Tds disallowance.

This query is : Resolved

Mohit Jain (Querist)
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29 October 2015 if any expenditure(liable for TDS)is paid without deducting tax,then whether expense is disallowed wholly or to the extent of 30% u/s 40(a)?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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29 October 2015 Disallowed only to the extent of 30%.

CA AnKiT BoHrA (AB)

CA AnKiT BoHrA (AB) (Expert)
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29 October 2015 Exactly to the extent of 30%

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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30 October 2015 Under section 40(a)(ia) of the Act, in case of payments made to resident, the deductor is allowed to claim deduction for payments as expenditure in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return of income under section 139(1) of the Act.

In case of non-deduction or non-payment of tax deducted at source (TDS) from certain payments made to residents, the entire amount of expenditure on which tax was deductible is disallowed under section 40(a)(ia) for the purposes of computing income under the head “Profits and gains of business or profession”. The disallowance of whole of the amount of expenditure results into undue hardship.

In order to reduce the hardship, non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure on which TDS is not deducted.

Earlier, 100% of such amount is disallowed.

Earlier, the non-deduction or non-payment of TDS on payments made to residents results in disallowance only with respect to certain specified categories of payments (viz. interest, commission, brokerage, rent, royalty, fee for technical services or fee for professional services).

NOW section 40(a)(ia) of the I-T Act to increase the scope of disallowance to every category of payment made to a resident on which tax is required to be deducted at source under Chapter XVII-B of the I-T Act.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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30 October 2015 Example:

No tax deducted and paid on Rs 5,00,000. So Amount of disallowance will be Rs 1,50,000/- (30% of Rs 5,00,000/-) and if it is paid after due date then Rs 1,50,000/- will be allowed as deduction in next year.

Mohit Jain

Mohit Jain (Querist)
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31 October 2015 if failure to deduct tds on payment to non resident?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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31 October 2015 As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.