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Advance Tax, TDS and Introduction to TCS Notes

CA Final Advanced Auditing and Professional Ethics Important Revision Questions (PDF)

Advance Tax, Tax Deduction at Source and Introduction to Tax Collection at Source

TAX DEDUCTION AT SOURCE

Section 192: Salary

Threshold Limit for deduction of tax at source Basic exemption limit (Rs. 2,50,000/Rs. 3,00,000, as the case may be). This is taken care of in computation of the average rate of income-tax.
Payer Any person responsible for paying any income chargeable under the head “Salaries
Payee Individual (Employee)
Rate of TDS Average rate of income-tax computed on the basis of the rates in force
(or)
the rates specified in section 115BAC, if intimated by the employee
Time of deduction At the time of payment

Section 192A: Premature withdrawal from Employee Provident Fund

Threshold Limit for deduction of tax at source Payment or aggregate payment ≥Rs. 50,000
Payer Trustees of the EPF Scheme or any authorised person under the Scheme
Payee Individual (Employee)
Rate of TDS 10%[In case of failure to furnish PAN, TDS@ Maximum Marginal Rate]
Time of deduction At the time of payment

Section 193: Interest on Securities

Threshold Limit for deduction of tax at source >Rs. 10,000 in a F.Y., in case of interest on 8% Savings (Taxable) Bonds, 2003/ 7.75% Savings (Taxable) Bonds, 2018.

>Rs. 5,000 in a F.Y., in case of interest on debentures issued by a Co. in which the public are substantially interested, paid or credited to a resident individual or HUF by an A/c payee cheque.

>No thresholdspecified in any other case.

Payer Any person responsible for paying any income by way of interest on securities
Payee Any resident
Rate of TDS 10% (7.5% for the period from 14.5.2020 to 31.3.2021)
Time of deduction At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.

Section 194: Dividend(including dividends on preference shares)

Threshold Limit for deduction of tax at source >Rs. 5,000 in a F.Y., in  case of dividend paid or credited to an individual shareholder by any mode other than cash

> No threshold in other cases

Payer The Principal Officer of a domestic company
Payee Resident shareholder
Rate of TDS 10% (7.5% for the period from 14.5.2020 to 31.3.2021)
Time of deduction Before making any payment by any mode in respect of any dividend or before making any distribution or payment of dividend.

Section 194A: Interest other than interest on securities

Threshold Limit for deduction of tax at source >Rs. 40,000 in a F.Y., in case of interest credited or paid by

  1. a banking company;
  2. a co-operative society engaged in banking business; and
  3. a post office on any deposit under a notified Scheme.

In all the above cases, if payee is a resident senior citizen, tax deduction limit is > Rs. 50,000.

>Rs. 5,000 in a F.Y., in other cases.

Payer Any person (other than an individual or HUF whose total sales, gross receipts or turnover from business or profession do not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession during the immediately preceding F.Y.) responsible for paying interest other than interest on securities.
Payee Any Resident
Rate of TDS 10% (7.5% for the period from 14.5.2020 to 31.3.2021)
Time of deduction At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.

Section 194B: Winnings from any lottery, crossword puzzle or card game or other game of any sort

Threshold Limit for deduction of tax at source >Rs. 10,000
Payer The person responsible for paying income by way of such winnings
Payee Any Person
Rate of TDS 30%
Time of deduction At the time of payment

Section 194BB: Winnings from horse race

Threshold Limit for deduction of tax at source >Rs. 10,000
Payer Book Maker or a person holding licence for horse racing or for arranging for wagering or betting in any race course.
Payee Any Person
Rate of TDS 30%
Time of deduction At the time of payment

Section 194C: Payment made to Contractors

Threshold Limit for deduction of tax at source Single sum credited or paid > R 30,000
(or)
The aggregate of sums credited or paid to a contractor during the F.Y. > Rs. 1,00,000Individual/HUF need not deduct tax where sum is credited or paid exclusively for personal purposes
Payer Central/State Govt., Local authority, Central/State/Provincial Corpn., company, firm, trust, registered society, co-operative society, university estd under Central/State/Provincial Act, declared university under the UGC Act, Govt. of Foreign State or a foreign enterprise, Individual/HUF whose total sales, gross receipts or turnover exceeds Rs. 1 crore in case of business or Rs 50. lakhs in case of profession during the immediately preceding F.Y.
Payee Any Resident contractor for carrying out any work (including supply of labour)
Rate of TDS

1% (0.75%*) of sum paid or credited, if the payee is an Individual or HUF

2% (1.5%*) of sum paid or credited, if the payee is any other person.

