Tax Deducted & Collected at Source – CMA Inter Direct Tax Study Material is designed strictly as per the latest syllabus and exam pattern.
Tax Deducted & Collected at Source – CMA Inter Direct Tax Study Material
Distinguish Between
Question 1.
Difference between TDS and TCS (Dec 2019, 5 marks)
Answer:
Difference between T.D.S and TCS
T.D.S [Tax deducted at Source]
Tax is deducted only if amount is taxable in the hands of receiver
T.D.S requirements arise at the time of payment or at the time crediting the account of payee, whichever is earlier
All T.D.S rates are fixed i.e. 1%, 2% 5% etc.
But if payment made to a non-resident foreign company or payment of salary, surcharge and health education cess shall be considered.
T.C.S [Tax collected at Source]
Section 206 C: Seller shall collect tax from buyer at the time of debiting the account or receipt of amount of Buyer whichever is earlier.
T.C.S is not applicable if buyer is Government, embassies, consulates, high commissions.
T.C.S is collected in case of following goods:
- Alcoholic liquor for human consumption
- Tender leaves
- Timber and any other forest product
- Scrap
- Minerals being coal, lignite, or iron
- Motor Vehicle.
Descriptive Question
Question 2.
A Company pays in August, 2022, a remuneration of ₹ 50,000 to its Director, which is not in the nature of salary. State whether tax has to be deducted from the payment and if so the amount to be deducted. (June 2013, 3 marks)
Answer:
Section 194J has been amended with effect from July 12, 2017 to provide that tax will be deducted u/s 194J on the remuneration paid/payable to a Director, which is not in the nature of salary, at the rate of 10% of such remuneration. The amount of tax to be deducted would therefore come to ₹ 5,000.
Question 3.
State the provisions relating to deduction of tax at source from premature withdrawal from Employees Provident Fund. (June 2019, 4 marks)
State the time of tax deduction at source and the threshod limits of such deduction in case of payment to contractors. (June 2019, 3 marks)
Answer:
If the employee makes withdrawal before continuous service of five years, the withdrawal would be subject to tax. Section 1 92A provides for deduction of tax @ 10% on premature withdrawal from employees provident fund scheme.
Tax is to be deducted at the time of payment of accumulated balance due to the employee. Tax deduction is not to be made it the amount of such payment or aggregate amount of such payment to the payee is less than ₹ 50,000.
As per section 194C, in case of payment to contractors, tax is to be deducted at source at the time of crediting the account of the payee or at the time of payment, whichever is earlier. No deduction is required to be made if the consideration for the contract does not exceed ₹ 30,000. However, it is provided that tax will be required to be deducted at source where the amount credited or paid or likely to be credited or paid to a contractor or subcontractor exceeds ₹ 30,000 in a single payment or ₹ 1,00,000 in the aggregate during a financial year.
Practical Questions
Question 4.
State briefly whether the following transaction require deduction of tax at source:
Payment of royalty of ₹ 5 lacs by P. Limited, an Indian Company to another Indian Company, Q. Limited
Payment of interest of ₹ 7,500 by D. Limited, an Indian Company to M. Limited, an Indian Company for delayed payment of sale proceeds.
Payment of ₹ 1,00,000 by a partnership firm, resident in India to Mr. L, resident contractor for manufacturing a product as per requirement of the firm. The contractor used materials which were purchased by him from a company. (June 2013, 3 marks)
Answer:
As the amount of royalty paid to resident exceeds ₹ 30,000, tax is required to be deducted at 7.5% under Section 194J.
Payment of interest by D. Ltd. to M. Ltd., resident required deduction of tax at 7.5%, as the amount of interest exceeds ₹ 5,000. (Section 194A)
Under Section 194C work does not include manufacturing or supplying of product according to the requirement or specification of a customer by using material purchased from a person, other than such customer or its associate. As L used the materials purchased from a third party, the firm is not required to deducted tax at source.
