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Advance learning on Tax Deducted at Source under section 194 C

and 194 I (Practical)

Provisions relating to time when tax is to be deducted at source from payment to resident-contractors

Illustration

Mr. Kapoor, the proprietor of Kapoor & Co., gave an annual maintenance contract (AMC) for maintenance of office furniture to Mr. Soham on a charge of Rs. 2,52,000. As per the agreed terms, Mr. Kapoor has to make a payment of Rs. 2,00,000 in advance and the balance is to be paid at the time of completion of the AMC. Mr. Kapoor intimated Mr. soham that he will be deducting tax on the amount of advance. However, Mr. Soham argued that there was no need to deduct tax at the time of payment of advance. Tax was to be deducted only when the bill of the contract work would be raised by him. Is the contention of Mr. Soham correct?

Solution

As per section 194C, tax is to be deducted at the time of credit of sum to the account of the contractor or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier. Considering the above provisions, advance of Rs. 2,00,000 will be liable to TDS and the argument of Mr. Soham is not correct.

Note: In the above case the provisions are discussed considering a specific case of section 194C. The above mentioned provisions (i.e., deduction of tax at the time of payment or credit, whichever is earlier) will apply to all the payments liable to TDS, viz., interest other than interest on securities (section 194A), commission/brokerage (section 194H), rent (section 194I), fees for professional/technical services (section 194J), etc.

In case of salary liable to TDS under section 192, tax is to be deducted at the time of actual payment of salary and, hence, if salary is paid in advance, then tax is to be deducted from advance salary. However, no tax is to be deducted from salary which is not paid but is credited to the account of the employee. In such a case tax will be deducted at the time of payment of salary.

Rates of deduction of tax from payment to resident-contractors

Illustration

SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a catering contract on the occasion of celebration party on completion on 25 years of their partnership to Mr. Soham. The total payment to be made for the catering contract is Rs.5,84,000. Entire payment has to be made in advance before commencement of contract. Determine the TDS liability of the firm.

Solution

As per section 194C tax is to be deducted as follows:

@ 1% when the contract payment is being made or credit is being given to an individual or an HUF.

@ 2% when the contract payment is being made or credit is being given to any person other than an individual or an HUF.

In this case the contractor is Mr. Soham, i.e., an individual. Hence, TDS would apply @ 1%. Total payment to be made is Rs. 5,84,000, TDS @ 1% will come to Rs. 5,840.

Suppose in the above case the contract is given to SM Pvt. Ltd. instead of Mr. Soham, then the amount of TDS would come to Rs. 11,680, being @ 2% on Rs. 5,84,000.

Illustration

Mr. Raja is running a garment factory and his turnover for the previous year 2011-12 was Rs. 2,52,00,000. During the previous year 2012-13, he gave an annual maintenance contract to SM Pvt. Ltd. for the maintenance of the furniture of factory. The annual contract payments will amount to Rs. 1,84,000. He informed the director of the company that he will be deducting tax at source from the contract payments @ 2%. The director argued that an individual making contract payment has to deduct tax @ 1% and not @ 2%. The rate of 2% applies only if the person making the payment is other than an individual. Is the contention of the director correct?

Solution

As per section 194C, in respect of contract payments to be made to any individual or a HUF (and not by an individual or HUF) will be liable to TDS @ 1%. In other words, the rate of 1% will apply only in a case where the payee is an individual/HUF. In this case the payee is a company and TDS will be deducted @ 2% and not @ 1%. Thus, the contention of the director is incorrect.

Individual or HUF not to deduct tax if the payment or amount credited to contractor is for personal use

Illustration

Mr. Kumar is running a garment factory. His turnover for the previous year 2011-12 was Rs. 2,52,00,000. During the year 2012-13, he gave a contract to construct his residential bungalow. The contract payment to be made for construction of the bungalow was Rs. 2,52,000. Mr. Kumar intimated to the contractor that he would be deducting tax @ 1% from the contract payments. The contractor argued that the provisions of section 194C do not apply in case of contract payments made by an individual/ HUF for his/its personal purposes. Is the contention of the contractor correct?

Solution

As per section 194C, an individual or HUF will not be liable to deduct tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such an individual or any member of HUF. In this case, the contract payment was towards construction of personal residential bungalow of Mr. Kumar and, hence, there was no requirement of deduction of tax at source. Thus, the argument of the contractor is correct.

No tax is to be deducted at source if single payment does not exceed Rs. 30,000 and the aggregate payment does not exceed Rs. 75,000

Illustration

Mr. Kumar, the proprietor of Kumar& Co., gave an annual maintenance contract for maintenance of office air-conditioners to Mr. Shan. As per the agreed terms, the payments to be made to Mr. Shan were as follows:

Rs. 25,200 to be paid on 5-5-2012.

Rs. 8,400 to be paid on 30-9-2012.

Rs. 12,800 to be paid on 17-10-2012.

Rs. 19,800 to be paid on 23-3-2013.

Mr. Kumar intimated to Mr. Shan that at the time of payment in the month of March, 2013 he would be deducting tax @ 1% since the total payment exceeded Rs. 30,000. However, Mr. Shan argued that payment made to him would not attract TDS since none of the payment exceeded Rs. 30,000 and the total payment would not exceed Rs. 75,000. Is the contention of Mr. Shan correct?

Solution

As per section 194C, no TDS will apply if single payment does not exceed Rs. 30,000 and the aggregate payment made during the year does not exceed Rs. 75,000. In this case, all the payments were below Rs. 30,000 and the total payment to be made during the year was below Rs. 75,000. Hence, there was no requirement to deduct tax from the contract payments to be made to Mr. Shan. Thus, the argument of Mr. Shan is correct.

Illustration

Mr. Kumar, the proprietor of Kumar & Co., gave an annual maintenance contract for maintenance of office furniture to Mr. Soham. As per the agreed terms, the payment to be made to Mr. Soham was as follows:

Rs. 44,000 to be paid in October, 2012.

Rs. 30,800 to be paid in February, 2013.

Mr. Kumar intimated to Mr. Soham that at the time of payment in the month of February, he would be deducting tax @ 1% from the payment to be made to him. However, Mr. Soham argued that payment made to him would not attract TDS, since the total payment would not exceed Rs. 75,000. Is the contention of Mr. Soham correct?

Solution

As per section 194C, no TDS will apply if single payment does not exceed Rs. 30,000 and the aggregate payment made during the year does not exceed Rs. 75,000. In this case both the payments exceed Rs. 30,000 and, hence, would attract TDS. The argument of Mr. Soham is not correct. Moreover, Mr. Kumar will have to deduct tax in October, 2012 also.

Illustration

Mr. Raja, the proprietor of Raja & Co. gave an annual maintenance contract for maintenance of office furniture to Mr. Shan. As per the agreed terms, the payments to be made to Mr. Shan were as follows:


Rs. 13,264to be paid in December, 2012.

Rs. 52,252to be paid in March, 2013.

Mr. Raja deducted tax on the entire amount of Rs. 84,000. Entire tax was deducted from the last payment of Rs. 52,252. However, Mr. Shan argued that payment made to him exceeded Rs. 75,000, hence, TDS would apply but it would not apply to entire payment of Rs. 84,000, but would apply only to the payment exceeding Rs. 75,000 (i.e., only on Rs. 9,000). Is the contention of Mr. Shan correct?

Solution

As per section 194C, no TDS will apply if single payment does not exceed Rs. 30,000 and the aggregate payment made during the year does not exceed Rs. 75,000. Once the payment exceeds Rs. 75,000, the entire amount will be liable to TDS. Thus, in this case the argument of Mr. Shan is not correct and Mr. Raja is correct in deduction of TDS on the entire payment of Rs. 84,000.

In this case payment is to be made to Mr. Shan who is an individual. Hence, tax will be deducted @ 1%. TDS will come to Rs. 840 (1% of Rs. 84,000). Suppose in this case the payee is a company, tax will be deducted @ 2%(i.e., Rs. 1,680). Definition of “Work” given under section 194C Illustration SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a works contract to Mr. Shan for manufacturing of the goods as per their specifications from the raw-materials to be supplied by SM Corporation. The total contract payment was agreed at Rs. 2,52,000. SM Corporation intimated Mr. Shan to produce his PAN, since they will be deducting tax @ 1% from the contract payments. Mr. Shan argued that there was no need to deduct tax in respect of contract of manufacturing of goods, since it was a contract of sale of goods and not a contract for any work or service. Is the contention of the Mr. Shan correct? Solution The definition of work as given in section 194C includes the activity of manufacturing or supplying any product according to the requirement or specification of a customer by using material purchased from such customer. However, work will not include the activity of manufacturing or supplying any product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. Thus, the activity of manufacturing/supplying any product as per the requirement of other person will be liable to TDS, if such product is manufactured from the raw-materials provided by the person giving the contract. If such product is manufactured from raw materials purchased from a person other than the person giving the contract, then the activity will not be liable to TDS. In the above case the goods were to be manufactured from the raw materials supplied by SM Corporation, i.e., the customer only and not any outsider, hence, the activity was liable to TDS. Thus, the argument of Mr. Shan is not correct. Illustration SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a work contract to Mr. Shan for manufacturing the goods as per their specifications. The raw-materials required for manufacturing the goods were to be acquired by Mr. Shan on his own account from the market. The total contract payment was agreed at Rs. 5,52,000. SM Corporation intimated to Mr. Shan to produce his PAN, since they would be deducting tax @ 1% from the contract payments. The contractor argued that there was no need to deduct tax in respect of contract of manufacturing of goods, since it was a contract of sale of goods and not a contract for any work or service. Is the contention of Mr. Shan correct? Solution The definition of work as given in section 194C includes the activity of manufacturing/ supplying any product according to the requirement or specification of a customer by using material purchased from such customer. However, work will not include the activity of manufacturing/supplying any product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. Thus, the activity of manufacturing/supplying of any product as per the requirement of other person will be liable to TDS, if such product is manufactured from the raw-materials provided by the person giving the contract. If such product is manufactured from raw-materials purchased from a person other than such customer, then the activity will not be liable to TDS.

In the above case the goods were to be manufactured from the raw-materials acquired by Mr. Shan from person other than SM Corporation (i.e., person other than the customer), hence, the activity would not be liable to TDS. Thus, the argument of the contractor is correct.

Illustration

SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a catering contract on the occasion of celebration party on completion of 25 years of their partnership to Mr. Soham. The total payment to be made for the catering contract was Rs. 8,25,000. The firm intimated Mr. Soham that they would be deducting tax @ 1% from the contract payments. Mr. Soham argued that as per section 194C, TDS applies only in respect of contract for carrying out any work (including supply of labour for carrying out any work) and catering contract was not covered under the scope of section 194C. Is the argument of Mr. Soham correct?