* The rates of 0.75% and 1.5% are for the period from 14.5.2020 to 31.3.2021

Time of deduction At the time of credit of such sum to the a/c of the contractor or at the time of payment, whichever is earlier.

Section 194D: Insurance Commission

Threshold Limit for deduction of tax at source > Rs. 15,000 in a F.Y.
Payer Any person responsible for paying any income by way of remuneration or reward for soliciting or procuring insurance business
Payee Any Resident
Rate of TDS

5% (3.75% for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such income to the a/c of the payee or at the time of payment, whichever is earlier.

Section 194DA: Any sum under a Life Insurance Policy

Threshold Limit for deduction of tax at source ≥ Rs. 1,00,000 (aggregate amount of payment to a payee in a financial year)
Payer Any person responsible for paying any sum under a LIP, including the sum allocated by way of bonus
Payee Any Resident
Rate of TDS

5% of the amount of income comprised (3.75% for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of payment

Section 194E: Payment to non-resident sportsmen or sports associations of income referred to in section 115BBA

Threshold Limit for deduction of tax at source
Payer Any person responsible for making the payment
Payee Non-resident sportsman (including an athelete) or entertainer who is not a citizen of India or non-resident sports association or institution
Rate of TDS

20.8%(including health and education cess@4%)

Time of deduction At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.

Section 194EE: Payment of deposit under National Saving Scheme

Threshold Limit for deduction of tax at source ≥ Rs. 2,500 in a financial year
Payer Any person responsible for paying
Payee Individual or HUF
Rate of TDS

10% (7.5%for payment to residents for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of payment

Section 194G: Commission on sale of lottery tickets

Threshold Limit for deduction of tax at source >Rs. 15,000 in a financial year
Payer Any person responsible for paying any income by way of commission, remuneration or prize (by whatever name called) on lottery tickets
Payee Any person stocking, distributing, purchasing or selling lottery tickets
Rate of TDS

5% (3.75%for payment to residents for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.

Section 194H: Commission or brokerage

Threshold Limit for deduction of tax at source >Rs. 15,000 in a financial year
Payer Any person (other than an Individual or HUF whose total sales, gross receipts or turnover from business or profession do not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession during the immediately preceding F.Y.) responsible for paying commission or brokerage.
Payee Any resident
Rate of TDS

5% (3.75% for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.

Section 194-I: Rent

Threshold Limit for deduction of tax at source > Rs. 2,40,000 in a F.Y.
Payer Any person (other than an individual or HUF whose total sales, gross receipts or turnover ≤ Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession during the immediately preceding F.Y.) responsible for paying rent.
Payee Any resident
Rate of TDS

For P&M or equipment – 2% (1.5%*)

For land or building, land appurtenant to a building, furniture or fittings – 10%(7.5%*)

Note – The rates of 1.5% and 7.5% are for the period from 14.5.2020 to 31.3.2021

Time of deduction At the time of credit of such income to the a/c of the payee or at the time of payment, whichever is earlier.

Section 194-IA: Payment on transfer of certain immovable property other than agricultural land

Threshold Limit for deduction of tax at source ≥ Rs. 50 lakh (Consideration for transfer)
Payer Any person, being a transferee (other than a person referred to in section 194LA responsible for paying compensation for compulsory acquisition of immovable property other than rural agricultural land)
Payee Any resident
Rate of TDS

1% (0.75% for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such sum to the a/c of the transferor or at the time of payment, whichever is earlier.

Section 194-IB: Payment of rent by certain individuals or HUF

Threshold Limit for deduction of tax at source > Rs. 50, 000 for a month or part of a month
Payer Individual/HUF (other than Individual/HUF whose total sales, gross receipts or turnover ≤ Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession during the immediately preceding F.Y.) responsible for paying rent.
Payee Any resident
Rate of TDS

5% (3.75% for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of rent, for the last month of the P.Y. or the last month of tenancy, if the property is vacated during the year, as the case may be, to the a/c of the payee or at the time of payment, whichever is earlier.

Section 194-IC: Payment under specified agreement referred to in section 45(5A)

Threshold Limit for deduction of tax at source No threshold specified.
Payer Any person responsible for paying any sum by way of consideration, not being consideration in kind, under a registered agreement, wherein L or B or both are handed over by the owner for development of real estate project, for a consideration, being a share in L or B or both in such project, with payment of part consideration in cash.
Payee Any Resident
Rate of TDS

10% (7.5% for the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such income to the account of the payee or at the time of payment, whichever is earlier.

