Monday, May 12, 2008

DISALLOWANCE U/S 40(a)(ia) TDS DEFAULT ALLOWED


on Monday, May 12, 2008

DEAR FRIENDS

Good News for all of us.While passing the finance bill 2008 as provision relating to section 40(a)(ia) has been amend to give us relief from minor tds deduction defaults from retrospective effect from assessment year 2005-06 means since inception of this controversial amendments.
Updates From Finance Act 2010 given at the end,position has changed,now you can deposit TDS, related to any month of previous year by due date for Income return Filing date and can claim expense in previous year.And this provision is proposed to be applicable from financial year 2009-10.

what was the position earlier

as per section 40(a)(ia) all the expenses u/s 30-38 will be disallowed if
  1. tds has not been deducted
  2. tds has been deducted but has not been paid during previous year or in subsequent year in time as prescribed in section 200.
on
  • Interest,
  • commission,
  • brokerage,
  • rent,
  • royalty,
  • fees for technical/professional services payable to a resident ,
  • amounts payable (for carrying out any work contract)
to a resident contractor/sub-contractor

provided that
  1. if tax has been deducted and paid in subsequent year or
  2. deducted in previous year but paid in subsequent year after expiry of the time limit u/s 200
then expenditure will be allowed in the year of payment of tds.

what is position now after changes in budget



Tax is deductible but not deducted

  • No deduction in the current previous year
  • If tax is deducted in any subsequent year, the expenditure will be deducted in the year in which TDS will be deposited by the assessee with the Government.

Tax is deductible (and is so deducted) during the last month (i.e., in the month of March) of the previous year but it is not deposited on or before the due date of submission of return of income under section 139(1)

  • No deduction in the current previous year
  • If tax is deposited with the Government after the due date of submission of return of income, the expenditure will be deductible in that year in which tax will be deposited.

Tax is deductible (and is so deducted) during any month but other than the last month (i.e., any time before March 1) of the previous year but it is not deposited on or before March 31 of the previous year

  • No deduction in the current previous year
  • If tax is deposited with the Government after the end of the current previous year, the expenditure will be deductible in that year in which tax is deposited.
though some relief has been given that in case we pay tds on or before due date of filing of the income tax return expenditure will be allowed in the same previous year but in case of non deduction of the tds when it is deductible then expenditure will be disallowed fully.


suppose xyz ltd has paid for work of 100000 to abc ltd for some non recurring work and forget to deduct tds ,the expenses of 100000 will be disallowed to xyz ltd.if there will no further transaction between xyzltd and abc ltd ,in that case xyz ltd can not deduct tax from abc ltd hence can not claim expenditure in subsequent year also.

my point is that tds is not a source of revenue for income tax department ,they only collect it as a advance tax on behalf of the firm abc.if abc ltd has discharged his tax liability fully by paying tax
then there will be no loss of revenue to the state .these provision seems valid where the deductee is non resident and tax can not be recovered from non resident.so in the above example dis allowance of the expenditure to xyz ltd even abc ltd has discharged his tax liability fully is not justified but that is the position of law we can not do nothing in this and have to bear with these provisions .so we should be more care full in deduction of tax so that all genuine expenditure will allowed while calculating income of the previous year.

The above interpretation is also confirmed by taxworry.com ,check here

Updates From Finance Act 2010

Further Good News ,In budget 2010 ,Now it is  proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

RELATED CLAUSE REPRODUCED HEREUNDER

12. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia),—
(a) for the portion beginning with the words “has not been paid,—” and ending with the words “the last day of the previous year”, the words, brackets and figures “has not been paid on or before the due date specified in sub-section (1) of section 139” shall be substituted;
(b) for the proviso, the following proviso shall be substituted, namely:—
”Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in subsection (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”.
Read all changes of Budget 2010 related to Income Tax from here 

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  1. would like to know, Whether TDS is required to be deducted on the provision for expenses made at the year end ?

    ReplyDelete
    Replies
    1. Yes , TDS is required to be deducted on the provision for expenses made at the year end ?

      But tds on salary is deductible at the time of payment only

      Delete
  2. Will the expenses be disallowed u/s 40(a)(ia) if payment has been made without tax deduction for fees for technical/professional services, but the tax has been paid to the government before the due date?

    ReplyDelete