Question 5.
Abhishek & Co. a partnership firm incurred the following expenses:
Salary paid to staff ₹ 12,00,000 of which two employees were paid salary in excess of ₹ 2,00,000 each. No tax was deducted at source on those salary payments.
Interest paid to bank on working capital limit ₹ 27,500. No tax was deducted at source.
Interest on capital paid to partners at 15% per annum of ₹ 1,50,000. No tax was deducted on such interest payment.
Payments made to contractors for job work process ₹ 6,87,000.
Two parties to whom payments were ₹ 87,000 and ₹ 1,02,000 for which no tax was deducted at source. The parties however have agreed to admit the receipt in their income statement and pay tax there on.
Rent paid for machinery ₹ 20,000 per month for 8 months. No tax was deducted at source on this amount
Determine the allow ability or otherwise of the above said expenses due to non-deduction of tax at source. (June 2013, 5 marks)
Answer:
Salary paid to staff is a deductible expenditure even though no tax was deducted at source on such payment. Section 40a(ia) dis allowance is not applicable for salary expenditure.
Interest paid to bank is subject to exemption given in Section 194A(3)(iii), hence the question of deduction of tax at source on interest paid to bank does not arise.
Interest on capital paid to partners at 15% will be liable for disallowance to the extent of 3% since Section 40(b) mandates
allowance only to the extent of 12% per annum. Allowable interest will be ₹ 1,20,000/-. Section 1 94A(3)(iv) provides exception, hence no tax deduction at source is required for the interest paid to partners of the firm.
Payments made to contractor when exceeds in aggregate ₹ 1,00,000, tax is deductible at source as per Section 194C. However, further proviso to Section 40(a)(ia) carves out an exception viz, that if the payee has admitted the said receipt ¡n his return of income and paid tax on such income, the payer is not deemed to be an assessee in default under the first proviso to Section 201(1), the disallowance envisaged in Section 40(a)Qa) will not apply. Therefore, if the recipients/payees have paid tax on their income including the contract receipt given in the question, the disallowance u/s 40(a)(ia) will not apply.
Rent paid for machinery above ₹ 2,40,000 ¡n a financial year warrants deduction of tax at source under Section 194-I. Since the aggregate payment was only ₹ 1,60,000 the expenditure does not attract tax deduction provision contained in Section 194-I. Thus it is out of the clutches provided in Section 40(a)(ia).
Question 6.
State whether TDS/TCS provisions are attracted in the following cases:
(i) A newspaper paid ₹ 2,00,000 to ex-cricketer of New Zealand for writing series of articles during World Cup Cricket matches.
(ii) Mr. X purchased jewellery from a showroom for ₹ 5,50,000 on 10.1 0.2022 by cheque.
(iii) When Mr. Y purchased fly ash from a factory to use the fly ash for manufacture of bricks.
(iv) A partnership firm having a turnover of ₹ 40 lakhs during the financial year 2022-23 made contract payment of 35,000 to an individual for a single bill. (June 2015, 4 marks)
Answer:
Liability to TDS/TCS
(i) As per Section 194E tax is deductible at source at 20% on the payment made to non-resident foreign citizen sportsman.
(ii) When jewellery is purchased in cash the tax collection at source will apply. In this case as the purchase was made by means of cheque, TCS provisions will not apply.
(iii) When goods purchased are meant for manufacturing it is not liable for tax collection at source. Only when it is for the purpose of trade, TCS provisions will apply.
(iv) Tax is deductible at source in respect of each contract when ¡t exceeds ₹ 30,000. [Clause (i)(k) of the Explanation to Section 194C will be applicable to partnership firms.]
Question 7.