Section 194J: Fees for professional or technical services/ Royalty/ Non-compete fees/ Director’s remuneration

Threshold Limit for deduction of tax at source > Rs. 30,000 in a financial year, for each category of income. (However, this limit does not apply in case of payment made to director of a company).
Payer Any person, other than an individual or HUF;

However, in case of fees for professional or technical services paid or credited, individual/ HUF, whose total sales, gross receipts or turnover from business or profession exceeds Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession during the immediately preceding F.Y., is liable to deducttax u/s 194J, except where fees for professional services is credited or paid exclusively for his personal purposes.

Payee Any Resident
Rate of TDS

2%(1.5%*) – Payee engaged only in the business of operation of call centre

2% (1.5%*) – In case of fees for technical services or royalty, where such royalty is in the nature of consideration for sale, distribution or exhibition of cinematographic films

10% (7.5%*) – Other payments

Note – The rates would be 1.5%, 1.5% and 7.5% for the period from 14.5.2020 to 31.3.2021

Time of deduction At the time of credit of such sum to the account of the payee or at the time of payment, whichever is earlier.

Section 194K: Income on units other than in the nature of capital gains

Threshold Limit for deduction of tax at source > Rs. 5,000 in a financial year
Payer Any person responsible for paying any income in respect of units of a mutual fund/Administrator of the specified undertaking/ specified company.
Payee Any Resident
Rate of TDS

10% (7.5% during the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such sum to the account of the payee or at the time of payment,whichever is earlier.

Section 194LA: Compensation on acquisition of certain immovable property other than agricultural land

Threshold Limit for deduction of tax at source >Rs. 2,50,000 in a financial year
Payer Any person responsible for paying any sum in the nature of compensation or enhanced compensation on compulsory acquisition of immovable property.
Payee Any Resident
Rate of TDS

10% (7.5% during the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of payment

Section 194M: Payments to Contractors/ Commission or brokerage/ Fees for Professional Services

Threshold Limit for deduction of tax at source >Rs. 50,00,000 in a financial year
Payer Individual or HUF other than those who are required to deduct tax at source under section 194C or 194H or 194J.
Payee Any Resident
Rate of TDS

5% (3.75% during the period from 14.5.2020 to 31.3.2021)

Time of deduction At the time of credit of such sum to the account of the payee or at the time of payment, whichever is earlier.

Section 194N: Cash Withdrawals

Threshold Limit for deduction of tax at source >Rs. 1 crore
Payer
  • a banking company or any bank or banking institution
  • a co-operative society engaged in carrying on the business of banking or a post office

who is responsible for paying any sum,being the amount or the aggregate of amounts, as the case may be,in cash exceedingRs. 1 crore during the previous year,to any person from one or more accounts maintained by the recipient.

Payee Any Resident
Rate of TDS

@2% of such sum

In case the recipient has not filed ROI for all the 3 immediately preceding P.Y.s,for which time limit u/s 139(1) has expired,such sum shall be the amt or aggregate of amounts, in cash >Rs. 20 lakh during the P.Y. TDS:

  • @2% of the sum, where cash withdrawal >Rs. 20 lakhs but ≤ Rs. 1 crore
  • @5% of sum, where cash withdrawal exceeds Rs. 1 crore
Time of deduction At the time of payment of such sum.

Section 194-O(w.e.f.1.10.2020)

Threshold Limit for deduction of tax at source >Rs. 5 lakhs, being gross amount of sales or service or both in a financial year to an e-commerce participant,being individual or HUF and such e-commerce participant has furnished PAN or Aadhar number to thee- commerce operator

> No threshold in other cases

Payer E-commerce operator, who facilitates sale of goods or provision of services of an e-commerce participant through digital or electronic facility or platform
Payee E-commerce participant
Rate of TDS

1% (0.75% for the period upto 31.3.2021) of gross amount of sale or service or both [In case of failure to furnish PAN, Maximum TDS @5%]

Time of deduction At the time of credit of such sum to the account of the payee or at the time of payment, whichever is earlier.

Notes –

(1) Section 206AA requires furnishing of PAN by the deductee to the deductor, failing which the deductor has to deduct tax at the higher of the following rates, namely, –
(i) at the rate specified in the relevant provision of the Income-tax Act, 1961; or
(ii) at the rate or rates in force; or
(iii) at the rate of 20% and in case of section 194-O, 5%.

