TAX DEDUCTION AT SOURCE- TDS

DEDUCTION AND COLLECTION OF TAX AT SOURCE

DEDUCTION AT SOURCE

To avoid cases of tax evasion, the income tax Act has made provisions to collect tax at source on accrual of income. Cases included in the scheme are, generally, those where income can be computed at the time of accrual of income. Under this scheme, persons responsible for making payment of income covered by the scheme are responsible to deduct tax at source and deposits the same to be Government’s treasury within the stipulated time. The recipient of income though he gets only the net amount after deduction of tax at source , liable to tax on the gross amount and the amount deducted at source is adjusted against his final tax liability. 

             TDS scheme covers payments like salary ( to resident / non resident ), payment other than salary to residents ( namely , interest, dividend, rent , commission / brokerage, lottery winnings, winnings of races, technical / professional fees, royalty, compensation, etc ) and payment to non residents / foreign companies.

             If the recipient does not furnish his PAN to the deductor, tax will be deducted ( with effect from April 1,2010 ) at the normal rate or at the rate of 20 percent, whichever is higher. PAN of the deductee should be mentioned in any correspondence and document which is exchanged between the deductor and deductee. Moreover , where any person located in a notified jurisdictional area is entitled to receive any sum on which tax is deductible under any provision of the Act, the payer will deduct tax ( with effect from June 1,2011 )

a.     At the rate in force or at the rate specified in the relevant provision of the Act.; or

b.     at the rate of 30 percent ( surcharge or education cess cannot be added.

Whichever is higher.

           Surcharge on TDS payments during the financial year 2011-2012 Surcharge will be applicable in the case of TDS only when the recipient is a foreign company and the payment / credit subject to TDS exceeds Rs 1 crore ( rate of surcharge : 2 percent of TDS ). In no other case, surcharge will be applicable for TDS purpose during the financial year 2011-12.

        Education cess and secondary and higher education cess during the financial year 2011-12. During the financial year 2011-12 education cess (at the rate of 2 percent ) and secondary and higher education cess ( at the rate of 1 percent ) will be applicable only in the following cases :-

a)     Tax deduction from payment of salary ( where recipient is resident or non resident )

b)    Tax deduction from payment / credit of any sum (other than salary ) to a non resident or a foreign company.

In the case of payment / credit (other than salary) to a resident, education cess etc, will not be applicable for TDS purpose during the financial year 2011-12.

Consequences of default:- Where a person who is required to deduct tax at source , does not deduct, or after deducting fails to pay, the whole or any part of tax, as required by the Act, then such person shall be deemed to be an assessee in default in respect of such tax under section 201(1). He will be liable for payment of tax, interest, penalty and prosecution. Besides, disallowance under section 40(a) will be attracted.

An order under section 201(1) for failure to deduct the whole or any part of the tax as required under the Act, if the deductee is a resident taxpayer, shall be passed within the time limit given below:-

a)     In case TDS statement is filed by the deductor within 2 years from the end to the financial year in which statement is filed under section 200.

b)    In case no such statement is files within 4 years from the end of the financial year in which payment is made or credit is given.

TAX COLLECTION AT SOURCE ( SEC 206C)

Under section 206C in some cases tax has to be collected at source.

Every person , being a seller, shall collect from the buyer of goods specified in section 206C tax at source. Tax will also be collected by a person who grants lease or licence in respect of parking lot or toll plaza or mine or quarry, to another person (not being a public section company).

“Seller “ means the Central Government , a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative society. It also included an individual or a Hindu undivided family whose books of account are required to be audited under section 44AB (a) / (b) during the financial year immediately preceding the financial year in which goods are sold.

“Buyer “ means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in section 206C (1) or the right to receive any such goods. It, however , does not include the following:

a)     A public company , the Central Government , a State Government , and an embassy, a High Commission, Legation, Commission, consulate and the trade representation, of a foreign State and a club , or

b)    A buyer in the retail sale of such goods purchased by him for personal consumption.

If a retailer sells any specified goods to a customer for personal consumption only (and not for any other purpose), the purchasing customer will not be treated as a “buyer”. The resultant effect will be that the retailer need not collect tax from the customer, provided he is satisfied that the customer is purchasing the goods for personal consumption. No mechanism has been provided by which the seller will be able to satisfy himself that the requirement of personal consumption is fulfilled, so that he need not collect tax. As a minimum requirement, a declaration form the purchaser that the goods are for personal consumption may be taken.

     Tax has to be collected by the seller at the time of debiting of the amount payable by the buyer to the amount of the buyer or at the time of receipt of such amount from the buyer in cash or by issue of cheque / draft, or by any other mode, whichever is earlier. The scheme of giving credit to the collectees has been modified with effect from April 1, 2008 so that the manner in which credit of TCS is to be given will be governed by Rules to be framed. In other words, the Board may make such rules as may be necessary for the purpose of giving credit in respect of TCS.

         No tax will be collected at source from a buyer who purchases goods for the purpose of manufacturing , processing or producing any article or thing and not for the purpose of trading. If a buyer gives a declaration in Form No 27C to the seller that the goods to be purchased are to be utilized in the carrying on of any of the activities referred to above, no tax will be collected under section 206 C.

          The manufacture and sale of country liquor is controlled and supervised by the State excise authorities and liquor is retailed in the same commercial form as purchased originally. Therefore , there will be no occasion for a liquor contractor to give a declaration of the type referred to above. However, if a “buyer” of timber obtains the same for say, making furniture, the provisions of section 206 C will not apply and no collection of tax will be required to be made, on his giving the declaration to the seller. Similarly , if a buyer purchases timber as an actual user for construction of a house, no collection of tax will be required to be made under section 206C.

              An application can be made by the buyer to the Assessing officer in form No 13 to get a certificate of tax collection at lower rate. The person responsible for collecting tax shall collect the same at the rates specified in such certificate until such certificate is cancelled by the Assessing Officer.