Solution

As per section 194C, TDS applies in respect of contract for carrying out any work (including supply of labour for carrying out any work). It is specifically provided in section 194C that work will include following activities:

Advertising

Broadcasting and telecasting, including production of programs for such broadcasting or telecasting

Carriage of goods or passengers by any mode of transport other than by railways

Catering

Manufacturing or supplying a product according to the requirement or specification of a customer by using materials purchased from such customer and not any other person

Thus, the argument of Mr. Soham is not correct and TDS will apply in respect of catering contracts.

Time-limit of deposit of TDS to the credit of Central Government

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 1,84,00,000). He made a payments of Rs. 2,52,000 (for the previous year 2012-13) to Mr. Shan for job work contract in March, 2013 and also deducted tax at @ 1% while making the payment. Mr. Raja does not know the time-limit up to which he can deposit the tax with Government. Advise him in this regard.

Solution

As per rule 30, time-limit of deposit of TDS with the Government is as follows:

Due date for payment

Where the payment is made by or on behalf of the Government

Where the payment is made in any other case than to the Government-

(i) On the same day (without using any challan form).

(ii) On or before 7 days from end of month in which deduction is made where tax is paid accompanied by an Income-tax challan.

a) If the amount is credited or paid in the

month of March

b) In any other case.

On or before April 30th

On or before 7 days from the end of the month in which the deduction is made.

Hence, Mr. Raja can deposit the TDS with the Government on or before 30th April, 2013.

Provisions relating to the applicability of Form No. 16A and time-limit of issuance of TDS certificate in Form No. 16A

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 1,84,00,000). He made payments of Rs. 84,000 during each quarter of the previous year 2012-13 to Mr. Shan for job work contract. Mr. Raja deducted tax at @ 1% while making the payment and also deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know the Form No. in which TDS certificate is to be issued and time-limit within which he can issue a TDS certificate. Advise Mr. Raja in this regard.

Solution

In case of payments other than salary, TDS certificates are to be issued on quarterly basis in Form No.16A.

As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. The certificate is to be issued by following dates:

Quarter Due date for Non-Government deductor

Due date for Government deductor

April to June 30th July 15th August

July to September 30th October 15th November

October to December 30th January 15th February

January to March 30th May 30th May

Mr. Raja can issue TDS certificate in Form No. 16A within 30 days from the end of each quarter in respect of quarter April to June, July to September and October to December. However, in respect of quarter January to March he can issue TDS certificate up to 30th May, 2013.

Provisions relating to issuance of TDS certificate

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 1,84,00,000). He makes payments of Rs. 84,000 during each quarter of the previous year 2012-13 to Mr. Shan for job work contract. Mr. Raja deducted tax at @ 1% while making the payment and also deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know how to generate a TDS certificate. Advise him in this regard.

Solution

As per CBDT Circular No. 1/2012, dated 9-4-2012, it is mandatory for all the deductors to issue TDS certificate in Form No. 16A by generating the certificate through TIN central system by downloading the certificate from the TIN website with a unique TDS certificate number. These provisions are applicable in respect of all sums deducted on or after 1-4-2012. The certificate so issued can be authenticated either by using digital signature or manual signature.

Meaning of “Rent” and applicability of section 194 I in case of lease, sub-lease, tenancy or any other agreement or arrangement for use of specific assets

Illustration

Kapoor & Co. is a proprietorship of Mr. Kapoor (turnover during the preceding year was Rs. 1,84,00,000). For the previous year 2012-13, the firm has to pay Rs. 6,48,000 towards rent of office building. The accountants of the firm intimated the landlord that the firm will be deducting tax from the rent @ 10%. The landlord argued that as per section 194I there is no requirement to deduct tax from rent of office building. TDS is applicable only on rent of factory building. Is the contention of landlord correct?

Solution

As per section 194I, tax is to be deducted on any amount paid towards rent. For the purpose of section 194I, rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any :

Land

Building (including factory building)

Land appurtenant to a building (including factory building)

Machinery

Plant

Equipment

Furniture

Fittings

The above items may or may not be owned by the payee.

Thus, tax is to be deducted in respect of rent for office building also. Hence, the argument of the landlord is not correct.

Illustration

Kapoor & Co. is a proprietorship of Mr. Kapoor (turnover during the preceding year was Rs. 1,84,00,000). For the previous year 2012-13, the firm has to pay Rs. 2,52,000 towards rent of the machineries. The machineries are taken on rent from Mr. Kumar, who, in turn, has taken the same on rent from Mr. Raja. The accountant of the firm intimated to Mr. Kumar that the firm will be deducting tax from the rent @ 2%. Mr. Kumar argued that as per section 194I there is no requirement to deduct tax from rent, if the payee is not the owner of the machineries. TDS is applicable only if the rented property is owned by the person from whom the property is rented. Is the contention of Mr. Kumar correct?

Solution

It is specified in section 194I that the rented property may or may not be owned by the person from whom the property is taken on rent. Hence, in this case the firm has to deduct tax from the rent to be paid to Mr. Kumar. The argument of Mr. Kumar is not correct.

Rates of deduction of tax from rental payments

Illustration

Kapoor & Co. is a proprietorship of Mr. Kapoor (turnover during the preceding year was Rs. 2,52,00,000). For the previous year 2012-13, the firm has to pay Rs. 1,84,000 towards rent of its office building. The accountant of the firm intimated to the owner that the firm will be deducting tax from rent @ 10%. The owner argued that as per section 194I, tax is to be deducted @ 2% in respect of rent of building. Is the contention of the owner correct?

Solution

As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10%. Thus, in the above case the owner is incorrect. In this case tax will be deducted @ 10%.

Illustration

Kapoor & Co. is a proprietorship of Mr. Kapoor (turnover during the preceding year was Rs. 1,52,00,000). For the previous year 2012-13, the firm has to pay Rs. 1,52,000 towards rent of its equipments. The accountant of the firm intimated to the owner that the firm will be deducting tax from rent @ 10%. The owner argued that as per section 194I tax is to be deducted @ 2% in respect of rent of equipments. Is the contention of the owner correct?

Solution

As per section 194I, in respect of rent of land or building or furniture or fittings, tax is to be deducted @10% and in respect of rent of any other items, tax is to be deducted@ 2%. Thus, in the above case the owner is correct. In this case tax will be deducted @ 2%.

Illustration

SM Corporation is a partnership firm. For the previous year 2012-13, the firm has to pay Rs. 2,52,000 towards rent of its office building. The accountant of the firm intimated to the landlord that the firm would be deducting tax from rent @ 2%. The landlord argued that as per section 194I, tax is to be deducted @ 1% if the person to whom rent is to be paid is an individual. Is the contention of the landlord correct?

Solution

As per section 194I in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10%. Thus, in the above case accountant as well as the land lord, both were incorrect. In this case tax will have to be deducted @ 10%.

No deduction of tax at source from rental payments if the aggregate amount does not exceed Rs. 1,80,000

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 1,52,52,000). For the previous year 2012-13, he has to pay rent of office building of Rs. 84,000 to Mr. Shubham. He informed Mr. Shubham that he will be deducting tax @ 10% from the rent. Mr. Shubham argued that there was no requirement of deducting tax in respect of rent if the amount of rent does not exceed Rs. 1,50,000. Is the contention of Mr. Shubham correct?

Solution

As per section 194I, there is no requirement of deduction of tax from rent, if aggregate amount of rent to be paid during the year to a person does not exceed Rs. 1,80,000. In this case, the aggregate amount of rent was below Rs. 1,80,000, hence, there was no requirement of deducting tax from such rent. In this case, both the parties were incorrect, since Mr. Raja wanted to deduct tax from rent even if the rent was below Rs. 1,80,000 and Mr. Shubham argued that no tax was to be deducted if the annual rent was below Rs. 1,50,000 (the limit is Rs. 1,80,000).

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 1,52,52,000). For the previous year 2012-13, he has to pay rent of office building of Rs. 1,92,000 to Mr. Shan. He informed Mr. Shan that he will be deducting tax @ 10% from entire rent. Mr. Shan argued that there was no requirement of deducting tax in respect of entire rent. TDS would apply only in respect of rent in excess of Rs. 1,80,000,i.e., only on Rs. 12,000. Is the contention of Mr. Shan correct?

Solution

As per section 194I, tax is to be deducted from rent, if aggregate amount of rent to be paid during the year to a person exceeds Rs. 1,80,000. If the amount exceeds Rs. 1,80,000, then tax is to be deducted on the entire amount and not only on the excess amount. Thus, the contention of Mr. Shan is not correct.

Provisions relating to deduction of tax from rental payments excluding the amount of service tax

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 1,84,52,000). For the previous year 2012-13, he has to pay rent of office building of Rs. 2,84,000 to Mr. Soham. In addition to rent of Rs. 2,84,000, the landlord demanded service tax of Rs. 35,102. Total payment to be made to Mr. Soham (including service tax) amounted to Rs. 3,19,102. Mr. Raja informed Mr. Soham that he would be deducting tax @ 10% from entire payment of Rs. 3,19,102 including service-tax. Mr. Soham argued that there was no requirement of deducting tax in respect of service tax. TDS would apply only on Rs. 2,84,000. Is the contention of Mr. Soham correct?

Solution

Yes, the contention of Mr. Soham is correct. In respect of rental payments, tax is to be deducted on the amount of rent excluding service tax.

Provisions relating to inclusion/exclusion of amount of deposits while deducting tax from rental payments

Illustration

Mr. Raja is running a proprietary business under the name of Raja& Co. (turnover during the preceding year was Rs. 184,52,000). For the previous year 2012-13, he has to pay rent of office building of Rs. 2,52,000 to Mr. Shivam. In addition to rent of Rs. 2,52,000, he has to pay a non-refundable deposit of Rs. 3,84,000. He informed Mr. Shivam that he would be deducting tax @ 10% from rent and deposit. Mr. Shivam argued that there was no requirement of deducting tax in respect of non-refundable deposit and TDS would apply only in respect of refundable deposits. Is the contention of Mr. Shivam correct?

Solution

The contention of Mr. Shivam is not correct. In respect of refundable deposits no TDS will apply. TDS will apply only in respect of non-refundable deposits. Hence, Mr. Raja is required to deduct tax @ 10% from rent as well as from non-refundable deposits.

Time-limit of deposit of tax to the credit of the Central Government

Illustration

Mr. Raja is running a factory (turnover during the preceding year was Rs. 1,84,00,000). He pays rent of factory building of Rs. 30,000 (for the month of March, 2013) to Mr. Shan in February, 2013 and deducted tax at @ 10% while making the payment. However, Mr. Raja does not know the time-limit up to which he can deposit the tax with the Government. Advise him in this regard.

