Various TDS / WHT tax provisions under new proposed Direct Tax Code Bill 2010 has

1. Withholding of Tax under
Direct Tax Code Bill 2010
Organised by
Quest India
Presented by
Paras K Savla
KPB & Associates
Chartered Accountants
1

2. Background
Income-tax Act 1961 (the Act) has been subject to numerous
amendments in last 50 years -
34 times by amendment acts and
various yearly finance bills
These amendments -
has overburdened the basic structure of the Income-tax Act and its
language has become complex
has rendered the Act difficult to decipher by the average tax payer
The government therefore decided to revise, consolidate and
simplify the language and structure of the direct tax laws.
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3. Background
New law to take into account established and time test practices
which have withstood judicial scrutiny, leading to taxation
regime which is simple and broad-based leading to lowering of
tax rates, better tax compliance and reduced litigation.
It is proposed to replace the Income-tax Act, 1961 and Wealth-
tax Act 1957 by a single Act, ie Direct Taxes Code (the Code).
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4. Basic Provisions
Clause 193 provides that tax on the income shall be payable by
deduction / collection of tax at source or by advance tax,
irrespective of the fact that such income is assessed in later
financial year.
Chapter XIII of the Code deals with collection & recovery of
taxes and part A of the chapter deals with deduction of tax at
source / withholding of taxes where as part B deals with
collection of tax at source
The assessee is required to pay tax direct (Clause 194) if -
No provision for deduction or collection of income-tax or
No tax has been deducted or collected as per provisions
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5. General Applicability
Resident payee
Applies to
All payers for payments in nature or salary
All payers except individual & HUF who are not subject to tax
audit during earlier financial year for payments other than Salary
No specific exemption for personal payment by individual &
HUF subject to audit in previous year
Non-Resident payee
Applies to all payers irrespective of there residential status
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6. Rates of TDS
Any person responsible for specified payment is required to
deduct income-tax at appropriate rate at the time of payment*
Specified payment & appropriate rate are as referred in
Third Schedule - applicable to resident deductee and
Fourth Schedule - applicable to non-resident deductee
WHT tax rate for NR deductee would be lower of the rate specified
in Fourth Schedule or respective DTAA
In case default in furnishing PAN to the deductor, applicable
rate would be higher of
20 per cent or
Rate specified in respective 3rd / 4th schedules
* Payment includes deemed payment
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7. Point of time for deduction
Specified payment shall be deemed to have been
made if the payment has been made
In cash
By issue of cheque or draft
By credit to any account, whether called suspense account or
by any other name
By any other mode as may be prescribed
Whichever is earlier
Common point of time for deduction across all
specified payments
Deemed payments may give rise to practical
difficulties
Eg in case of salaries
Up till now TDS on salaries is governed by actual payments
Profit-based commission paid to directors
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8. Specified payments and rates
of TDS applicable to Residents
Sr.
Nature of Payment Rates of TDS where deductee is a resident
No.
Proposed rates under
Current Rates
DTC
Rates as per the slabs and Average rate of tax on
1. Income from employment rates prescribed by the salary paid during the
Finance Act financial year
1% (where deductee is
individual/HUF)
2. Payment in respect of works contract 2% (where deductee is 2%
person other than
individual/HUF)
3. Payment in respect of any service contract __ 2%
1% (where deductee is
individual/HUF)
Payment in respect of broadcasting and
4. 2% (where deductee is 2%
telecasting or advertising
person other than
individual/HUF)
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9. Specified payments and rates
of TDS applicable to Residents
Sr.
Nature of Payment Rates of TDS where deductee is a resident
No.
