount of tax should be deposited with the Government during the current year itself. The following methods are provided under section 190 for such a deposit of tax: A.Deduction of Tax at Source (TDS) B. Collection Collection of Tax at Source (TCS) (TCS) C.Advance Payment of Tax The provisions in this behalf appear in Chapter XVII of the Act. Since income is determined in the assessment year, it is likely that taxes paid by an assessee are equal to the liability or are more or less than the amount of liability, If taxes paid are more, refund is granted to the assessee and if taxes paid are less, the assessee has to make good the deficiency by further payment. Case Law: i) The directors of the th e 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 v Century Building Industries P. Ltd. 293 ITR 194.

26.1 DEDUCTION OF TAX AT SOURCE (TDS) 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, when TDS should be paid to the Government and associated administrative responsibilities of payer (tax deductor) and payee (tax deductee) have been prescribed. Applied Direct taxation

347

TDS and TCS

The following chart states at a glance incomes from which TDS should be made : Section Nature of Income/Pay ment

Threshold Limit

Person Responsible to

Nature of payee

Rate at which to be deducted

Make TDS

192

Salary

Maximum Any person amount not  being an liable to tax Employer for employee

Employee average rate of incomehaving tax computed on the taxable salary  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

193

Interest on securities

10,000

Any person issuing the security

Any person

Refer Note No. 1

194A

Any interest Rs.5,000 in a other than year or interest on 10,000 in securities case of  exceeding  banking company or co-operative society or deposit with post office

Any person other than individual or HUF [Refer Note No. 4]

Any resident in India

Refer Note No. 1

194B

Winnings from lottery or crossword puzzle or card game and other game of any sort including television game

Any person

Any person

30% [Sec. 115BBB]

348

Rs. 5,000

Applied Direct taxation

194BB

Winnings from horse race

Rs. 2,500

Winning from horse race

Any person

30% [Sec. 115BBB]

194C(1) Any Payment in pursuance of any contract

If a contract exceeds Rs. 20,000 or total in a year contracts with the same contractor exceed Rs. 50,000.

Central or State Government, Local Authority, Central/State or Provincial Corpn., Company Cooperative Society Housing Board, Trust or University, Firm [Refer Note No. 4]

Any resident contractor for carrying out any work including supply of labour

1% for Advertisement contracts and 2% for all other contracts.

194C(2) Any Payment in pursuance of any contract for consideratio n

Rs. 20,000

Any Any resident contractor subother than contractor Individual and HUF [Refer Note No. 4]

Rs. 5,000

Any person

Any resident person

Refer Note No. 1

1%

194D

Insurance commission

194E.

Income for i) Nil participation in any game or sport in India; ii) by way of remuneratio n for articles on sports, etc

Any person

Any nonresident sportsman who is not a citizen of India

10%

194E.

Guaranteed sum in relation to any game or sport played

Any person

Any nonresident association or institution.

Refer Note No. 1

Nil

Applied Direct taxation

349

TDS and TCS

194EE

Any sum out of  National Savings Scheme u/s80CCCA

194F

194G

Any person

Any person

20%

Amount on Nil account of  rerepurchase relevant of  units covered u/s. 80CCB

Any person

Any person

20%

Commission Rs. 1,000 , remuneratio n or prize – relating to lottery tickes

Any person

Any person stocking, purchasing or selling lottery tickets.

10%

194H

Rs. 2,500

Rs. 2,500

Other than Any person individual and HUF [Refer Note No. 4]

10%

Rs.1,20,000

Other than Any person individual and HUF [Refer Note No. 4]

10 % plant, equipment

Commission Any person or Brokerage 194-I

Rent

other assets – 15% indl. HUF payee 20% other payees

194J

Fees for Professional or technical services

Rs.20,000

Other than Any person individual and HUF [Refer Note No. 4]

10%

194LA

Immovable Property Acquisition Compensati on

Rs.1,00,000

Any person

Any resident person

10%

195

Any interest or any sum chargeable as income (other than

Nil

Any person

Any nonresident other than company Any foreign company

Refer Note No. 1 and if  the NR is resident of a country with which India has Double Tax Avoidance Agreement,

350

Applied Direct taxation

TDS and TCS

26.2 TAX COLLECTION AT SOURCE

[Sec. 206C]

Every seller at the time of debiting the buyer with the amount payable or receiving payments from buyers engaged in business of alcoholic liquor, forest produce, scrap, timber, tendu leaves, etc. shall collect tax at the following rates:

Sr.No

Nature of goods

TCS Rate

1

Alcoholic liquor for human consumption (other than Indian made foreign liquor)

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%

Every person, who grants a lease or a license or enters into a contract, etc for the purpose mentioned below shall collect tax at the following rates: TABLE

The amount of tax so collected shall be paid, within one week seven from end of the month of  tax collection. Delay or failure attracts interest @ 1% p.m. [sec. 206C(7) & (8)] Responsibility & Liability of the Tax Collector

1. To obtain Tax Collection Account No. [sec. 206CA(1)] 2. To quote TCS No. in all returns, certificates and challans. [sec. 206CA(2)] 3. To furnish quarterly return in form No. 27EQ within stipulated time i.e. within fifteen days from the end of a quarter for the first three quarters and by 30th April for the last quarter. 4. Failure to furnish TCS return: Penalty @ 100/- per day, during which the default continues, but not exceeding the amount of TCS. [sec. 272A(2)(g)] 5. Failure to deposit TCS in Government treasury, rigorous imprisonment for a term of  not less than 3 months, but which may extend to 7 years, in addition to fine [secs. 276B & 276BB] Thus, administrative provisions are similar to TDS administration 356

Applied Direct taxation

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