Solution


Payment to be made Due date for payment


Where the payment is made in any other case than the Government-

a) If the amount is credited or paid in the month of March






Hence, Mr. Raja can deposit the TDS with the Government on or before 7thMarch, 2013.

Provisions relating to the applicability of Form No. 16A and time-limit of issuance of TDS certificate in Form No. 16A

Illustration

Mr. Raja is running a factory (turnover during the preceding year was Rs. 1,84,00,000). He paid monthly rent of factory building of Rs. 84,000(for the previous year 2012-13) to Mr. Shan. Mr. Raja deducted tax at @ 10% while making the payment and also deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know the Form No. in which TDS certificate is to be issued and time-limit within which he can issue a TDS certificate. Advise Mr. Raja in this regard.

Solution









Hence, Mr. Raja can issue TDS certificate in Form No. 16A within the following time-limits:

Month in which rent is paid as well as tax is deducted

Time-limit within which TDS certificate should be issued

April 30th July

May 30th July

June 30th July

July 30th October

August 30th October

September 30th October

October 30th January

November 30th January

December 30th January

January 30th May

February 30th May

March 30th May

Provisions relating to issuance of TDS certificate

Illustration

Mr. Raja is running a factory (turnover during the preceding year was Rs. 1,84,00,000). He pays monthly rent of factory building of Rs. 84,000(for the previous year 2012-13) to Mr. Shan. Mr. Raja has deducted tax at @ 10% while making the payment and also deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know how to generate a TDS certificate. Advise him in this regard.

Solution


FAQs

Q.1 When is tax to be deducted at source from payment to resident-contractors? Explain with the help of illustration. Following illustration will explain the provisions relating to time when tax is to be deducted at source from payment to resident-contractors. Illustration Mr. Kapoor, the proprietor of Kapoor & Co., gave an annual maintenance contract (AMC) for maintenance of office furniture to Mr. Soham on a charge of Rs. 2,52,000. As per the agreed terms, Mr. Kapoor had to make a payment of Rs. 2,00,000 in advance and the balance was to be paid at the time of completion of the AMC. Mr. Kapoor intimated Mr. Soham that he would be deducting tax on the amount of advance. However, Mr. Soham argued that there is no need to deduct tax at the time of payment of advance. Tax was to be deducted only when the bill of the contract work would be raised by him. Is the contention of Mr. Soham correct? Solution As per section 194C, tax is to be deducted at the time of credit of sum to the account of the contractor or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier. Considering the above provisions, advance of Rs. 2,00,000 will be liable to TDS. The argument of Mr. Soham is not correct. Note: In the above case the provisions are discussed considering a specific case of section 194C. The above mentioned provisions (i.e., deduction of tax at the time of payment or credit, whichever is earlier) will apply to all the payments liable to TDS, viz., interest other than interest on securities (section 194A), commission/brokerage (section 194H), rent (section 194I), fees for professional/technical services (section 194J), etc. In case of salary liable to TDS under section 192, tax is to be deducted at the time of actual payment of salary and, hence, if salary is paid in advance, then tax is to be deducted from advance salary. However, no tax is to be deducted from salary which is not paid but is credited to the account of the employee. In such a case tax will be deducted at the time of payment of salary. Q.2 What are the rates of deduction of tax from payment to resident-contractors? Explain with the help of illustration. Following illustrations will explain the provisions relating to rates at which tax is to be deducted at source from payment to resident-contractors. Illustration SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a catering contract on the occasion of celebration party on completion of 25 years of their partnership firm to Mr. Soham. The total payment to be made for the catering contract was Rs. 5,84,000. Entire payment had to be made in advance before commencement of contract. Determine the TDS liability of the firm. Solution As per section 194C, tax is to be deducted as follows:

@ 1% when the contract payment is being made or credit is being given to an individual or a HUF.

@ 2% when the contract payment is being made or credit is being given to any person other than an individual or a HUF.

In this case the contractor is Mr. Soham, i.e., an individual. Hence, TDS would apply @ 1%. Total payment to be made is Rs. 5,84,000; TDS @ 1% will come to Rs. 5,840.

Suppose in the above case the contract is given to SM Pvt. Ltd. instead of to Mr. Soham, then the amount of TDS would come to Rs. 11,680, being @ 2% on Rs. 5,84,000.

Illustration

Mr. Raja is running a garment factory and his turnover for the previous year 2011-12 was Rs. 2,52,00,000. During the previous year 2012-13, he gave an annual maintenance contract to SM Pvt. Ltd. for the maintenance of the furniture of factory. The annual contract payments will amount to Rs. 1,84,000. He informed the director of the company that he will be deducting tax at source from the contract payments @ 2%. The director argued that an individual making contract payment had to deduct tax @ 1% and not @ 2%. The rate of 2% applies only if the person making the payment is other than an individual. Is the contention of the director correct?

Solution

As per section 194C, in respect of contract payments to be made to any individual or a HUF (and not by an individual or HUF) will be liable to TDS @ 1%. In other words, the rate of 1% will apply only in a case where the payee is an individual/HUF. In this case the payee is a company and TDS will be deducted @ 2% and not @ 1%. Thus, the contention of the director is incorrect.

Q.3 Explain with the help of illustration the provisions relating to deduction of tax at source from payment or amount credited to contractor by individual or HUF for personal purpose.

Following illustration will explain the provisions relating to deduction of tax at source from payment or amount credited to contractor by individual or HUF for personal purpose.

Illustration

Mr. Kumar is running a garment factory. His turnover for the previous year 2011-12 was Rs. 2,52,00,000. During the year 2012-13, he gave a contract to construct his residential bungalow. The contract payment to be made for construction of the bungalow was Rs. 2,52,000. Mr. Kumar intimated to the contractor that he will be deducting tax @ 1% from the contract payment. The contractor argued that the provisions of section 194C do not apply in case of contract payments made by an individual/ HUF for his/its personal purposes. Is the contention of the contractor correct?

Solution

As per section 194C an individual or HUF will not be liable to deduct tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such an individual or any member of HUF. In this case, the contract payments were made towards construction of personal residential bungalow of Mr. Kumar and, hence, there was no requirement of deduction of tax at source. Thus, the argument of the contractor was correct.

Q.4 Whether tax is to be deducted at source if single payment does not exceed Rs. 30,000 and the aggregate payment does not exceed Rs. 75,000? Explain with the help of illustration.

Following illustrations will explain the provisions relating to deduction of tax at source if single payment does not exceed Rs. 30,000 and the aggregate payment does not exceed Rs. 75,000.

Illustration

Mr. Kumar, the proprietor of Kumar & Co., gave an annual maintenance contract for maintenance of office air-conditioners to Mr. Shan. As per the agreed terms, the payments to be made to Mr. Shan were as follows:

Rs. 25,200 to be paid on 5-5-2012.

Rs. 8,400 to be paid on 30-9-2012.

Rs. 12,800 to be paid on 17-10-2012.

Rs. 19,800 to be paid on 23-3-2013.

Mr. Kumar intimated to Mr. Shan that at the time of payment in the month of March, he would be deducting tax @ 1% since the total payment exceeded Rs. 30,000. However, Mr. Shan argued that payment made to him would not attract TDS since none of the payments exceeded Rs. 30,000 and the total payment would not exceed Rs. 75,000. Is the contention of Mr. Shan correct?

Solution

As per section 194C, no TDS will apply if single payment does not exceed Rs. 30,000 and the aggregate payment made during the year does not exceed Rs. 75,000. In this case, all the payments made were below Rs. 30,000 and the total payment to be made during the year was below Rs. 75,000. Hence, there was no requirement to deduct tax from the contract payments to be made to Mr. Shan. Thus, the argument of Mr. Shan was correct.

Illustration

Mr. Kumar, the proprietor of Kumar & Co., gave an annual maintenance contract for maintenance of office furniture to Mr. Soham. As per the agreed terms, the payment to be made to Mr. Soham was as follows:



Mr. Kumar intimated to Mr. Soham that at the time of payment in the month of February, he would be deducting tax @ 1% from the payment to be made to him. However, Mr. Soham argued that payment made to him would not attract TDS, since the total payment would not exceed Rs. 75,000. Is the contention of Mr. Soham correct?

Solution

As per section 194C, no TDS will apply if single payment does not exceed Rs. 30,000 and the aggregate payment made during the year does not exceed Rs. 75,000. In this case, both the payments exceed Rs. 30,000 and, hence, would attract TDS. The argument of Mr. Soham is not correct. Moreover, Mr. Kumar will have to deduct tax in October, 2012 also.

Illustration

Mr. Raja, the proprietor of Raja & Co. gave an annual maintenance contract for maintenance of office furniture to Mr. Shan. As per the agreed terms, the payments to be made to Mr. Shan were as follows:


Rs. 13,264 to be paid in December, 2012.

Rs. 52,252 to be paid in March, 2013.

Mr. Raja deducted tax on the entire amount of Rs. 84,000. Entire tax was deducted from the last payment of Rs. 52,252. However, Mr. Shan argued that payment made to him exceeded Rs. 75,000, hence, TDS would apply but it would not apply to entire payment of Rs. 84,000, but would apply only to the payment exceeding Rs. 75,000 (i.e., only on Rs. 9,000). Is the contention of Mr. Shan correct?

Solution

As per section 194C, no TDS will apply if single payment does not exceed Rs. 30,000 and the aggregate payment made during the year does not exceed Rs. 75,000. Once the payment exceeds Rs. 75,000, the entire amount will be liable to TDS. Thus, in this case the argument of Mr. Shan is not correct and Mr. Raja is correct in deduction of TDS on the entire payment of Rs. 84,000.

In this case payment is to be made to Mr. Shan who is an individual. Hence, tax will be deducted @ 1%. TDS will come to Rs. 840 (1% of Rs. 84,000). Suppose in this case the payee is a company, tax will be deducted @ 2% (i.e., Rs. 1,680).

Q.5 Explain with the help of illustration the definition of “Work” given under section 194C.

Following illustrations will explain the definition of “Work” given under section 194C.

Illustration

SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a works contract to Mr. Shan for manufacturing of the goods as per their specifications from the raw-materials to be supplied by SM Corporation. The total contract payment was agreed at Rs. 2,52,000. SM Corporation intimated Mr. Shan to produce his PAN, since they will be deducting tax @ 1% from the contract payments. Mr. Shan argued that there was no need to deduct tax in respect of contract of manufacturing of goods, since it was a contract of sale of goods and not a contract for any work or service. Is the contention of the Mr. Shan correct?