Mrs. Zeenat is running a proprietary business whose accounts are audited under section 44AB since her turnover always
exceeded ₹ 1oo lakhs. She pays a monthly rent of ₹ 13,000 for the office premises to Mr. Jack, the owner of the building, an individual. She also pays ₹ 10,000 per month to Mr. Jack for the use of furniture, fixtures and vacant land appurtenant to the building. Is she liable to deduct tax at source on these payments? If no tax is deducted at source, what would be the
consequence? (Dec 2015, 4 marks)
Answer:
Yes, Mrs. Zeenat is liable to deduct tax an source. TOS on rent ¡s liable lo be deducted by the person making the payment If the total amount to be paid during the year exceeds ₹ 2,40,000 p.a This limit is ₹ 2,40,000 p.a. is per tax payer. Exception to the above rule: No TDS on rent is liable to be deducted if the payment is being made by an individual when is not required to get his tax audit done u/s 44AB.
Consequence If no TDS deducted:
1. As per Section 40(a)(ia) any sum payable to a resident which is subjected to deduction of tax at source would attract 30% disallowance if it is paid without deduction of tax at source.
2. Levy of Interest: 1 % for every month or part of the month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted.
3. Levy of penalty: Penalty of an amount equal to tax not deducted could be imposed uls 271C.
Question 8.
Nathan Gramin Bank, which does not have core banking facility, has paid the following amounts as interest to Mrs. Hemalatha, a resident individual on 31 -03-2023:
| Particulars | Branch 1 (₹) | Branch 2 (₹) |
| Interest on fixed deposit | 6,000 | 7,000 |
| Interest on recurring deposit | 3,500 | 2,300 |
| Total | 9,500 | 9,300 |
What is the tax to be deducted at source?
Will the answer differ, if the bank has core banking facility? (June 2016, 3 marks)
Answer:
Interests on fixed deposit as well as recurring deposit are to be considered. Where there is no core banking facility, then the TDS obligation has to be seen branch-wise. If the total interest paid is below ₹ 40,000, then there will be no obligation to
deduct tax at source. Hence in the first instance, there will be no obligation to deduct tax at source.
In case there is core banking facility, then the TDS obligation is to be considered for each deductee, for the bank as a whole.
Since total amount of interest does not exceed ₹ 40,000. Hence, there is no need to deduct tax at source.
Question 9.
Answer the following question with brief reason/working:
Balaji Ltd, a textile manufacturing company paid ₹ 15 lakhs as contract payments to MIs. Ramesh Engineers (a partnership firm) for construction of godown building. At what rate the tax ¡s deductible at source on such contract payment? (Dec 2016, 1 mark)
Answer:
Since the payment is made to a person other than an individual or HUF, the rate of tax deduction under section 1 94C would be 2%.
Question 10.
What is the rate of tax and the amount of tax to be deducted at source from the following payments?
(i) Discount of ₹ 50,000 allowed to a customer
(ii) Sales commission of ₹ 12,000
(iii) House worth ₹ 60 lakhs given as prize in a TV show to a resident individual
(iv) Purchase of rural agricultural land for ₹ 90 lakhs. (Dec 2016, 5 marks)
Answer:
Obligation to deduct tax at source
(i) Discount of ₹ 50,000 allowed to a customer.
There will be no liability to deduct tax at source. Only if it is commission, there will be TDS obligation.
(ii) Sales Commission of ₹ 1 2,000.Tax is not deducted at source under section 194-H., because the amount of sales commission is less than ₹ 15,000.
(iii) House worth ₹ 60 lakhs given as prize in a TV show to a resident individual. As per section 1 94B, tax ¡s required to be deducted at 30% as the amount of winning exceeds ₹ 1,0000. The amount TDS is ₹ 18 lakhs (i.e. 30% of ? 60 lakhs) and the same has to be recovered from the winner before the house is handed over to him.
(iv) Purchase of rural agr cultural land for ₹ 90 lakhs. There is no obligation to deduct tax at source, where the property purchased from a resident is rural agricultural land.
Question 11.
