TDS Circular No. 715/1995

1119. Clarifications on various provisions relating to tax deduction at source regarding changes introduced through Finance Act, 1995

The Finance Act, 1995, has enlarged the scope of income-tax deduction at source by making various amendments. In regard to the changes introduced through the Finance Act, 1995, a number of queries have been received from the various associations and professional bodies on the scope of tax deduction at source. It would be desirable to clarify the doubts by issuing a public circular in the form of question answers as under :

Question 1 : What would be the scope of an advertising contract for the purpose of section 194C of the Act?

Answer : The term ‘advertising’ has not been defined in the Act. During the course of the consideration of the Finance Bill, 1995, the Finance Minister clarified on the Floor of the House that the amended provisions of tax deduction at source would apply when a client makes payment to an advertising agency and not when advertising agency makes payment to the media, which includes both print and electronic media. The deduction is required to be made at the rate of 1 per cent. It was further clarified that when an advertising agency makes payments to their models, art­ists, photographers, etc., the tax shall be deducted at the rate of 5 per cent as applicable to fees for professional and techni­cal services under section 194J of the Act.

Question 2 : Whether the advertising agency would deduct tax at source out of payments made to the media ?

Answer : No. The position has been clarified in the answer to question No. 1 above.

Question 3 : At what rate is tax to be deducted if the advertising agencies give a consolidated bill including charges for art work and other related jobs as well as payments made by them to media ?

Answer : The deduction will have to be made under section 194C at the rate of 1 per cent. The advertising agencies shall have to deduct tax at source at the rate of 5 per cent under section 194J while making payments to artists, actors, models, etc. If pay­ments are made for production of programmes for the purpose of broadcasting and telecasting, these payments will be subjected to TDS @ 2 per cent. Even if the production of such programmes is for the purpose of preparing advertisement material, not for immediate advertising, the payment will be subject to TDS at the rate of 2 per cent.

Question 4 : Where the tax is required to be deducted at source on payments made directly to the print media/Doordarshan for release of advertisements ?

Answer : The payments made directly to print and electronic media would be covered under section 194C as these are in the nature of payments for purposes of advertising. Deduction will have to be made at the rate of 1 per cent. It may, however, be clarified that the payments made directly to Doordarshan may not be sub­jected to TDS as Doordarshan, being a Government agency, is not liable to income-tax.

Question 5 : Whether a contract for putting up a hoarding would be covered under section 194C or 194-I of the Act ?

Answer : The contract for putting up a  hoarding is in the nature of advertising contract and provisions of section 194C would be applicable. It may, however, be clarified that if a person has taken a particular space on rent and thereafter sub lets the same fully or in part for putting up a hoarding, he would be liable to TDS under section 194-I and not under section 194C of the Act.

Question 6 : Whether payment under a contract for carriage of goods or passengers by any mode of transport would include pay­ment made to a travel agent for purchase of a ticket or payment made to a clearing and forwarding agent for carriage of goods ?

Answer : The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstand­ing the fact that the payment is made by an entity mentioned in section 194C(1). The provision of section 194C shall, however, apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C of the Act. As regards payments made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduc­tion at source under section 194C of the Act.

Question 7 : Whether a travel agent/clearing and forwarding agent would be required to deduct tax at source from the sum payable by the agent to an airline or other carrier of goods or passengers ?

Answer : The travel agent, issuing tickets on behalf of the air­lines for travel of individual passengers, would not be required to deduct tax at source as he acts on behalf of the airlines. The position of clearing and forwarding agents is different. They act as independent contractors. Any payment made to them would, hence, be liable for deduction of tax at source. They would also be liable to deduct tax at source while making payments to a carrier of goods.

Question 8 : Whether section 194C would be attracted in respect of payments made to couriers for carrying documents, letters, etc. ?

Answer : The carriage of documents, letters, etc., is in the nature of carriage of goods and, therefore, provisions of section 194C would be attracted in respect of payments made to the couri­ers.

Question 9 : In case of payments to transporters, can each GR be said to be a separate contract, even though payments for several GRs are made under one bill ?

Answer : Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specif­ic period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregat­ed for the purpose of the TDS.

Question 10 : Whether there is any obligation to deduct tax at source out of payment of freight when the goods are received on “freight to pay” basis ?

Answer: Yes. The provisions of tax deduction at source are ap­plicable irrespective of the actual payment.

Question 11 : Whether a contract for catering would include serv­ing food in a restaurant/sale of eatables?