Solution

The definition of work as given in section 194C includes the activity of manufacturing or supplying any product according to the requirement or specification of a customer by using material purchased from such customer. However, work will not include the activity of manufacturing or supplying any product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

Thus, the activity of manufacturing/supplying any product as per the requirement of other person will be liable to TDS, if such product is manufactured from the raw-materials provided by the person giving the contract. If such product is manufactured from raw-materials purchased from a person other than the person giving the contract, then the activity will not be liable to TDS.

In the above case the goods were to be manufactured from the raw-materials supplied by SM Corporation, i.e., the customer only and not any outsider, hence, the activity was liable to TDS. Thus, the argument of Mr. Shan was not correct.

Illustration

SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a work contract to Mr. Shan for manufacturing the goods as per their specifications. The raw-materials required for manufacturing the goods were to be acquired by Mr. Shan on his own account from the market. The total contract payment was agreed at Rs. 5,52,000. SM Corporation intimated to Mr. Shan to produce his PAN, since they would be deducting tax @ 1% from the contract

payments. The contractor argued that there was no need to deduct tax in respect of contract of manufacturing of goods, since it was a contract of sale of goods and not a contract for any work or service. Was the contention of Mr. Shan correct?

Solution

The definition of work as given in section 194C includes the activity of manufacturing/ supplying any product according to the requirement or specification of a customer by using material purchased from such customer. However, work will not include the activity of manufacturing/supplying any product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.

Thus, the activity of manufacturing/supplying of any product as per the requirement of other person will be liable to TDS, if such product is manufactured from the raw-materials provided by the person giving the contract. If such product is manufactured from raw-materials purchased from a person other than such customer, then the activity will not be liable to TDS.

In the above case the goods were to be manufactured from the raw-materials acquired by Mr. Shan from person other than SM Corporation (i.e., person other than the customer), hence, the activity would not be liable to TDS. Thus, the argument of the contractor is correct.

Illustration

SM Corporation, a partnership firm of Mr. Kumar and Mr. Kapoor, gave a catering contract on the occasion of celebration party on completion of 25 years of their partnership to Mr. Soham. The total payment to be made for the catering contract was Rs. 8,25,000. The firm intimated Mr. Soham that they would be deducting tax @ 1% from the contract payments. Mr. Soham argued that as per section 194C, TDS applies only in respect of contract for carrying out any work (including supply of labour for carrying out any work) and catering contract was not covered under the scope of section 194C. Was the argument of Mr. Soham correct?

Solution

As per section 194C, TDS applies in respect of contract for carrying out any work (including supply of labour for carrying out any work). It is specifically provided in section 194C that work will include following activities:

Advertising

Broadcasting and telecasting, including production of programs for such broadcasting or telecasting

Carriage of goods or passengers by any mode of transport other than by railways

Catering

Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer and not any other person

Thus, the argument of Mr. Soham is not correct and TDS will apply in respect of catering contracts.

Q.6 What is the time-limit of deposit of tax deducted at source from contract payments to the credit of Central Government? Explain with the help of illustration.

Following illustration will explain the provisions relating to time-limit of deposit of tax deducted at source from contract payments made to the credit of Central Government.

Illustration

Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 1,84,00,000). He makes payments of Rs. 2,52,000 (for the previous year 2012-13) to Mr. Shan for job work contract in March, 2013 and also deducted tax at @ 1% while making the payment. Mr. Raja does not know the time-limit up to which he can deposit the tax with Government. Advise him in this regard.

Solution


Payment Details Due date for payment









Hence, Mr. Raja can deposit the TDS with the Government on or before 30th April, 2013.

Q.7 Explain with the help of illustration the provisions relating to the applicability of Form No. 16A and time-limit of issuance of TDS certificate in Form No. 16A in respect of tax deducted from contract payments.

Following illustration will explain the provisions relating to the applicability of Form No. 16A and time-limit of issuance of TDS certificate in Form No. 16A in respect of tax deducted from contract payments.

Illustration

Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 1,84,00,000). He made payments of Rs. 84,000 during each quarter of the previous year 2012-13 to Mr. Shan for job work contract. Mr. Raja deducted tax at @ 1% while making the payment and also deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know the Form No. in which TDS certificate is to be issued and time-limit within which he can issue a TDS certificate. Advise Mr. Raja in this regard.

Solution









Mr. Raja can issue TDS certificate in Form No. 16A within 30 days from the end of each quarter in respect of quarter April to June, July to September and October to December. However, in respect of quarter January to March, he can issue TDS certificate up to 30th May, 2013.

Q.8 Explain with the help of illustration provisions relating to issuance of TDS certificate in Form No. 16A in respect of tax deduction from contract payments.

Following illustration will explain provisions relating to issuance of TDS certificate in Form No. 16A in respect of tax deduction from contract payments.

Illustration

Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 1,84,00,000). He makes payments of Rs. 84,000 during each quarter of the previous year 2012-13 to Mr. Shan for job work contract. Mr. Raja has deducted tax at @ 1% while making the payment and also has deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know how to generate a TDS certificate. Advise him in this regard.

Solution


Q.9 Explain with the help of illustration the meaning of “Rent” and applicability of section 194-I in case of lease, sub-lease, tenancy, or any other agreement or arrangement for use of specific assets.

Following illustrations will explain the meaning of “Rent” and applicability of section 194-I in case of lease, sub-lease, tenancy, or any other agreement or arrangement for use of specific assets.

Illustration

Kapoor & Co. is a proprietorship of Mr. Kapoor (turnover during the preceding year was Rs. 1,84,00,000). For the previous year 2012-13, the firm had to pay Rs. 6,48,000 towards rent of office building. The accountants of the firm intimated the landlord that the firm would be deducting tax from the rent @ 10%. The landlord argued that as per section 194I there was no requirement to deduct tax from rent of office building. TDS was applicable only on rent of factory building. Is the contention of landlord correct?

Solution

As per section 194I, tax is to be deducted on any amount paid towards rent. For the purpose of section 194I, rent means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any :

Land

Building (including factory building)

Land appurtenant to a building (including factory building)

Machinery

Plant

Equipment

Furniture

Fittings

The above items may or may not be owned by the payee.

Thus, tax is to be deducted in respect of rent for office building also. Hence, the argument of the landlord is not correct.

Illustration

Kapoor & Co. is a proprietorship firm of Mr. Kapoor (turnover during the preceding year was Rs. 1,84,00,000). For the previous year 2012-13, the firm had to pay Rs. 2,52,000 towards rent of the machineries. The machineries were taken on rent from Mr. Kumar, who, in turn, had taken the same on rent from Mr. Raja. The accountant of the firm intimated to Mr. Kumar that the firm would be deducting tax from the rent @ 2%. Mr. Kumar argued that as per section 194I there was no requirement to deduct tax from rent, if the payee was not the owner of the machineries. TDS was applicable only if the rented property was owned by the person from whom the property was rented. Is the contention of Mr. Kumar correct?

Solution

It is specified in section 194I that the rented property may or may not be owned by the person from whom the property is taken on rent. Hence, in this case the firm has to deduct tax from the rent to be paid to Mr. Kumar. The argument of Mr. Kumar is not correct.

Q.10 What are the rates of deduction of tax from rental payments? Explain with the help of illustrations.

Following illustrations will explain the rates of deduction of tax from rental payments.

Illustration

Kapoor & Co. is a proprietorship firm of Mr. Kapoor (turnover during the preceding year was Rs. 2,52,00,000). For the previous year 2012-13, the firm had to pay Rs. 1,84,000 towards rent of its office building. The accountant of the firm intimated to the owner that the firm will be deducting tax from rent @ 10%. The owner argued that as per section 194I, tax was to be deducted @ 2% in respect of rent of building. Is the contention of the owner correct?

Solution

As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10%. Thus, in the above case the owner is incorrect. In this case tax will be deducted @ 10%.

Illustration Kapoor & Co. is a proprietorship firm of Mr. Kapoor (turnover during the preceding year was Rs. 1,52,00,000). For the previous year 2012-13, the firm had to pay Rs. 1,52,000 towards rent of its equipments. The accountant of the firm intimated to the owner that the firm will be deducting tax from rent @ 10%. The owner argued that as per section 194I tax was to be deducted @ 2% in respect of rent of equipments. Is the contention of the owner correct? Solution As per section 194I, in respect of rent of land or building or furniture or fittings, tax is to be deducted @10% and in respect of rent of any other items, tax is to be deducted @ 2%. Thus, in the above case, the owner is correct. In this case, tax will be deducted @ 2%. Illustration SM Corporation is a partnership firm. For the previous year 2012-13, the firm had to pay Rs. 2,52,000 towards rent of its office building. The accountant of the firm intimated to the landlord that the firm would be deducting tax from rent @ 2%. The landlord argued that as per section 194I, tax was to be deducted @ 1% if the person to whom rent was to be paid was an individual. Is the contention of the land lord correct? Solution As per section 194I, in respect of rent of land or building or furniture or fittings, tax is to be deducted @ 10%. Thus, in the above case, accountant as well as the landlord, both were incorrect. In this case, tax will have to be deducted @ 10%. Q.11 Explain with the help of illustration the provisions relating to non-deduction of tax at source from rental payments if the aggregate amount does not exceed Rs. 1,80,000. Following illustrations will explain the provisions relating to non-deduction of tax at source from rental payments if the aggregate amount does not exceed Rs. 1,80,000. Illustration Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 1,52,52,000). For the previous year 2012-13, he has to pay rent of office building of Rs. 84,000 to Mr. Shubham. He informed Mr. Shubham that he will be deducting tax @ 10% from the rent. Mr. Shubham argued that there was no requirement of deducting tax in respect of rent if the amount of rent did not exceed Rs. 1,50,000. Is the contention of Mr. Shubham correct? Solution As per section 194I, there is no requirement of deduction of tax from rent, if aggregate amount of rent to be paid during the year to a person does not exceed Rs. 1,80,000. In this case the aggregate amount of rent was below Rs. 1,80,000, hence, there was no requirement of deducting tax from such rent. In this case, both the parties were incorrect, since Mr. Raja wanted to deduct tax from rent even if the rent was below Rs. 1,80,000 and Mr. Shubham argued that no tax was to be deducted if the annual rent was below Rs. 1,50,000 (the limit is Rs. 1,80,000). Illustration Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 1,52,52,000). For the previous year 2012-13, he had to pay rent of office building of Rs. 1,92,000 to Mr. Shan. He informed Mr. Shan that he will be deducting tax @ 10% from entire rent. Mr. Shan argued that there was no requirement of deducting tax in respect of entire rent. TDS would apply only in respect of rent in excess of Rs. 1,80,000, i.e., only on Rs. 12,000. Is the contention of Mr. Shan correct?

Solution

As per section 194I, tax is to be deducted from rent, if aggregate amount of rent to be paid during the year to a person exceeds Rs. 1,80,000. If the amount exceeds Rs. 1,80,000, then tax is to be deducted on the entire amount and not only on the excess amount. Thus, the contention of Mr. Shan is not correct.