Examine the applicability of TDS provisions for the financial year 2022-23 and amount of tax, if any, to be deducted in the
following cases:
(i) Payment of fee for technical services of ₹ 22,000 and royalty of ₹ 25,000 to Mr. Ram who is having PAN.
(ii) Payment of ₹ 2,00,000 made to Mr. X for purchase of diaries made according to specifications of M/s ABC Ltd. However, no material was supplied for such diaries to Mr. X by M/s ABC Ltd.
(iii) Rent paid for plant and machinery ₹ 1,50,000 by a partnership firm having sales turnover of ₹ 25,00,000 and net loss of ₹ 15,000. (Dec 2017, 6 marks)
Answer:
(i) Payment of fee for technical services of ₹ 22,000. No. TDS required to be deducted because the amount is less than ₹ 30,000. But In case of royalty tax required to be deducted @ 10% ₹ 2,500.
(ii) There is no need of TDS in case of payment of ₹ 2,00,000 for purchase of diaries.
(iii) Since the amount of Rent for plant & machinery is less than ₹ 2,40,000. There is no need of TDS.
Question 12.
State whether the following transactions attract tax deduction at source (TDS) provisions and the rate of tax and the amount of tax deductible in applicable cases:
(i) Interest on recurring deposit of ₹ 12,000 paid by a nationalized bank to Mr. Dhoni.
(ii) Prize amount of ₹ 8,000 paid by Excellence Ltd. to Mr. Saha a winner of crossword puzzle contest conducted by the company.
(iii) Commission of ₹ 21,000 paid to Kumble and Co. by Dravid Co. Ltd. for purchase of raw materials.
(iv) Chandra Ltd. paid ₹ 40,000 per month as generator rent from 1st August, 2022 and up to 31st March, 2023 to Mr. Shastri. (June 2018, 8 marks)
Answer: .
(i) TDS on interest other than “Interest on Securities” (Paid to Resident Only):
Any person, not being an individual or a Hindu Undivided Family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of 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 income-tax thereon at the rate of 10% (TDS is also to be deducted from interest on Fixed Deposit and Recurring Deposits with banks and Co-operative banks)
(ii) TDS on Winnings from lottery or Crossword Puzzle (Paid to Resident as well as Non-Resident):
As per Section 194B, a person responsible foraying to any person any income by way of winnings from lotteries or Crossword Puzzles exceeding ₹ 10,000 is required, at the time of such payment, to deduct income tax thereon at the rate of 30%. Where the winnings are wholly in kind, the person responsible for paying shall, before releasing the winnings in kind, ensure that tax has been paid in respect of the winnings. In the present case, since the amount paid by Excellence Ltd. to Mr. Saha is ₹ 8,000 which is less than, 10,000 therefore, Excellence Ltd. does not required to deduct TDS.
(iii) TDS on Commission or Brokerage (Paid to Resident only) Any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in Section 194D) or brokerage 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 at the rate of 5%.
Provided that no deduction shall be made under this section in a case where the amount of such income or as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of or to, the payee, does not exceed ₹ 15,000. Since in the present case, the amount of ₹ 21,000 paid by Dravid Co. Ltd. to Kumble & Co. a resident which is exceed the amount ₹ 15,000, therefore, Dravid Co. Ltd. should deduct TDS@ 5%, i.e. ₹ 1050.
(iv) TDS on Rent (Paid to Resident Only)
Any pers, not being an individual or a Hindu Undivided Family, who is responsible paying to a resident any income by way of rent, shall, at the time of edit of such income 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:
- 2% for the use of any machinery or plant or equipment, and
- 10% for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings. In the present case, Chandra Ltd. paid ₹ 40,000 per month as generator rent for a period of 8 months (i.e. 1st August, 2022 to 31st March, 2023)
Therefore, the TDS amount which should be charged 40,000 × 8 months × 2/100 = 6,400.00.
Question 12.