Answer : TDS is not required to be made when payment is made for serving food in a restaurant in the normal course of running of the restaurant/cafe.

Question 12 : Whether payment to a recruitment agency can be covered by section 194C ?

Answer : Provisions of section 194C apply to a contract for carrying out any work including supply of labour for carrying out any work. Payments to recruitment agencies are in the nature of payments for services rendered. Accordingly, provisions of section 194C shall not apply. The payment will, however, be subject to TDS under section 194J of the Act.

Question 13 : Whether section 194C would cover payments made by a company to a share registrar ?

Answer : In view of answer to the earlier question, such payments will not be liable for tax deduction at source under section 194C. But these will be liable to tax deduction at source under section 194J.

Question 14 : Whether FD commission and brokerage can be covered under section 194C ?

Answer : No

Question 15 : Whether section 194C would apply in respect of supply of printed material as per prescribed specifications ?

Answer : Yes.

Question 16 : Whether tax is required to be deducted at source under section 194C or 194J on payment of commission to external parties for procuring orders for the company’s product ?

Answer : Rendering of services for procurement of orders is not covered under the provisions of section 194C. However, rendering of such services may involve payment of fees for professional or technical services, in which case tax may be deductible under the provisions of section 194J.

Question 17 : Whether advertisement contracts are covered under section 194C only to the extent of payment of commission to the person who arranges release of advertisement, etc., or whether deduction is to be made on the gross amount including bill of media ?

Answer : Tax is to be deducted at the rate of 1 per cent of the gross amount of the bill.

Question 18 : Whether deduction of tax is required to be made under section 194C for sponsorship of debates, seminars and other functions held in colleges, schools and associations with a view to earn publicity through display of banners, etc., put up by the organisers ?

Answer : The agreement of sponsorship is, in essence, an agreement for carrying out a work of advertisement. Therefore, provisions of section 194C shall apply.

Question 19 : Whether deduction of tax is required to be made on payments for cost of advertisement issued in the souvenirs brought out by various organisations ?

Answer : Yes.

Question 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent ?

Answer : Payments made by persons, other individuals and HUFs for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.

Question 21 : Whether the limit of Rs. 1,20,000 per annum would apply separately for each co-owner of a property ?

Answer : Under section 194-I, the tax is deductible from payment by way of rent, if such payment of the payee during the year is likely to be Rs. 1,20,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 1,20,000 will apply to each of the payee/co-owner separately. The payers and payees are, however, advised not to enter into sham agreements to avoid TDS provi­sions.

Question 22 : Whether the rent paid should be enhanced for notion­al income in respect of deposit given to the landlord ?

Answer : The tax is to be deducted from actual payment and there is no need of computing notional income in respect of a deposit given to the landlord. If the deposit is adjustable against future rent, the deposit is in the nature of advance rent subject to TDS.

Question 23 : Whether payments made by company taking premises on rent but styling the agreement as a business centre agreement would attract the provisions of section 194-I ?

Answer : The tax is to be deducted from rent paid, by whatever name called, for hire of a property. The incidence of deduction of tax at source does not depend upon the nomenclature, but on the content of the agreement as mentioned in clause (i) of Expla­nation to section 194-I.

Question 24 : Whether in a case of a composite arrangement for user of premises and provision of manpower for which consideration is paid as a specified percentage of turnover, section 194-I of the Act would be attracted ?

Answer : If the composite arrangement is in essence the agreement for taking premises on rent, the tax will be deducted under section 194-I from payments thereof.

Question 25 : Whether the receipts prior to 1-7-1995 are to be aggregated to determine limit of Rs. 20,000 for each financial year ?

Answer : Clause (B) of proviso to section 194J(1) makes it clear that tax shall be deducted at source if the aggregate sums credited or paid or likely to be credited or paid during the financial year are likely to exceed Rs. 20,000. Therefore, in regard to financial year 1995-96, the limit of Rs. 20,000 will have to be worked out taking into account all the payments from 1-4-1995 to 31-3-1996. But the deduction of tax at source would be made at the specified rate only from the payment made on or after 1-7-1995.

Question 26 : Whether payments made to a hospital for rendering medical services will attract deduction of tax at source under section 194J ?

Answer : Yes.

Question 27 : Whether commission received by the advertising agency from the media would require deduction of tax at source under section 194J of the Act ?

Answer : Yes.