Q.12 Whether tax at source is to be deducted from the rental payments including the amount of service tax or excluding the amount of service tax? Explain with the help of illustration.

Following illustration will explain the provisions relating to deduction of tax from rental payments excluding the amount of service tax.

Illustration

Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 1,84,52,000). For the previous year 2012-13, he had to pay rent of office building of Rs. 2,84,000 to Mr. Soham. In addition to rent of Rs. 2,84,000, the landlord demanded service tax of Rs. 35,102. Total payment to be made to Mr. Soham (including service tax) amounted to Rs. 3,19,102. Mr. Raja informed Mr. Soham that he would be deducting tax @ 10% from entire payment of Rs. 3,19,102 including service-tax. Mr. Soham argued that there was no requirement of deducting tax in respect of service tax. TDS would apply only on Rs. 2,84,000. Is the contention of Mr. Soham correct?

Solution

Yes, the contention of Mr. Soham is correct. In respect of rental payments, tax is to be deducted on the amount of rent excluding service tax.

Q.13 Explain with the help of illustration the provisions relating to inclusion/exclusion of amount of deposits while deducting tax from rental payments.

Following illustration will explain the provisions relating to inclusion/exclusion of amount of deposits while deducting tax from rental payments.

Illustration

Mr. Raja is running a proprietary business under the name of Raja & Co. (turnover during the preceding year was Rs. 184,52,000). For the previous year 2012-13, he had to pay rent of office building of Rs. 2,52,000 to Mr. Shivam. In addition to rent of Rs. 2,52,000, he had to pay a non-refundable deposit of Rs. 3,84,000. He informed Mr. Shivam that he would be deducting tax @ 10% from rent and deposit. Mr. Shivam argued that there was no requirement of deducting tax in respect of non-refundable deposit and TDS would apply only in respect of refundable deposits. Is the contention of Mr. Shivam correct?

Solution

The contention of Mr. Shivam is not correct. In respect of refundable deposits no TDS will apply. TDS will apply only in respect of non-refundable deposits. Hence, Mr. Raja is required to deduct tax @ 10% from rent as well as from non-refundable deposits.

Q.14 What is the time-limit of deposit of tax deducted at source from rental payments to the credit of Central Government? Explain with the help of illustration.

Following illustration will explain the provisions relating to time-limit of deposit of tax deducted at source from rental payments to the credit of Central Government.

Illustration

Mr. Raja is running a factory (turnover during the preceding year was Rs. 1,84,00,000). He paid rent of factory building of Rs. 30,000 (for the month of March, 2013) to Mr. Shan in February, 2013 and deducted tax at @ 10% while making the payment. However, Mr. Raja does not know the time-limit up to which he can deposit the tax with the Government. Advise him in this regard.

Solution











Hence, Mr. Raja can deposit the TDS with the Government on or before 7th March, 2013.

Q.15 Explain with the help of illustration the provisions relating to the applicability of Form No. 16A and time-limit of issuance of TDS certificate in Form No. 16A in respect of tax deducted from rental payments.

Following illustration will explain the provisions relating to the applicability of Form No. 16A and time-limit of issuance of TDS certificate in Form No. 16A in respect of tax deducted from rental payments.

Illustration

Mr. Raja is running a factory (turnover during the preceding year was Rs. 1,84,00,000). He paid monthly rent of factory building of Rs. 84,000 (for the previous year 2012-13) to Mr. Shan. Mr. Raja has deducted tax at @ 10% while making the payment and also had deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know the Form No. in which TDS certificate is to be issued and time-limit within which he can issue a TDS certificate. Advise Mr. Raja in this regard.

Solution



Quarter Due date for Non-

Government deductor Due date for Government

deductor





Hence, Mr. Raja can issue TDS certificate in Form No. 16A within the following time-limits:

Month in which rent is paid as well as tax is deducted

Time-limit within which TDS certificate should be issued

April 30th July

May 30th July

June 30th July

July 30th October

August 30th October

September 30th October

October 30th January

November 30th January

December 30th January

January 30th May

February 30th May

March 30th May

Q.16 Explain with the help of illustration provisions relating to issuance of TDS certificate in Form No. 16A in respect of tax deducted from rental payments.

Following illustration will explain provisions relating to issuance of TDS certificate in Form No. 16A in respect of tax deducted from rental payments.

Illustration

Mr. Raja is running a factory (turnover during the preceding year was Rs. 1,84,00,000). He paid monthly rent of factory building of Rs. 84,000 (for the previous year 2012-13) to Mr. Shan. Mr. Raja had deducted tax at @ 10% while making the payment and also deposited the TDS with the Government within the time-limit prescribed under rule 30. However, he does not know how to generate a TDS certificate. Advise him in this regard.

Solution

As per CBDT’s Circular No. 1/2012, dated 9-4-2012, it is mandatory for all the deductors to issue TDS certificate in Form No. 16A by generating the certificate through TIN central system by downloading the certificate from the TIN website with a unique TDS certificate number. These provisions are applicable in respect of all sums deducted on or after 1-4-2012. The certificate so issued can be authenticated either by using digital signature or manual signature.

MCQs

Q1. TDS on contract payments is to be deducted as per the provisions of section 194J.

(a) True (b) False

Correct answer: (b)

Justification of correct answer:

TDS on contract payments is to be deducted as per the provisions of section194C.

Thus, the statement given in the question is false and, hence, option (b) is the correct option.

Comment on incorrect answer: The statement given in the question is false. Hence, option (a) is not the correct option.

Q2. In respect of contract payments, when is tax to be deducted at source from the payment made to the contractor?

(a) At the time of credit of sum to the account of the contractor

(b) At the time of payment of sum in cash or by issuance of a cheque or draft or by any other mode

(c) At the time of credit of sum to the account of the contractor or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier

(d) Any time as per the choice of the payer

Correct answer: (c)


Tax is to be deducted at the time of credit of sum to the account of the contractor or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier.

Thus, option (c) is the correct option.

Comment on incorrect answer: Option (c) is the correct option since tax is to be deducted at the time of credit of sum to the account of the contractor or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier. The other options, viz., options (a), (b) and (d) giving incorrect provision are not correct.

Q3. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000).During the previous year 2012-13, he gives annual maintenance contract for maintenance of factory machineries to Mr. Shan at a charge of Rs. 1,84,000.He does not want to deduct tax from Rs. 1,84,000 since as per his view, no tax is to be deducted if the contract is given to a person being an individual or HUF. Is the contention of Mr. Raja Correct?

(a) Yes (b) No

Correct answer: (b)


If the requirements of section 194C are satisfied, then tax is to be deducted from contract payments, irrespective of the person to whom contract is given. As per section 194C, contract payments to be made to any individual or a HUF will be liable to TDS @ 1%.

Thus, option (b) is the correct option.

Comment on incorrect answer: Option (b) is the correct option since it gives the correct provision. The other option, viz., option (a) giving the incorrect provision is not correct.

Q4. In respect of contract payments, at which rate, tax is to be deducted if the payee is an individual or HUF?

(a) @ 1%

(b) @ 2%

(c) (a) or (b) as per the choice of the payer

(d) (a) or (b) as per the choice of Assessing Officer

Correct answer: (a)


In respect of contract payments tax is deductible @ 1% if the payee is an individual or HUF.

Thus, option (a) is the correct option.

Comment on incorrect answer: Option (a) is the correct option since it gives the correct rate of TDS. The other options, viz., options (b), (c) and (d) giving the incorrect rate/provisions are not correct.

Q5. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000) and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to SM Corporation at a charge of Rs. 1,84,000.Hence, he is liable to deduct tax @ 1% since as per his views, tax is deductible @ 1% if the payer is an individual or HUF.

(a) True (b) False

Correct answer: (b)


In respect of contract payments, tax is deductible @ 1% if the payee (not payer) is an individual or HUF and @ 2% if the payee(not payer) is any person other than an individual or HUF. Hence, in this case he is liable to deduct tax @ 2% and not @ 1%.



Q6. In respect of contract payments, at which of the following rate, tax is to be deducted if the payer is any person other than an individual or HUF?

(a) @ 1%

(b) @ 2%

(c) (a) or (b) as per the choice of the payer

(d) Tax is to be deducted either @ 1% or @ 2% according to the status of the payee and not according to the status of the payer

Correct answer: (d)


In respect of contract payments, tax is deductible@ 1% if the payee (not payer) is an individual or HUF and @ 2% if the payee (not payer) is any person other than an individual or HUF.

Thus, option (d) is the correct option.

Comment on incorrect answer: Option (d) is the correct option since it gives the correct provisions. The other options, viz., options (a), (b) and (c) giving the incorrect rate of deduction/provision are not correct.

Q7. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000) and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to Kapoor HUF at a charge of Rs. 1,84,000.In this case, at which of the following rate Mr. Raja is required to deduct tax from the total payment of Rs. 1,84,000?

(a) @ 1%

(b) @ 2%

(c) (a) or (b) as per the choice of Mr. Raja

(d) (a) or (b) as per the choice of Assessing Officer

Correct answer: (a)


In respect of contract payments, tax is deductible @ 1% if the payee (not payer) is an individual or HUF. Hence, in this case he is liable to deduct tax @ 1%.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct rate of TDS. The other options, viz., options (b), (c) and (d) giving the incorrect rate/provisions are not correct.

Q8. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000) and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to SM Pvt. Ltd. at a charge of Rs. 1,84,000.In this case, Mr. Raja is required to deduct tax @ 2% from the total payment of Rs. 1,84,000 since the payee is other than an individual or HUF.

(a) True (b) False

Correct answer: (a)


In respect of contract payments, tax is deductible@ 1% if the payee (not payer) is an individual or HUF and @ 2% if the payee (not payer) is any person other than an individual or HUF. Hence, Mr. Raja is liable to deduct tax @ 2% from the payment of Rs. 1,84,000 since the payee is a company.

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer: The statement given in the question is true. Hence, option (b) is not the correct option.

Q9. In respect of contract payments, tax is deductible @ 10% if the payee does not provide his Permanent Account Number.

(a) True (b) False

Correct answer: (b)


In respect of contract payments, tax is deductible @ 20% if the payee does not provide his Permanent Account Number.



Q10. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000) and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to Mr. Shan at a charge of Rs. 1,84,000.However, Mr. Shan did not furnish his PAN to Mr. Raja. In this case, at which of the following rate tax will be deducted from the payment of Rs. 1,84,000?

(a) 1% (b) 2%

(c) 10% (d) 20%

Correct answer: (d)


In respect of contract payments, tax is deductible @ 20% if the payee does not provide his Permanent Account Number.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct rate of TDS. The other options, viz., options (a), (b) and (c) giving incorrect rates of TDS are not correct.

