Liability of deduction of tds

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 February 2014 Any person who work as a contractor with the turnover of rupees 3000000 in the previous year. Although he is not liable for tax audit, but opted for the audit voluntarily.

Whether he will be responsible to deduct TDS on the payment made for the rent of vehicles hired by him?

Murlee

Murlee (Expert)
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04 February 2014 The words used are "if the turnover or professional receipt exceeds sum of Rs. 40 lakh or Rs. 10 lakh respectively (the limits will be Rs.60 Lakh or Rs. 15 Lakh respectively w.e.f. 01.07.2010, or as the case maybe 1 Cr ot 25 L) in previous year, he is required to deduct tax at source." Here the condition given is that of turnover and not of audit hence in my opinion TDS is not required to be deducted on payments made by this contractor.

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C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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04 February 2014 The Turnover limit is applicable for the individuals and proprietors. You have not mentioned the nature of your company. If it is other than individual and proprietor turnover is not the criteria for deduction of TDS means all partnership firms, companies and associations shall be liable for TDS to be deducted and deposited in all cases including rent if it is exceeding the limit as prescribed under that head.

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Querist : Anonymous

Querist : Anonymous (Querist)

05 February 2014 In the above case, the person is a individual and provides the facility to pick and drop students from home. He does not own any buses but hires from a third party and pays rent.
i am asking here for his liability of deducting TDS on payment made to third party.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 In the scenario where an individual contractor, with a turnover of Rs. 30 lakhs in the previous year, is making payments for the rent of vehicles hired from a third party, the following considerations apply for TDS (Tax Deducted at Source) liability:

### **1. TDS on Rent Payments**

**a. **Applicability of TDS:**
- **Section 194I:** As per Section 194I of the Income Tax Act, 1961, TDS is required to be deducted on rent payments, which includes rent for plant, machinery, or equipment, and also for vehicles.

**b. **Turnover and Tax Audit:**
- **Audit Requirement:** Even though the contractor is not required to undergo a tax audit under the Income Tax Act due to turnover being below the threshold of Rs. 1 crore, the obligation to deduct TDS under Section 194I applies if they are making payments of rent.
- **Voluntary Audit:** Opting for a voluntary tax audit does not exempt the contractor from TDS obligations.

### **2. TDS Deduction on Vehicle Rent Payments**

**a. **Nature of Payment:**
- **Rent of Vehicles:** Payments made for renting vehicles fall under the category of "rent" and thus attract TDS under Section 194I.

**b. **Rate of TDS:**
- **TDS Rate:** The TDS rate for rent payments is typically 2% for rent of machinery, plant, or equipment, and 10% for rent of land, building, or furniture. For vehicle rent, the applicable rate is generally 2%, unless specified otherwise in the tax provisions or notifications.

**c. **TDS Deduction Responsibility:**
- **Liability to Deduct TDS:** Regardless of whether the contractor is liable for a tax audit or not, if the contractor is making payments for the rent of vehicles, they are required to deduct TDS at the prescribed rate and deposit it with the government.

**d. **Documentation and Compliance:**
- **TDS Certificate:** The contractor must issue a TDS certificate to the party from whom they are renting the vehicles. This certificate will reflect the amount of TDS deducted and deposited.

### **3. Practical Steps**

1. **Determine TDS Rate:** Verify the applicable TDS rate for vehicle rent under Section 194I.
2. **Deduct TDS:** Deduct TDS at the prescribed rate from the rent payments made to the third party.
3. **Deposit TDS:** Deposit the TDS with the government within the due dates specified.
4. **Issue TDS Certificate:** Provide a TDS certificate to the vehicle rental service provider.
5. **File TDS Returns:** Ensure timely filing of TDS returns in accordance with the provisions of the Income Tax Act.

### **Summary**

- **TDS Deduction:** The individual contractor is responsible for deducting TDS on rent payments made for vehicles hired from a third party, even if they are not liable for tax audit.
- **Rate and Compliance:** Follow the TDS rate specified under Section 194I and ensure proper documentation and filing.

By adhering to these TDS obligations, the contractor ensures compliance with tax regulations and avoids potential penalties or legal issues.