Question 28 : Whether the services of a regular electrician on contract basis will fall in the ambit of technical services to attract the provisions of section 194J of the Act? In case the services of the electrician are provided by a contractor, whether the provisions of section 194C or 194J would be applicable ?

Answer : The payments made to an electrician or to a contractor who provides the service of an electrician will be in the nature of payment made in pursuance of a contract for carrying out any work. Accordingly, provisions of section 194C will apply in such cases.

Question 29 : Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act ?

Answer : Routine, normal maintenance contracts which includes supply of spares will be covered under section 194C. However, where technical services are rendered, the provision of section 194J will apply in regard to tax deduction at source.

Question 30 : Whether the deduction of tax at source under sec­tions 194C and 194J has to be made out of the gross amount of the bill including reimbursements or excluding reimbursement for actual expenses ?

Answer : Sections 194C and 194J refer to any sum paid. Obviously, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.

Question 31 : Whether TDS from income in respect of units is applicable to dividend or is it applicable to capital apprecia­tion distributed at the time of repurchase/redemption of the units ?

Answer : The provisions of section 194K regarding deduction of tax at source from income in respect of units are applicable to periodical distribution of income, which is in the nature of dividend. These provisions do not apply to capital gains arising at the time of repurchase or redemption of the units.

Question 32 : Whether TDS on reinvestment term deposit should be made on accrual basis, which is quarterly, or once in a financial year ?

Answer : Tax has to be deducted at source at the time of credit of interest to the account of the payee or at the time of payment thereof, whichever is earlier. If credit is given to the account of the payee or payment is made to him annually, the tax may be deducted annually. It may be clarified that a credit to interest payable account or suspense account, etc., is also taken as credit to the account of the payee, even though this credit is not reflected separately in the payee’s account.

Question 33 : Whether variable deposit schemes are liable to deduction of tax at source from interest ?

Answer : Under section 194A, tax is to be deducted from interest from banks on time deposits. As variable deposits are in the nature of time deposits, tax is deductible at source from inter­est on such deposits.

Question 34 : Whether tax has to be deducted from principal on renewal of deposits made after 1-7-1995 but which matured on or before 30-6-1995 when the renewal is made retrospectively?

Answer : Tax has to be deducted from interest credited or paid, whichever is earlier, on time deposits with a bank made on or after 1-7-1995. When a time deposit is renewed retrospectively, the relevant date for deciding the applicability of section 194A would be that date of renewal. Thus, if the time deposit is renewed after 1-7-1995, the tax deduction at source will have to be made from interest paid or credited in respect of such a time deposit.

Circular : No. 715, dated 8-8-1995.

TAX COMPLIANCE AND TAX PLANNING FOR SALARIED INDIVIDUALS

TAX NEWSLETTER

Volume 1   Issue 1

June, 2012

TAX COMPLIANCE AND TAX PLANNING FOR SALARIED INDIVIDUALS

This issue of the newsletter aims at creating awareness amongst salaried employees about various tax compliance and possible tax planning over the year. We are in the month of June wherein the last financial year (FY) 2011-12 has gotten over and due date to file Return of Income stares in the face and also it is time to submit your Investment declaration for FY 2012-13.

We aim at providing solutions for tax savings and awareness of tax benefits for FY 2011-12 and steps to be taken before hand for tax planning of FY 2012-13.

Most of the tax planning for Salary income can be done at the Salary Structuring (deciding the components of your Salary in most tax efficient manner) stage itself i.e. at the time when one receives his employment letter. Unfortunately, it is not a normal practice to allow employees to choose their Salary components. Nevertheless, let’s take a look at the advantageous methods to reduce your tax liability and a brief insight relating to the issues of Income-tax on Salary.

What is Form 16?

Form 16 is a Certificate of TDS (Tax deducted at Source) i.e. tax deducted on your Salary by your Employer and deposited with the Government on your behalf.

It reflects the details of your Gross Salary, the exempt allowances, your Other Income if any, details of Investments made and deductions availed. Thereafter, your tax liability, TDS made, and tax payable/refundable (If any).

Form 16 needs to be compulsorily issued if tax is deducted on your Salary. It is the responsibility of the Employer to issue Form 16.

As per law, Form 16 for FY 2011-12 needs to be issued to employees by 30^th May 2012 (Being within 15 days of filing of Quarter IV Etds Return).

How do I confirm the TDS shown in my Form 16 is actually correct?

It is the prime responsibility of the Employer to furnish accurate details in Form 16, failure of which attracts penalty to the employer.