Q11. Tax is deductible from contract payments only if the payer being ________/_______ is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments are credited or paid.

(a) An individual/HUF (b) An individual/partnership firm

(c) An individual/company (d) A partnership firm/HUF

Correct answer: (a)


Tax is deductible from contract payments only if the payer being an individual/HUF was liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments were credited or paid.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct status of the assessee. The other options, viz., options (b), (c) and (d) giving the incorrect status are not correct.

Q12. Is tax deductible from contract payments if the payer is an individual or HUF and was not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments were credited or paid?

(a) Yes (b) No

Correct answer: (b)


No tax is deductible from contract payments if the payer being an individual/HUF was not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments were credited or paid.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct provisions. The other option, viz., option (a) giving the incorrect provision is not correct.

Q13. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000) and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to Mr. Shan at a charge of Rs. 1,84,000.However, during the previous year 2011-12, Mr. Shan was not liable to audit. Hence, Mr. Raja is not liable to deduct tax from the payment of Rs. 1,84,000.

(a) True (b) False

Correct answer: (b)


Tax is deductible from contract payments if the payer (not payee)being an individual/HUF was liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments were credited or paid. Hence, Mr. Raja is liable to deduct tax from the payment of Rs. 1,84,000 since he was liable to audit during the previous year 2011-12.



Q14. Mr. Raja is running a factory (the turnover for the previous year 2011-12 was Rs. 2,52,00,000) and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to Mr. Shan at a charge of Rs. 1,84,000.However, during the previous year 2011-12, Mr. Shan was not liable to audit. At which of the following rate Mr. Raja is required to deduct tax from the payment of Rs. 1,84,000?

(a) @ 1%

(b) @ 2%

(c) @ 10%

(d) (a) or (b) as per the choice of Mr. Raja

Correct answer: (a)


Tax is deductible from contract payments if the payer (not payee)being an individual/HUF was liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments were credited or paid. Moreover, tax is deductible @ 1% if the payee is an individual of HUF. Hence, Mr. Raja is liable to deduct tax @ 1% from the payment of Rs. 1,84,000, since he was liable to audit during the previous year 2011-12 and the payee, Mr. Shan was an individual.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct rate of TDS. The other options, viz., options (b), (c) and (d) giving the incorrect rate of TDS/provision are not correct.

Q15. Mr. Raja is running a factory and during the previous year 2012-13, he gave annual maintenance contract for maintenance of factory machineries to Mr. Shan at a charge of Rs. 1,84,000. However, during the previous year 2011-12, Mr. Raja was not liable to tax audit under section 44AB. At which of the following rate Mr. Raja is required to deduct tax from the payment of Rs. 1,84,000?

(a) @ 1%

(b) @ 2%

(c) @ 10%

(d) Mr. Raja is not liable to deduct tax at source

Correct answer: (d)


Tax is deductible from contract payments if the payer (not payee)being an individual/HUF was liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which contract payments were credited or paid. Hence, Mr. Raja is not liable to deduct tax from the payment of Rs. 1,84,000 since he was not liable to tax audit under section 44AB during the previous year 2011-12.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct provision. The other options, viz., options (a), (b) and (c) giving the incorrect rate of TDS are not correct.

Q16. Mr. Kumar is running a garment factory (turnover for the previous year 2011-12 was Rs. 2,52,00,000). During the year 2012-13, he gave a contract to construct his residential bungalow at a charge of Rs. 2,52,000.Is he liable to deduct tax at source from the contract payment of Rs. 2,52,000?

(a) Yes (b) No

Correct answer: (b)


As per section 194C, an individual or HUF will not be liable to deduct tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of HUF. In this case, the contract payments were towards construction of personal residential bungalow of Mr. Kumar and, hence, there was no requirement of deduction of tax at source. Hence, Mr. Kumar was not liable to deduct tax from the payment of Rs. 1,84,000.



Q17. No tax is to be deducted in respect of contract payments if the single payment does not exceed Rs. 30,000.

(a) True (b) False (c) Partly true and partly false

Correct answer: (c)


No tax is to be deducted in respect of contract payments if the single payment does not exceed Rs. 30,000. However, once the aggregate payment exceeds Rs. 75,000 then tax is to be deducted, even though single payment does not exceed Rs. 30,000.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct provision. The other options, viz., options (a) and (b) giving the incorrect provisions are not correct.

Q18. No tax is to be deducted in respect of contract payments if the single payment does not exceed Rs. 30,000. However, tax is to be deducted in respect of contract payments if the aggregate payment made during the year exceeds Rs. 75,000.

(a) True (b) False

Correct answer: (a)


No tax is to be deducted in respect of contract payments if the single payment does not exceed Rs. 30,000. However, if the aggregate payment exceeds Rs. 75,000, then the payer is required to deduct tax from the total payment, even though single payment does not exceed Rs. 30,000.



Q19. Mr. Raja was required to make a payment of Rs. 25,200 to a contractor Mr. Shan for the first time during the previous year 2012-13. Whether such transaction will attract TDS u/s 194C?

(a) Yes (b) No Correct Answer: (b)


Mr. Raja is not liable to deduct tax at source (TDS),because single payment is below Rs. 30,000.

Thus, option (b) is correct.


Q20. During the previous year 2012-13, Mr. Kapoor, the proprietor of Kapoor & Co., gave an annual maintenance contract for maintenance of office furniture to Mr. Shan. As per the agreed terms, the total payments to be made to Mr. Shan during the year were as follows:



What will be the amount of tax to be deducted by Mr. Kapoor from the contract payments?

(a) Rs. 184 (b) Rs. 380

(c) Rs. 760 (d) Nil

Correct answer: (d)


No tax was to be deducted since individual payment did not exceed Rs. 30,000 and aggregate payment made during the year did not exceed Rs. 75,000.


Comment on incorrect answer: Option (d) is the correct option since no tax is to be deducted. The other options, viz., options (a), (b) and (c) giving incorrect amounts of TDS are not correct.

Q21. During the previous year 2012-13, Mr. Kapoor, the proprietor of Kapoor & Co., gave an annual maintenance contract for maintenance of office furniture to Mr. Shan. As per the agreed terms, the payments to be made to Mr. Shanareas were as follows:




(a) Rs. 712 (b) Rs. 1,424

(c) Rs. 840 (d) Nil Correct answer: (a)


Tax was to be deducted @ 1% since the payee is an individual and single payment exceeds Rs. 30,000. TDS @ 1% on 71,200 (Rs. 38,400 + Rs. 32,800) will come to Rs. 712.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount of TDS. All the other options, viz., options (b), (c) and (d) giving incorrect amounts of TDS are not correct.

Q22. During the previous year 2012-13, Mr. Kapoor, the proprietor of Kapoor & Co., gave an annual maintenance contract for maintenance of office furniture to SM Pvt. Ltd. As per the agreed terms, the payments to be made to SM Pvt. Ltd. were as follows:




(a) Rs. 712 (b) Rs. 1,424

(c) Rs. 840 (d) Nil Correct answer: (b)


Tax is to be deducted @ 2%, since the payee is a company i.e., other than an individual or HUF and single payment exceeds Rs. 30,000. TDS @ 2% on Rs. 71,200 (Rs. 38,400 + Rs. 32,800) will come to Rs. 1,424.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct amount of TDS. All the other options viz., options (a), (c) and (d) giving incorrect amounts of TDS are not correct.

Q23. Mr. Kapoor is running a factory(turnover during the preceding year was Rs. 52,00,000 and turnover for the year 2012-13 was Rs. 1,52,00,000). During the previous year 2012-13, he gave an annual maintenance contract for maintenance of factory equipments. Total contract payments for the year will amount to Rs. 1,52,000. In this case Mr. Kapoor will be liable to deduct tax from contract payments since his turnover for the year 2012-13 exceeded the limit prescribed under section 44AB.

(a) True (b) False

Correct answer: (b)


Turnover during the preceding year is to be considered and not the turnover of current year.



Q24. As per section 194C, TDS applies in respect of contract for carrying out any work ______ supply of labour for carrying out any work.

(a) Including (b) Excluding

Correct answer: (a)


As per section 194C, TDS applies in respect of contract for carrying out any work (including supply of labour for carrying out any work).


Comment on incorrect answer: Option (a) is the correct option since it gives the correct provision. The other option, viz., option (b) giving the incorrect provision is not correct.

Q25. As per section 194C, which of the following activities will be included in the definition of work?

(a) Advertising

(b) Broadcasting and telecasting excluding production of programs for such broadcasting or telecasting

(c) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer

(d) All of the above

Correct answer: (a)


Work will include all the following activities:

(a) Advertising

(b) Broadcasting and telecasting including production of programs for such broadcasting or telecasting

(c) Catering

(d) Carriage of goods or passengers by any mode of transport other than by railways

(e) Manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer


Comment on incorrect answer: Option (a) is the correct option since it gives the correct activity. The other options, viz., options (b), (c) and (d) giving incorrect activities are not correct.

Q26. During the previous year 2012-13, SM Pvt. Ltd. gave a catering contract to Mr. Shan on the occasion of celebration party on completion of its 25 years at a charge of Rs. 2,52,000. Accounts Manager of a company was of the view that company was not liable to deduct tax from payment of Rs. 2,52,000 since as per section 194C, no tax was to be deducted from catering contracts.

(a) True (b) False

Correct answer: (b)


Catering contract is also liable to TDS. Hence, SM Pvt. Ltd. would be liable to deduct tax from the payment of Rs. 2,52,000.



Q27. During the previous year 2012-13, Mr. Raja gave a contract of manufacturing of a product according to the requirement or specification by using material purchased from the market to Mr. Shan at a charge of Rs. 2,52,000. Mr. Raja wants to deduct tax @ 1% from such payment of Rs. 2,52,000. Can he do so?

(a) Yes (b) No

Correct answer: (b)


As per section 194C, the definition of work includes the activity of manufacturing/ supplying any product according to the requirement or specification of a customer by using material purchased from such customer. However, work will not include the activity of manufacturing/supplying any product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. Hence, Mr. Raja cannot deduct tax from such payment of Rs. 2,52,000.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct provision. The other option, viz., option (a) giving the incorrect provision is not correct. Q28. During the previous year 2012-13, Mr. Raja gave a contract of manufacturing a product according to the requirement or specification of him by using material purchased from Mr. Raja only to Mr. Shan at a charge of Rs. 2,52,000. Mr. Raja wants to deduct tax @ 2% from such payment of Rs. 2,52,000. Can he do so?

