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Confusion please help me

28 February 2024

Dear professionals,

Section 40a(I) and section 40(a) (ia) of the income tax act

TDS not deducted or deducted not paid to GVT .... disallowed

but in what scenario this is allowable deduction when???

paid by deductor or deductee

plse expalin these sections

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3 Replies

Yasaswi Gomes new (Finance ) (4492 Points)
Replied 29 February 2024

you can pay now. The guy making the payment must calculate TDS and pay it to the government. or else accept 30% disallowance means extra 30% tax on expenditure

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MPR Sanjay Kumar (3033 Points)
Replied 29 February 2024

Dear sir I can't understand could you please give me a practical examples

Yasaswi Gomes new (Finance ) (4492 Points)
Replied 29 February 2024

Let’s consider an example to illustrate the application of Section 40(a)(ia) of the Income Tax Act.

Scenario: Suppose you run a small business and have made a payment of ₹100,000 to a freelance consultant for professional services. However, you failed to deduct TDS on this payment.

Option 1: Accept the 30% Disallowance:
- If you choose this option, you’ll accept the disallowance of 30% of the payment (₹30,000) as an expense.
- Your financial statements will reflect the actual payment made (₹100,000) but only ₹70,000 will be allowed as an expense for tax purposes.
Option 2: Rectify the Non-Deduction:
- To rectify the situation, ensure that TDS is deducted on future payments to this consultant.
- For any subsequent payments, deduct TDS at the applicable rate (usually 10% for professional services).
- Adjust your financial records accordingly.
Option 3: Pay the TDS Now:
- Calculate the TDS amount based on the applicable rate (₹10,000 in this case).
- Pay the TDS amount to the government.
- Obtain the TDS certificate (Form 16A) from the consultant after making the payment.
Option 4: File an Application for Lower or Nil TDS:
- If you believe that the payment should not be subject to TDS or should be subject to a lower rate, consult a tax professional.
- Provide relevant documents and reasons to support your claim.
- If approved, you can adjust the TDS liability accordingly.

Remember that each situation may have unique factors, and it’s essential to consult a tax advisor to determine the best course of action based on your specific circumstances. 😊