Proposed rates under
Current Rates
DTC
1% (where deductee is
individual/HUF)
Supply of labour for carrying out any works,
5. 2% (where deductee is 2%
or service contract
person other than
individual/HUF)
1% (where deductee is 2% (No deduction of
Payment in respect of carriage of goods and
individual/HUF) TDS in case of
passengers by any mode of transport other
6. 2% (where deductee is carriage of goods by
than railways
person other than road if deductee
individual/HUF) furnishes PAN)
Interest
7. 10% 10%
Dividend other than dividend on which DDT
8. 10% 10%
is payable
Commission, brokerage, remuneration or
9. prize (by whatever name called) for rendering 10% 10%
any services
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10. Specified payments and rates
of TDS applicable to Residents
Sr.
Nature of Payment Rates of TDS where deductee is a resident
No.
Proposed rates under
Current Rates
DTC
10. Fees for professional or technical services 10% 10%
11. Payment for royalty or non-compete fees 10% 10%
Compensation on compulsory acquisition of
12. immovable property other than agricultural 10% 10%
land
Rent for the use of machinery or plant or
13. 2% 2%
equipment
Rent for use of land or building (including
factory building) or land appurtenant to a
14. 10% 10%
building (including factory building) or
furniture or fittings
Winning from any lottery or crossword puzzle
15. 30% 30%
or card game or other game of any sort
16. Winnings from any horse race 30% 30%
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11. Specified payments and rates
of TDS applicable to Residents
Sr.
Nature of Payment Rates of TDS where deductee is a resident
No.
Proposed rates under
Current Rates
DTC
Income distributed by mutual fund on which
income distribution tax is not paid
10% (where deductee
(Threshold for not deducting TDS-where
17. __ is individual/HUF)
payment to unit holder does not exceed Rs.
20% (other deductee)
10,000 in any financial year. TDS proposed to be
introduced under)
Payment by a life-insurer where payment
under life policy is not tax-exempt
10% (where deductee
(Threshold for not deducting TDS-where
18. __ is individual/HUF)
payment to policyholder does not exceed Rs.
20% (Other deductee)
10,000 in any financial year. TDS proposed to be
introduced under DTC)
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12. New Categories for TDS
Life insurance payments
Payments by Life insurance companies to the policy holder other than
arising out of following is subject to TDS
Premium paid or payable during the term of policy does not exceed 5% of
the capital sum
Amount is received upon completion of contract period
Amount on which Income Distribution Tax (IDT) under clause 110 has
been paid. IDT is payable on any amount of income distributed or paid to
policy holders of approved equity oriented life insurance scheme
Income distributed by Mutual Funds
Any income distributed by mutual fund which is not subject to IDT
IDT is payable on any amount of income distributed or paid to unit holders
of equity oriented fund
Threshold limit for non deduction of tax Rs 10,000 applicable
only for non-company unit holder/policy holder
Rates of TDS 10% – individual & HUF & 20% others
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13. Salaries
TDS provisions are applicable to all payer who are responsible
for payment of salary and where such payments exceeds
maximum amount not chargeable to tax
Rate of TDS : Average rate of income-tax
Salaries paid to non-resident is covered by 4th Schedule
Income from employment means income as computed under
clause 21 (Clause 314(124))
Deductor to consider
tax relief for arrears or advance receipts under clause 206
details if any furnished by the payee about salaries received
from other employer and tax deducted thereon
Provisions about salary received from another employer were absent
in DTC 2009
Whether possible to consider -
deduction on losses from self occupied house property?
deductions for savings under clause 68?
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14. Contract charges
TDS is applicable on following payments
works contract
service contract;
broadcasting and telecasting;
supply of labour for carrying out any works, or service contract;
advertising; or
carriage of goods and passengers any mode of transport other than
by railways.
‘‘work’’ includes manufacturing or supplying a product according
to the requirement or specification of a customer by using
material purchased from such customer and not from any other
person.
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15. Contract charges (Cont.)