(2 ) The threshold limit given in column (3) of the table is with respect to each payee.

Advance Payment of Tax

Liability for payment of advance tax [Sections 207 & 208]

  • Tax shall be payable in advance during any financial year in respect of the total income (TI) of the assessee which would be chargeable to tax for the A.Y. immediately following that financial year.
  • Advance tax is payable during a financial year in every case where the amount of such tax payable by the assessee during the year is Rs. 10,000 or more.
  • However, an individual resident in India of the age of 60 years or more at any time during the previous year, who does not have any income chargeable under the head “Profits and gains of business or profession”(PGBP), is not liable to pay advance tax.

Instalments of advance tax and due dates [Section 211]

Advance tax payment schedule for corporates and non-corporates (other than an assessee computing profits on presumptive basis under section 44AD or section 44ADA) – Four instalments

Due date of instalment Amount payable
On or before 15th June Not less than 15% of advance tax liability.
On or before 15th September Not less than 45% of advance tax liability (-) amount paid in earlier instalment.
On or before 15th December Not less than 75% of advance tax liability (-)amount paid in earlier instalment or instalments.
On or before 15th March The whole amount of advance tax liability (-)amount paid in earlier instalment or instalments.

Advance tax payment by assesseescomputing profits on presumptive basis under section 44AD(1) or section 44ADA(1)

An eligible assessee, opting for computation of profits or gains of business or profession on presumptive basis in respect of eligible business referred to in section 44AD(1) or in respect of eligible profession referred to in section 44ADA(1), shall be required to pay advance tax of the whole amount on or before 15th March of the F.Y.

However, any amount paid by way of advance tax on or before 31st March shall also be treated as advance tax paid during the F.Y. ending on that day.

Interest for defaults in payment of advance tax [Section 234B]

  1. Interest under section 234B is attracted for non-payment of advance tax or payment of advance tax of an amount less than 90% of assessed tax.
  2. The interest liability would be 1% per month or part of the month from 1st April following the F.Y. upto the date of determination of total income under section 143(1) and where regular assessment is made, upto the date of such regular assessment.
  3. Such interest is calculated on the amount of difference between the assessed tax and the advance tax paid.
  4. “Assessed tax” means the tax on total income determined u/s 143(1)/under regular assessment, as the case may be, less TDS & TCS, any relief of tax allowed u/s 89, any tax credit allowed to be set off in accordance with the provisions of section 115JD.
  5. Where self-assessment tax is paid by the assessee under section 140A or otherwise, interest shall be calculated upto the date of payment of su ch tax and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section.

Interest for deferment of advance tax [Section 234C]

(a) Manner of computation of interest u/s 234C for deferment of advance tax by corporate and non-corporate assessees:

In case an assessee, other than an assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1), who is liable to pay advance tax u/s 208 has failed to pay such tax or the advance tax paid by such assessee on its current income on or before the dates specified in column (1) below is less than the specified percentage [given in column (2) below] of tax due on returned income, then simple interest@1% per month for the period specified in column (4) on the amount of shortfall, as per column (3) is leviable u/s 234C.

Specified date Specified % Shortfall in advance tax Period
(1) (2) (3) (4)
15th June 15% 15% of tax due on returned income (-) advance tax paid up to 15th June 3 months
15th September 45% 45% of tax due on returned income (-) advance tax paid up to 15th September 3 months
15th December 75% 75% of tax due on returned income (-) advance tax paid up to 15th December 3 months
15th March 100% 100% of tax due on returned income (-) advance tax paid up to 15th March 1 month

Note – However, if the advance tax paid by the assessee on the current income, on or before 15th June or 15th September, is not less than 12% or 36% of the tax due on the returned income, respectively, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates.

Tax due on returned income = Tax chargeable on total income declared in the return of income – TDS – TCS – any relief of tax allowed u/s 89 – any tax credit allowed to be set off in accordance with the provisions of section 115JD

(b) Computation of interest under section 234C in case of an assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1):

In case an assessee who declares profits and gains in accordance with the provisions of section 44AD(1) or section 44ADA(1), who is liable to pay advance tax u/s 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before 15th March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of 1% on the amount of the shortfall from the tax due on the returned income.

(c) Non-applicability of interest under section 234C in certain cases:

Interest under section 234C shall not be leviable in respect of any shortfall in payment of tax due on returned income, where such shortfall is on account of under-estimate or failure to estimate –

  1. the amount of capital gains;
  2. income of nature referred to in section 2(24)(ix) i.e., winnings from lotteries, crossword puzzles etc.;
  3. income under the head “Profits and gains of business or profession” in cases where the income accrues or arises under the said head for the first time.