(a) Yes (b) No

Correct answer: (b)


As per section 194C, the definition of work includes the activity of manufacturing/ supplying any product according to the requirement or specification of a customer by using material purchased from such customer. However, work will not include the activity of

manufacturing/supplying any product according to the requirement or specification of a customer by using material purchased from a person other than such customer. Hence, Mr. Raja is liable to deduct tax @ 1% and not @ 2% from such payment of Rs. 2,52,000 since the payee is an individual.



Q29. In respect of contract payments, TDS certificate is to be issued in Form No. 16.

(a) True (b) False

Correct answer: (b)


As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. In other words, in respect of contract payments, TDS certificate is to be issued in Form No. 16A.



Q30. In respect of contract payments, the deductor is liable to deposit the tax deducted in the month other than the month of March with the Government on or before 7 days from the end of the month in which the tax is deducted.

(a) True (b) False

Correct answer: (a)


In respect of contract payments, the deductor is liable to deposit the tax deducted in the month other than the month of March with the Government on or before 7 days from the end of the month in which the tax is deducted.



Q31. In respect of contract payments what is the time-limit of deposit of the tax deducted in the month of March with the Government?

(a) 31st March (b) 7th April

(c) 15th April (d) 30th April

Correct answer: (d)


As per rule 30, following time-limit is applicable:




(ii) On or before 7 days from end of

Where the payment is made in any other case than to the Government-



month in which deduction is made where tax is paid accompanied by an Income-tax challan.




Comment on incorrect answer: Option (d) is the correct option since it gives the correct time-limit. The other options, viz., options (a), (b) and (c) giving incorrect time-limit are not correct.

Q32. In respect of contract payments, the deductor is liable to issue Form No. 16A on monthly basis.

(a) True (b) False

Correct answer: (b)


As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. In other words, the deductor is liable to issue Form No. 16A on quarterly basis.



Q33. As per rule 31, Form No. 16A in respect of tax deducted from contract payments is to be issued on quarterly basis if the deductor is an individual or HUF. However, in case of deductor other than an individual or HUF, Form No. 16A in respect of tax deducted from contract payments is to be issued on monthly basis.

(a) True (b) False

Correct answer: (b)


As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. In other words, the deductor is liable to issue Form No. 16A on quarterly basis, irrespective of the status of the deductor.



Q34. Section 194C would be attracted in respect of payments made to couriers for carrying documents, letters, etc.

(a) True (b) False

Correct Answer: (a)


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



Q35. Payment of commission to the person who arranges for release of advertisement would be covered under Section 194C.

(a) True (b) False

Correct Answer: (a)


Payment of commission to the person who arranges for release of advertisement would be covered under Section 194C.



Q36. As per the provisions of which of the following section TDS on rent is to be deducted?

(a) 194A (b) 194C

(c)194D (d) 194I

Correct answer: (d)


TDS on rent is to be deducted as per the provisions of section194I.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct section. The other options, viz., options (a), (b) and (c) giving incorrect sections are not correct.

Q37. As per section 194I, tax is to be deducted from rent at the time of credit of rent to the account of the owner or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is __________.

(a) Earlier (b) Later

Correct answer: (a)


Tax is to be deducted from rent at the time of credit of rent to the account of the owner or at the time of payment thereof in cash or by issuance of a cheque or draft or by any other mode, whichever is earlier.



Q38. Mr. Raja is running a factory (turnover for the previous year 2011-12 was Rs. 84,00,000).During the previous year 2012-13, Mr. Raja paid a rent of factory building of Rs. 1,84,000 to his landlord, Mr. Shan. As per the views of Mr. Raja, he is not required to deduct tax from the payment of Rs. 1,84,000 since no tax is deductible if payee is an individual or HUF.

(a) True (b) False

Correct answer: (b)


No tax was deductible from rent if the payer being an individual/HUF was not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which rent was credited or paid. Hence, Mr. Raja is liable to deduct tax from rent of Rs. 1,84,000 since he was liable to audit during the previous year 2011-12.



Q39. As per section 194I, in respect of rent of which of the following assets, TDS is to be deducted @ 10% from the amount of rent?

(a) Land (b) Building

(c) Furniture or fittings (d) All of the above

Correct answer: (d)


As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10%.


Comment on incorrect answer: Option (d) is the correct option since it covers all the assets in respect of which tax is deducted @ 10%. The other options, viz., option (a), (b) and (c) giving individual assets are not correct.

Q40. As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10% from the amount of rent if the payee is an individual or HUF. However, if the payee is other than an individual or HUF then tax is to be deducted @ 2% from the rent of building or land or furniture or fittings.

(a) True (b) False

Correct answer: (b)


As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10% irrespective of the status of the payee.



Q41. Mr. Raja is running proprietary concern under the name of Raja & Co. (turnover during the previous year 2011-12 was Rs. 68,00,000). During the previous year 2012-13, he pays a rent of Rs. 1,84,000 to Mr. Shan in respect of furniture used by him in his shop. What is the amount of tax Mr. Raja is required to deduct from rent of Rs. 1,84,000?

(a) Rs. 1,840 (b) Rs. 3,680

(c) Rs. 18,400 (d) Any amount as per the choice of Mr. Raja

Correct answer: (c)


As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10%. Hence, TDS @ 10% will come to Rs. 18,400.


Comment on incorrect answer: option (c) is the correct option since it gives the correct amount of TDS. The other options, viz., options (a), (b) and (d) giving the incorrect amount/provisions are not correct.

Q42. As per section 194I, in respect of rent of assets other than land or building or furniture or fittings tax is to be deducted @ 2% from the amount of rent.

(a) True (b) False

Correct answer: (a)


As per section 194I, in respect of rent of land or building or furniture or fittings tax is to be deducted @ 10%, irrespective of the status of the payee. In respect of assets other than land or building or furniture or fittings tax is to be deducted @ 2% from the amount of rent.



Q43. Mr. Raja is running a factory (turnover for the previous year 2011-12 was Rs. 84,52,000). During the previous year he paid a rent of factory building of Rs. 1,88,000 to Mr. Shan who, in turn, has taken the factory on rent from Mr. Kapoor. Mr. Raja does not want to deduct tax from the rent of Rs. 1,88,000 since as per his view, no tax is to be deducted in respect of sub-letting. Is the contention of Mr. Raja correct?

(a) Yes (b) No

Correct answer: (b)


Under section 194I, tax is to be deducted from rent. Thus, tax is to be deducted in case of sub-letting also. Hence, Mr. Raja is liable to deduct tax from the rent of Rs. 1,88,000.



Q44. As per section 194I, what is the maximum amount of rent which can be paid without deduction of tax at source?

(a) Rs. 50,000 (b) Rs. 1,00,000

(c) Rs. 1,50,000 (d) Rs. 1,80,000

Correct answer: (d)


As per section 194I, if the amount of payment of rent during a financial year is Rs. 1,80,000 or less than Rs. 1,80,000 then the assessee can pay rent without deduction of tax.


Comment on incorrect answer: Option (d) is the correct option since it gives the correct amount. The other options, viz., options (a), (b) and (c) giving the incorrect amount are not correct.

Q45. As per section 194I, if the payment of rent of land or building or furniture or fixture during a financial year is Rs. 1,80,000 or less than Rs. 1,80,000 then the assessee can pay such rent without deduction of tax at source. However, in respect of rent of assets other than land or building or furniture or fixture there is no such limit of Rs. 1,80,000.

(a) True (b) False

Correct answer: (b)


As per section 194I, if the amount of payment of rent during a financial year is Rs. 1,80,000 or less than Rs. 1,80,000 then the assessee can pay rent without deduction of tax irrespective of the assets for which such rent is paid/payable.



Q46. During the year 2012-13, SM Corporation, a partnership firm, has to pay rent of Rs. 1,84,000 to Mr. Raja. In this case the firm will be liable to deduct tax on ______.

(a) Rs. 1,84,000 (b) Rs. 4,000

(c) Rs. 1,65,600 (d) Nil

Correct answer: (a)


As per section 194I, tax is to be deducted if the annual rent exceeds Rs. 1,80,000. In this case, the rent is Rs. 1,84,000. Hence, tax is to be deducted on the entire amount of Rs. 1,84,000.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount liable to TDS, all the other options, viz., options (b), (c) and (d) giving incorrect amounts liable to TDS are not correct.

Q47. In respect of rental payments liable to TDS under section 194I, tax is to be deducted on the amount of rent ________ service tax.

(a) Including (b) Excluding

Correct answer: (b)


In respect of rental payments liable to TDS under section 194I, tax is to be deducted on the amount of rent excluding service tax. [Reference: CBDT’s Circular No. 4/2008 dated 28-04-2008.



Q48. In respect of rental payments liable to TDS under section 194I, tax is to be deducted on the amount of rent excluding service tax if the payee is an individual or HUF. However, if the payee is other than an individual or HUF, then tax is to be deducted on the amount of rent including service tax.

(a) True (b) False

Correct answer: (b)


In respect of rental payments liable to TDS under section 194I, tax is to be deducted on the amount of rent excluding service tax irrespective of the status of the payee.



Q49. Mr. Kapoor is the proprietor of Kapoor & Co. (turnover of the firm in the preceding year 2011-12 was Rs. 1,84,52,000). During the previous year 2012-13, the firm has to pay rent of building of Rs. 1,84,000 to Mr. Shan. The landlord demanded Rs. 2,06,742 (including service tax @ 12.36%). What will be the amount of tax to be deducted by Mr. Kapoor?

(a) Rs. 20,674 (b) Rs. 18,400

(c) Rs. 4,135 (d) Rs. 3,680

Correct answer: (b)


In respect of rental payments liable to TDS under section 194I, tax is to be deducted on the amount of rent excluding service tax. In this case, tax is to be deducted @ 10% on Rs. 1,84,000. TDS @ 10% on Rs. 1,84,000 will come to Rs. 18,400.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct amount of TDS. The other options, viz., options (a), (c) and (d) giving incorrect amounts of TDS are not correct.

Q50. SM Corporation (a partnership firm) has to pay rent of building of Rs. 2,52,000 to Mr. Raja. The owner demanded Rs.2,83,147 (including service tax @ 12.36%). What will be the amount of tax to be deducted by SM Corporation?

(a) Rs. 5,663 (b) Rs. 28,315

(c) Rs. 25,200 (d) Rs. 5,040

Correct answer: (c)


In respect of rental payments liable to TDS under section 194I, tax is to be deducted on the amount of rent excluding service tax. In this case tax is to be deducted @ 10% on Rs. 2,52,000. TDS @ 10% on Rs. 2,52,000 will come to Rs. 25,200.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct amount of TDS. The other options, viz., options (a), (b) and (d) giving incorrect amounts of TDS are not correct.

