Observations on compliance of TDS provisions

Tds Deptt , Last updated: 19 September 2007
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Observations on compliance of TDS provisons : Coverage – Expenses liable for the deduction of Tax 1.Lorry Freight Paymets :- Lorry Freight Ist Paymet Lorry Freight Balance Lorry Freight Detention Lorry Freight Extra Local Lorry Freight *(Attach Vendors: It has been decided to make the deduction of tax at source on all the payments to them. Market Lorries :- In case of payments made to market lorries the deduction should be made only when the Individual payment exceeds amt. Rs. 20000/-.(i.e one transaction value) **Contract : Written as well as verbal. ***Attach vendor interpretation : Lorry being hired at more than one ocassion or has the expectation of Being hired at more than one ocassion in the near future. Observation/Solution :- 1. Payments has been made in a sum exceeding Rs. 20000/- otherwise than by a crossed cheque drawn on a Bank or a crossed bank draft resulting violation of Section 40A(3). Solution : 1. Try to convince vendors the conequences of such a practice.(by narrating the consequences) 2. In case of attached vendors make the payment through bank. 2. In some cases dedution of tax at source has not been made at the time of making balance payment. Solution : Following practice should be followed in computing the value of TDS to be deducted :- Step 1. The advance paying party should mention the amt. To be deducted on account of TDS.(On the basis of Total freight value) Step 11. The balance paying branch should add (1) lorry freight extra,(2) lorry detention charges, or(3) other Charges in addition to total freight value and re-compute the final value of TDS to be deducted. Step 111. Make the payment net of tax.(i.e Balance payment required to be made – Recomputed TDS value) 2. Local Booking & Delivery Expense Local Booking Expenses Local Delivery Expenses Make the deduction of tax at source on all the payments made to a attach vendor whether the payment required to be made comes to amount Rs.500 or 5000. 3. Rent Observation :- It is noticed in some cases that the rent agreements are drafted in such a manner that these covers the consid -eration for using Godwon as well as reimbursement on account of Electricity, water and office maintenance Charges. But these charges are not considered for the purpose of arriving at the value on which the deduction Of tax at source has to be made. Advise :- If the vendor / landlord provides the bill in respect of electricity and water charges then we shall not take these Payments into account for the purpose of arriving at the value the deduction is to be made. Secondely in such Case it will be our electricity and water charges and will not form part of rent. If the vendor/ landlord fails to provide the bill in respect of electricity and water charges then we will treat it as part Of rent and accordingly make the deduction tax at source as per prescribed rate by Govt. Dont advise the vendors to draft the rent agreements in a partuclar way. 4. Commission :- Observation :- Generally it was noticed that a settlement of the sum on account of brokerage or Commission is made below What is being invoiced by the broker or commission agent (brokerage for taking Godwon on hire). The Settled amt. Is paid without giving credit the deduction of tax at source on Commission or Brokerage. Advise :- It is advised to consider the amt. Of deduction to be made on account of TDS. 5. Octroi Expenses Wagon Freight Payments No deduction of tax at source was made on the payments made through agents. Advise :-(For Octroi as well as for Wagon Freight Expenses ) Deduction of tax at source is required to be made where Octoi/W.Freight payments has been made through Agents. Note that no deduction of tax is required to be made where the sum on account of Octrio and Wagon Freight has been paid directly to Govt. Bodies. Sum on which the deduction of tax is required to be made :-(where payments has been made through agents). Total invoice value – Octroi/Wagon Freight. * Note that if the invoice shows a consolidated sum of money to be paid (i.e does't shows the octroi/W.Freight And service charges separetaly) the deduction of tax at source has to be made on the total invoice value. 6. Other Contractural Payments :- Security Charges Repairs & Maintenance Charges Construction Payments Photocopy Expenses Other Payments It seems that the branch executives are not aware about the payments on which the deduction of tax at source is Required to be made. They feel difficulty on deciding as to whether the deduction of tax at source is required to be Made or not in respect of contractural payments. A brief story of Contract payments is as below :- WORKS CONTRACT :- This word represents the following combinations :- Contract/Sub Contract :- 1.Entire Labour Payments (Security Charges, Loading/ Unloading etc.) :-2. Labour as well as Supply(Photocopy Exp./Construction Contracts) where amt. Can't be segregated between Labour and Supply separately. :-3. Labour as well as Supply(Repairs & Maintenance Exp.) where amt. Can be segregated between Labour and Supply(Spare parts, Accessories etc.). Apply the following rules :-(In respect of above interpretations) :-1. Make the deduction of tax at source on all the labour payments. :-2. Make the deduction of tax at source on all the Contractural payments. :-3. Make the deduction of tax at source on labour payments only.(i.e no need to deduct The tax at source on sums which represents consideration for supply). Note :- One factor leading to the deduction of tax at source is Service Tax. Generally all the payments will require Deduction of tax at source which represents consideration for service tax too.(i.e payments made for invoices in Whcih service tax is charged will automatically require deduction of tax at source). 7. General Observations :- 1. In some cases it is observed that one party is engaged with our organization through various modes(i.e it is Engaged in ,local booking, local delivery,local lorry freight or in any other way). In such cases It is not possible to determine the value of transactions with such a party since the transactions got settled directly In cash. Advise :- It is advised to deal the transactions with such a party through a ledger account so that the total value of tr. Can be determined for the purpose of arriving at the value on which the deduction of tax at source has to be Made. 3. In large no's of cases it is observed that the accounting entry relating to the deduction of tax at source is Passed in our FA system separately from the transaction(which is directly in cash) on which such deduction is Made. In such a situation it is very difficult to assess whether the deduction of tax at source has been made Or not having regard to nature of payment and volume of transactions. Advise :- In such a situation it is being advised to pass the accounting entries through J.V's vouchers.( i.e a linkage can Be established between the payments and the amt. Of deduction of tax at source if any).

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Tds Deptt
(accounts officer)
Category Others Report

Observations on compliance of TDS provisions

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