Nevertheless, tax authorities recently have empowered the deductees (Employee on whose Salary TDS is made) to cross-verify the TDS details against the records available with the Government.

Tax Information Network (TIN; a division of the Income-tax department) has introduced in recent years, the Form 26AS wherein any tax deducted at source on any of your income is reflected. Thus, you can cross-verify whether the tax that has been deducted is actually paid to the government or not?

It is compulsory to file my Return of Income?

Yes. As per the Income-tax Act, every person whose Gross Total Salary exceeds the basic exemption limit (Rs. 1,80,000/2,10,000/2,50,000) has to file a Return of Income (ROI). Failure to file the Return of Income can expose to a penalty of Rupees Five Thousand.

Also, the laws do not permit payments of your Refunds (If any) when the Income Tax Return is not filed.

It is a good policy and a willful conduct to keep your financial and tax records updated so that you do not have to face hurdles while applying for Business loans, Home loans, Insurance policies, etc. Filing of Income tax Return should be seen as a good habit and not as compliance burden.

By when I have to file my Return of Income?

For salaried individuals the due date of filing of Tax Return is 31st July, 2012 for the FY 2011-12.

I have not filed my earlier years Income-tax Return. Can I file them now?

Yes. You can file Income-tax Returns of earlier years as well. That means if you had not claimed your Refund of last year due to non-filing of Income-tax Return, you can still do it now!

I had not submitted few Investment proofs to my Employer. What do I do now?

The Employer is under obligation to consider all Investment proofs provided by you. However, if you miss on providing any details/proofs you can always claim the investments in your Income-tax Return and claim your Refund, since your Employer has already deducted the extra tax on the investment-portion for which you had not provided the proofs.

How do I reduce my tax liability?

There are many many Investment options which reduce your tax liability.

Section 80C provides you relief till Rs. 1 lac. Various Investments/expenses enumerated under Sec. 80C. They are listed below:

·         Life Insurance premiums ( of self and family)

·         Provident Fund contributions (of self and family)

·         Mutual Fund contributions

·         Public Provident Fund (PPF)

·         Tuition Fees (of self and family)

·         Principal portion of EMI of the Housing loan

·         Fixed Deposit with Banks for 5 years

·         NABARD and other Bonds / Certificates as specified from time to time.

Following are additional deductions which are over and above the Rs.1 lac limit as mentioned above:

·         Health Insurance premium up to Rs.15,000/- (under section 80D)

·         Full Interest on Education loan u/s 80E

·         Donations u/s 80G

·         Interest portion of EMI of Housing loan up to Rs.1.5 lacs (section 24). (Consequently, benefit can be availed on the principal and the interest expenses.)

How do I get maximum benefit of HRA?

House Rent Allowance is exempt the least of the following:

·         HRA actually received

·         Rent paid in excess of 10% of Salary

·         50% of Salary (Rent paid in Metro City) or 40% of Salary (Non-metro city)

How does my House Property Loan help me in tax savings?

Repayment of house loan can be bifurcated in 2 parts:

·         Principal amount allowed till Rs. 1 lac u/s 80C

·         Interest amount allowed till Rs. 1.5 lacs u/s 24

If you have House loan on more than one property, the interest repaid on second home is exempt without any limit. 

I had switched my employment during the year. What about my TDS made by earlier Employer?

It is the responsibility of the employee to furnish to the new employer the details of Salary and TDS made thereon by the previous employer. Only if such details are furnished, the new employer shall take into account the salary and TDS details and calculate TDS to be made in future accordingly.

 How do I file my Return of Income?

People having only Salary and/or House Property and/or Other Income need to file their Income-tax Return in Form ITR-1.

This may be submitted either physically or online. The benefit of submitting the Return online is that the Return is processed quickly, thereby reducing your wait for Refund amount.

If you wish any help with your Return of Income, Form 26AS, any clarifications, update your mailing address, forward the newsletter to a friend, unsubscribe to the newsletter, or provide a feedback please mail us at canirajmahajan@gmail.com.

Prepared by -

Niraj Mahajan

MJP & Co.

Tax Advisors

E: canirajmahajan@gmail.com

M: 98 600 92 752

       About this Newsletter

This publication contains general information only and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional advisor.

Whilst every effort has been made to ensure the accuracy of the information contained in this publication, this cannot be guaranteed, and neither MJP & Co nor any related entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user’s risk.