Q51. Mr. Kapoor is the proprietor of Kapoor & Co. (turnover of the firm in the preceding year was Rs. 84,00,000). The firm has to pay rent of equipments of Rs. 2,52,000 to Mr. Shan. What will be the amount of tax to be deducted by Mr. Kapoor from rent of equipments?

(a) Rs. 5,040 (b) Rs. 2,520

(c) Rs. 25,200 (d) Nil

Correct answer: (a)


In this case, tax is to be deducted @ 2% on Rs. 2,52,000. TDS @ 2% on Rs. 2,52,000 will come to Rs. 5,040.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct amount of TDS. The other options, viz., options (b), (c) and (d) giving incorrect amounts of TDS are not correct.

Q52. SM Corporation (a partnership firm) has to pay rent of machinery of Rs. 8,52,000 to Mr. Shan. What will be the amount of tax to be deducted by the firm from rent of machinery?

(a) Rs. 8,520 (b) Rs. 85,200

(c) Rs. 17,040 (d) Nil

Correct answer: (c)


In this case, tax is to be deducted @ 2% on Rs. 8,52,000. TDS @ 2% on Rs. 8,52,000 will come to Rs. 17,040.


Comment on incorrect answer: Option (c) is the correct option since it gives the correct amount of TDS. The other options, viz., options (a), (b) and (d) giving incorrect amounts of TDS are not correct.

Q53. Mr. Kapoor is the proprietor of Kapoor & Co. (turnover of the firm in the preceding year was Rs. 1,84,00,000). The firm has to pay rent of equipments of Rs. 1,75,000 to Mr. Shan. What will be the amount of tax to be deducted by Mr. Kapoor from rent of equipments?

(a) Rs.1,750 (b) Rs. 3,500

(c) Nil (d) Rs. 17,500

Correct answer: (c)


Tax is to be deducted if the amount of rent exceeds Rs. 1,80,000. In this case annual rent is Rs. 1,75,000, hence, no tax is to be deducted.


Comment on incorrect answer: Option (c) is the correct option since no tax is to be deducted. The other options, viz., options (a), (b) and (d) giving incorrect amounts of TDS are not correct.

Q54. As per section 194I, no tax is deductible from rent if the payer being __________/_________ was not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which rent is credited or paid.

(a) An individual/HUF (b) An individual/partnership firm

(c) A partnership firm/HUF (d) A partnership firm/company

Correct answer: (a)


As per section 194I, no tax is deductible from rent if the payer (being an individual or HUF) is not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the year in which rent is paid or credited.


Comment on incorrect answer: Option (a) is the correct option since it gives the correct status of the assessees. The other options, viz., options (b), (c) and (d) giving the incorrect status are not correct.

Q55. As per section 194I, no tax is deductible from rent if the payer (being an individual or HUF) was not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the __________ in which the rent is paid or credited.

(a) Financial year

(b) Financial year immediately preceding the financial year

(c) Preceding 3 financial year

(d) Preceding 5 financial year

Correct answer: (b)


As per section 194I, no tax is deductible from rent if the payer (being an individual or HUF) was not liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the year in which rent is paid or credited.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct duration. The other options, viz., options (a), (c) and (d) giving the incorrect duration are not correct.

Q56. As per section 194I, is tax at source to be deducted from the amount of refundable deposits?

(a) Yes (b) No

Correct answer: (b)


As per section 194I there is no requirement of deduction of tax in respect of refundable deposits.



Q57. Mr. Raja is running a factory (turnover of the factory in the previous year 2011-12 was Rs. 84,00,000). During the previous year 2012-13, he has to pay factory rent of Rs. 2,52,000 to Mr. Shan. Mr. Raja also gives a refundable deposit of Rs. 4,84,000. What is the amount of tax he is liable to deduct?

(a) Rs. 73,600 (b) Rs. 25,200

(c) Rs. 14,720 (d) Rs. 5,040

Correct answer: (b)


As per section 194I, there is no requirement of deduction of tax in respect of refundable deposits. Hence, TDS @ 10% on Rs. 2,52,000 will come to Rs. 25,200.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct amount of TDS. The other options, viz., options (a), (c) and (d) giving the incorrect amounts are not correct.

Q58. Mr. Raja is running a factory (turnover of the factory in the previous year 2011-12 was Rs. 84,00,000). During the previous year 2012-13, he had to pay factory rent of Rs. 2,52,000 to Mr. Shan. He also gave a refundable deposit of Rs. 4,84,000. Mr. Shan paid interest of Rs. 58,080 on such refundable deposit to Mr. Raja. What is the amount of tax Mr. Raja is liable to deduct (on factory rent/refundable deposit)

(a) Rs. 73,600 (b) Rs. 25,200

(c) Rs. 14,720 (d) Rs. 5,040

Correct answer: (b)


In respect of refundable deposits no TDS will apply (whether or not any interest is paid on refundable deposits).TDS will apply only in respect of non-refundable deposits. Hence, TDS @ 10% on Rs. 2,52,000 will come to Rs. 25,200.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct amount of TDS. The other options, viz., options (a), (c) and (d) giving the incorrect amounts are not correct.

Note: Also TDS on interest of Rs. 58,080 will have to be deducted in terms of section 194A.

Q59. As per section 194I, there is no requirement of deduction of tax in respect of non-refundable deposits, if the owner is paying interest on such deposits.

(a) True (b) False

Correct answer: (b)


In respect of refundable deposits no TDS will apply (whether or not any interest is paid on refundable deposits).TDS will apply only in respect of non-refundable deposits (whether or not any interest is paid on non-refundable deposits).



Q60. As per section 194I, in respect of interest on non-refundable deposits tax is deducted under section 194A.

(a) True (b) False

Correct answer: (a)


As per section 194I, in respect of interest on non-refundable deposits tax is deducted under section 194A.



Q61. As per section 194I, is tax to be deducted from advance rent?

(a) Yes (b) No

Correct answer: (a)


Tax is to be deducted at the time of payment or credit of rent, whichever is earlier. Thus, in respect of advance rent tax is to be deducted.



Q62. The limit of Rs. 1,80,000 per annum would apply separately for each co-owner of a property.

(a) True (b) False

Correct Answer: (a)


Under Sec. 194-I, the tax is deductible from payment by way of rent, if such payment to the payee during the year is likely to be Rs. 1,80,000 or more. If there are a number of payees, each having definite and ascertainable share in the property, the limit of Rs. 1,80,000 will apply to each of the payee/co-owner separately. The payer and payee are, however, advised not to enter into same agreement to avoid TDS provisions.



Q63. TDS will be deducted where initial payment is made as a loan or deposit out of which rent is to be adjusted.

(a) True (b) False (c) Partly true and partly false

Correct Answer: (c)


Where initial payment is made as a loan or deposit out of which rent is to be adjusted on month-to-month basis tax will have to be deducted at source. If deposit is refundable then same would not be subject to TDS.

Thus, option (c) is correct.

Comment on incorrect answer: Option (c) is the correct option since it gives the correct provision. The other options, viz., options (a) and (b) giving incorrect provisions are not correct.

Q64. Whether Section 194-I is applicable to rent paid for the use of only a part or a portion of any land or building?

(a) Yes (b) No

Correct Answer: (a)


The definition of the term “any land” or “any building” includes a part or portion of such land or building. In other words, section 194I is applicable to rent paid for the use of only a part or a portion of any land or building.



Q65. Mr. Raja is running a factory (turnover of the factory during the previous year 2011-12 was Rs. 84,00,000) in part of the premises taken on rent from SM Corporation. During the previous year 2012-13, he paid rent of Rs. 2,52,000. However, he did not deduct tax from such payment since as per his view, section 194I is not applicable to rent paid for the use of only a part or a portion of any land or building. Is the payment made by Mr. Raja correct?

(a) Yes (b) No

Correct Answer: (b)


The definition of the term “any land” or “any building” includes a part or portion of such land or building. In other words, section 194I is applicable to rent paid for the use of only a part or a portion of any land or building. Hence, the payment made by Mr. Raja is not correct.



Q66. As per section 194-I, tax is deductible on leasing or hiring of machinery.

(a) True (b) False

Correct Answer: (a)


Tax is deductible on leasing or hiring of machinery.



Q67. In respect of rental payments, which of the following Form No. is used to issue TDS certificate?

(a) Form No. 16 (b) Form No. 16A

(c) From No. 24Q (d) From No. 26Q

Correct answer: (b)


As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. In other words, in respect of rental payments, TDS certificate is to be issued in Form No. 16A.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct Form No. The other options, viz., options (a), (c) and (d) giving the incorrect Form No. are not correct.

Q68. In respect of rental payments, the deductor is liable to deposit tax deducted in the month other than the month of March with the Government on or before 7 days from the end of the month in which the tax is deducted.

(a) True (b) False

Correct answer: (a)


In respect of rental payments, the deductor is liable to deposit the tax deducted in the month other than the month of March with the Government on or before 7 days from the end of the month in which the tax is deducted.



Q69. In respect of rental payments, what is the time-limit of deposit of tax deducted in the month of March with the Government?

(a) 31st March (b) 7th April

(c) 15th April (d) 30th April

Correct answer: (d)


As per rule 30, following time-limit is applicable:





Where the payment is made in any other

case than the Government-






Comment on incorrect answer: Option (d) is the correct option since it gives the correct time-limit. The other options, viz., options (a), (b) and (c) giving incorrect time-limit are not correct.

Q70. In respect of rental payments, the deductor is liable to issue Form No. 16A on _____ basis.

(a) Monthly (b) Quarterly

(c) Half yearly (d) Yearly

Correct answer: (b)


As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. In other words, the deductor is liable to issue Form No. 16A on quarterly basis.


Comment on incorrect answer: Option (b) is the correct option since it gives the correct duration. The other options, viz., options (a), (c) and (d) giving the incorrect duration are not correct.

Q71. As per rule 31, Form No. 16A in respect of tax deducted from rental payments is to be issued on quarterly basis if the deductor is an individual or HUF. However, in case of deductor other than an individual or HUF, Form No. 16A in respect of tax deducted from rental payments is to be issued on monthly basis.

(a) True (b) False

Correct answer: (b)


As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. In other words, the deductor is liable to issue Form No. 16A on quarterly basis, irrespective of the status of the deductor.



Q72. SM Corporation is running a factory. It paid rent of Rs. 25,000 (for the month of June, 2012) in May, 2012 after deducting tax @ 10% from the same. In this case, what is the time-limit up to which he can issue TDS certificate?

(a) 31st May, 2012 (b) 30th June, 2012

(c) 30th July, 2012 (d) 31st July, 2012

Correct answer: (c)










Comment on incorrect answer: Option (c) is the correct option since it gives the correct time-limit. All the other options, viz., options (a), (b) and (d) giving the incorrect time-limit are not correct.

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