Service contract is the new category added
Service Contract includes job work
“Service” for the purposes of non-compete agreement means service
of any description which is made available to potential users and
includes the provision of services in connection with business of any
industrial or commercial nature such as accounting, banking,
merchant banking, communication, conveying of news or information,
advertising, entertainment, amusement, education, financing,
insurance, chit funds, real estate, construction, transport, storage,
processing, supply of electrical or other energy, boarding and lodging
(Clause 314 (232))
‘‘broadcasting and telecasting’’ includes production of
programmes for broadcasting or telecasting;
‘‘contract’’ and ‘‘contractor’’ include ‘‘sub-contract’’ and ‘‘sub-
contractor’’ respectively;
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16. Contract charges (Cont.)
No specific inclusion of catering whether covered under service
contract?
No separate rate in respect of payments to individual / HUF and
others
TDS not applicable in case individual contract is for less than Rs
30,000 and/or aggregate value during financial year is less than
Rs 75,000
No TDS for carriage of goods by road transport if payee
furnishes PAN
Such payment to transporters may be notified to be incorporated in
the return of TDS
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17. Interest
No distinction between interest on securities and other interest
Largely exemptions similar to the currently available.
TDS on Interest is not deducted in respect of -
Interest on Central/State Government Securities
May be No TDS on 8% Saving (Taxable) Bonds, 2003
Securities issued by company and such securities are listed and in
dematerialised form
Interest on debentures issued by widely held companies up to Rs
5,000 paid to individual and such debentures listed on recognised
stock exchange
Interest on time deposits (excluding recurring deposits) payable by
banking company, co-operative bank or housing finance company, up
to Rs 10,000
Interest on any deposits other than time deposits with banking
company / co-operative bank
Interest under income/wealth tax Act & DTC
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18. Interest (Cont)
Compensation awarded by motor accident tribunal if not exceeding Rs
100,000 during financial year
Interest payable to any banking company, any co-operative bank,
financial corporation set up under Central/State Act, insurer, mutual
fund, notified entities
Interest on Zero Coupon Bonds
Interest on deposits under any notified scheme framed by Central
Government
Other Interest paid up to Rs 5,000
No exemption provided in respect of interest on time deposits
exceeding Rs 10,000 paid by Co-operative banks to its
members
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19. Commission/Brokerage
TDS is deductible on any payments made as Commission,
brokerage, remuneration, or prize (by whatever name called) for
rendering any services
Combined rate for insurance commission, sale of lottery tickets
as well as other commission
Commission, brokerage not defined
Recent controversies continues
For rendering of services may over lap with service contract
No specific exemption for brokerage on securities
No TDS in case aggregate amount does not exceeds Rs 5,000
during the year
Current threshold limits of Rs 2,500
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20. Professional/Technical Services,
Royalty non-compete fees
‘Professional or technical services’ means services rendered by
a person in the course of carrying on legal, medical,
engineering, architectural or accountancy profession, technical
consultancy, interior decoration or any other profession as
notified by the Board.
Royalty is as defined under clause 314(220)
Wide definition
No threshold limit for non-deduction of TDS
Currently TDS not applicable for aggregate payments up to Rs 30,000
during the year
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21. Specified payments & TDS
applicable to Non-Residents
Sr.
Nature of Payment Rates of TDS where deductee is a non-resident
No.
Proposed rates under
Current Rates
DTC
Rates as per the slabs and Average rate of tax on
1. Income from employment rates prescribed by the salary paid during the
Finance Act financial year
Payment by way of –
• Interest
2. • Dividends on which DDT has not been paid - 20%
• Income distributed by mutual fund on which
income distribution tax is not paid
Payment for Royaties Fees for technical
3. 10% 20%
services in respect of any service contract
Winning from any lottery or crossword puzzle
4. or card game or other games or gambling or 30% 30%
betting
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22. Specified payments and TDS
applicable to Non-Residents
Sr.
Nature of Payment Rates of TDS where deductee is a non-resident
No.