Examine the applicability of tax deduction at source provisions, rate of TDS and the amount of tax deduction (if any) in the
following cases for the financial year 2022-23:
(i) Payment of ₹ 50,000 made to Mr. Peter, an England cricketer, by an Indian newspaper agency on 3rd August, 2022, for contribution of articles in relation to the sport of cricket.
(ii) Payment made on 1.02.2023 by a company to resident sub-contractor (individual) ₹ 4,00,000 with outstanding balance of ₹ 1,20,000 shown in the books of account, as on 31.03.2023.
(iii) Wining from horse race ₹ 1,00000.
(iv) ₹ 2,00,000 paid to Mr. X, a resident individual on 20.02.2023 by the State of Kamataka on compulsory acquisition of his urban land (vacant site). (Dec 2019, 6 marks)
Answer:
(i) As per Section 194 E: if any person make payment to Non-resident for participation in any game, Advertisement, liable to deduct T.D.S @ 20% plus cess. In this case, Indian newspaper agency liable to deduct T.D.S on payment made to Mr. Peter i.e. 10,400 = (50,000 x 20.80%)
(ii) As per Section 194 C, if any person made payment to Sub Contractor, liable to deduct T.D.S if single payment exceeds ₹ 30,000 OR Aggregate of payment in previous year exceeds ₹ 1,00,000.
In this case company liable to deduct tax @ 1 % i.e. 5200 (5,20,000 × 1%).
(iii) As per Section 194 B, if any person made payment for winning from lotteries, cross word, puzzles land game etc’.. to any person liable to deduct T.D.S @ 30% No. T.D.S if winning amount is up to ₹ 10,000.
T.D.S = 30,000 (1,00,000 x 30%).
(iv) As per Section 194 LA, ¡t any person pay compensation for compulsory acquisition of immovable property to any resident person, liable to deduct T.D.S @ 10%. No. T.D.S is deducted if consideration is upto ₹ 2,50,000. In this case amount is less than ₹ 2,50,000, then in this case no T.D.S required.
Question 13.
State the quantum of tax deductible at source in the following independent cases:
(i) Salary of Geral Manager (computed) ₹ 6,00,000 who has opted for section 11 5BAC.
(ii) Dividend declared by a company and a resident shareholder eligible for dividend of ₹ 60,000.
(iii) Interest paid by a partnership firm to HUF ₹ 15,000.
(iv) Interest paid ₹ 45,000 to a bank on housing loan by an individual engaged in business with turnover exceeding ₹ 200 lakhs every year.
(v) Payment made to contractor Mr.P by a company ₹ 90,000 out of which a single contract value was ₹ 37,000 and every other contract value was less than ₹ 10,000.
(vi) Commission paid to a brokerage firm by a company during the year of ₹ 11,000.
(vii) Rent paid ₹ 2,70,000 by Dr. Q engaged in profession with aggregate receipt of ₹ 21 lakhs for the financial yëar 2021-22.
(viii) Residential apartment acquired by a company for accommodation by its director for ₹ 55 lakhs. (Dec 2022, 8 marks)
Descriptive Question
Question 14.
Briefly sketch the responsibilities and liability of a person liable to collect tax at source under the Income-tax Act, 1961. (Dec 2008, 5 marks)
Answer:
Responsibility & Liability of Tax Collector
- To obtain Tax Collection Account No. [Section 206CA(1)]
- To quote TCS No. . in all returns, certificates and challans. [Section 206CA(1)]
- To furnish quarterly returns in form No. 27EQ within stipulated time i.e., within fifteen days from the end of a quarter for the first three quarters and 30th April tor the last quarter.
- Failure to Furnish TCS return: Penalty @ 100/- per day, during which default continues, but not exceeding the amount of TCS. [Sec. 272A(2)(g)]
- Failure to deposit TCS in Government treasury may attract rigorous imprisonment for a term of not less than 3 months, but which may extend to 7 years, in addition to fine. [Section 276B & 276BB]