However, the assessee should have paid the whole of the amount of tax payable in respect of such income referred to in (i), (ii) and (iii), as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalments are due, by 31st March of the financial year.

Tax Collection at source[Section 206C]

(a) Sellers of certain goods are required to collect tax from the buyers at the specified rates. The specified percentage for collection of tax at source is as follows:

Nature of Goods Percentage
From
1.4.2020
to
13.5.2020
From
14.5.2020
to
31.3.2021
(i) Alcoholic liquor for human consumption 1% 1%
(ii) Tendu leaves 5% 3.75%
(iii) Timber obtained under a forest lease 2.5% 1.875%
(iv) Timber obtained by any mode other than (iii) 2.5% 1.875%
(v) Any other forest produce not being timber or tendu leaves 2.5% 1.875%
(vi) Scrap 1% 0.75%
(vii) Minerals, being coal or lignite or iron ore 1% 0.75%

However, no collection of tax shall be made in the case of a resident buyer, if such buyer furnishes a declaration in writing in duplicate to the effect that goods are to be utilised for the purpose of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes.

(b) Every person who grants a lease or a licence or enters into a contract or otherwise transfers any right or interest in any

  • parking lot or
  • toll plaza or
  • a mine or a quarry

to another person (other than a public sector company) for the use of such parking lot or toll plaza or mine or quarry for the purposes of business. The tax shall be collected as provided, from the licensee or lessee of any such licence, contract or lease of the specified nature, at the rate of 2%(1.5% during the period between 14.5.2020 to 31.3.2021),at the time of debiting of the amount payable by the licensee or lessee to his account or at the time of receipt of such amount from the licensee or lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

(c) Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle of the value exceeding Rs. 10 lakhs, shall, at the time of receipt of such amount, collect tax from the buyer@1% (0.75% during the period between 14.5.2020 to 31.3.2021)of the sale consideration.

(d) Every person,

  • being an authorized dealer, who receives amount under the Liberalised Remittance Scheme of the RBI for overseas remittance from a buyer, being a person remitting such amount out of India,
  • being seller of an overseas tour programme package who receives any amount from the buyer who purchases the package

has to collect tax at the rate of 5% of such amount at the time of debiting of the amount payable by the buyer or at the time of receipt of such amount from the said buyer by any mode, whichever is earlier.

Rate of TCS in case of collection by an authorized dealer

S. No. Amount and purpose of remittance Rate of TCS
(i) (a) Where the amount is remitted for a purpose other than purchase of overseas tour programme package; and

(b)the amount or aggregate of the amounts being remitted by a buyer is less than Rs. 7 lakhs in a financial year

Nil (No tax to be collected at source)
(ii) (a)Where the amount is remitted for a purpose other than purchase of overseas tour programme package; and

(b) the amount or aggregate of the amounts in excess of Rs. 7 lakhs is remitted by the buyer in a financial year

5% of the amt or agg. of amts in excess of Rs. 7 lakh
(iii) (a) where the amount being remitted out is a loan obtained from any financial institution, for the purpose of pursuing any education; and

(b) the amount or aggregate of the amounts in excess of Rs. 7 lakhs is remitted by the buyer in a financial year

0.5% of the amt or agg. of amts in excess of Rs. 7 lakh

Cases where no tax is to be collected

  1. No TCS by the authorized dealer on an amount in respect of which the sum has been collected by the seller
  2. No TCS, if the buyer is liable to deduct tax at source under any other provision of the Act and has deducted such tax
  3. No TCS, if the buyer is the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority or any other person notified by the Central Government, subject to fulfillment of conditions stipulated thereunder

(e) Every person, being a seller, who receives any amount as consideration for sale of goods of the value exceeding Rs. 50 lakhs in a previous year, other than exported goods or goods covered in (a )/( c)/( d)] , is required to collect tax at source, at the time of receipt of such amount, @0.1%(0.075% during the period between 14.5.2020 to 31.3.2021) of the sale consideration exceeding Rs. 50 lakhs.

However, tax is not required to be collected if the buyer is liable to deduct tax at source under any other provision of the Act on the goods purchased by him from the seller and has deducted such tax.

In case of non-furnishing of PAN or Aadhar number by the buyer to the seller, tax is required to be collected at the higher of –

  1. twice the rate specified in this sub-section; and
  2. 1%.

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