Proposed rates under
Current Rates
DTC
Winnings from any horse race (not relating to
5 activity of owning and maintaining horse 30% 30%
races
Payment to non-resident sportsman –
• Participation in India in any game or sport
(other 4&5)
6 • Advertisement or 10% 10%
• Contribution in any article relating to any
game or sport in any newspaper/magazine/
journal in India
Payment by way of guarantee money to a
non-resident sports association or institution
7 10% 10%
in relation to any game or sports played in
India
8 Any other sum chargeable to tax 30% 30%
Payments made to FII for sale of securities on recognised stock exchange is not
subject to TDS
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23. Tax Collected Source
TCS is required to collected at the uniform rate of 3% in respect
of following payments
Sale of alcoholic liquor for human consumption
Sale of tendu leaves
Sale of timber obtained under a forest lease or otherwise
Sale of any other forest produce not being timber or tendu leaves
Sale of scrap
Grant of lease or licence or contract or transfer of any right or
interest, either in whole or in part, for a parking lot
Grant of lease or licence or contract or transfer of any right or interest,
either in whole or in part, for a toll plaza
Grant of lease or licence or contract or transfer of any right or interest,
either in whole or in part, for mining or quarrying
Currently varied rates on different items ranging 1% to 5%
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24. Other provision
Payment in kind
In case of payments made in kind (wholly or partly) deductor to ensure
that tax has been paid prior to payment
Currently similar provisions exists only for the payments winning from
lottery or cross puzzle S. 194B
Payments in kind has been judicially considered for TDS purposes
Adjustment of deficiency or excess arising out of previous
deduction or non deduction
In case payments arising on account of income from employment or in
the nature of interest, deductor is allowed to increase or reduce the
amount of TDS on account excess or short previous deduction.
No such adjustment is allowed for other specified payments.
Ideally this should have considered for all specified payment
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25. Application for deduction at
lower rate
Tax can be deducted at lower or NIL rate, in case, such
certificate is issued by Assessing Officer (Clause 197)
Application for deduction of tax at lower rate can be made by
resident deductee or
In respect of payments made to non-resident application be
made either by payer or by such non-resident deductee.
Board has been empowered for necessary rules to be made in
this regards.
However no provision to submit declaration for NIL by the
assessee to the payer
Current assessee could submit declaration in form 15H/15G
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26. Disallowances of expenses
While computing total income no deduction of
expenses shall allowed in case
Where tax was deductible under chapter XIII and such tax has
not been deducted or
After deduction tax has not been paid before the due date of
filing of return of income
A deduction would be allowed in subsequent
financial year
In case tax has been deducted during the financial year but was
been paid after due date of filing return of income or
Tax has been deducted and paid in subsequent financial year
Single provisions governs allowance of expenditure
under all heads and payment to resident & non-
resident
(clause 19)
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27. Assesee in default
Deductor / collector is treated as Assesee In Default
(AID) in case he fails to
Deduct / collect whole or part of the tax or
After deduction/collect fails to pay whole or part of the tax
and
Assessee (payee) has also failed to pay such tax directly
Currently similar provisions overlap under S. 191 & S. 201
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28. Interest
If the Person fails to deduct or collect whole or part of the tax or
after such deduction fails to pay whole or part of tax, he is liable
to pay interest as under
At the rate of 1% per month from the date of tax deductible / collectible
to the date on which tax deducted or collected
At the rate of 1.5% per month from the date of tax deducted or
collected till the date of payment
(Clause 214)
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29. Assessment
TDS / TCS returns filed by the deductor / collector shall be
assessed by the assessing officer as if such return is a return of
tax bases. (Clause 177)
All the provisions of the code as far as applicable shall apply
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30. Penalty
Deductor / collector of tax, without reasonable cause fails
to deduct or collect whole or part of the tax, is liable to
penalty as under
minimum penalty not less than 25%
maximum penalty not more than 100%
of the tax deductible or collectible
to furnish in time a return of tax deductible/collectible
to issue certificate of tax deducted or collected at source
to furnish return of interest or other specified payment where
no tax has been deducted is liable to penalty as under
minimum penalty not less than Rs 5,000 and
maximum penalty not more than Rs 1,00,000
(Clause 232)
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31. Thank you
can be reach at
Paras.Savla@in.com
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