08 August 2016
Whether there is violation of provisions relating to TDS and disallowance of expense under the income tax act in the following transaction:
Company makes payment of professional charges, say to Mr. X Rs. 160000/- and deducts TDS @ 10% i.e. Rs. 16000/- and pays to the credit of Central Government. Thereafter, the amount equal to the amount of TDS i.e. Rs. 16000/- deducted by company earlier is paid to Mr. X in the form of reimbursement without deducting any tax. In this case, the tax is actually borne by company. What should be the amount of TDS in such type of transactions or how it should be calculated. In my opinion the gross up method must be used by company that means the net payment made by company Rs. 160000/- is 90% of the gross amount and therefore expense for the company is Rs. 177777.77 and TDS must be Rs. 17777.77 and net amount payable works out Rs. 160000/-. What is your opinion
10 August 2016
TDS is not deductible on reimbursements. Thus if the company wants to give back the TDS amount to the employee, it can do so by the reimbursement method.
CAclubindia
