20 December 2018
Hello guys, I have a query regarding tds applicability. My company entered into a consortium with another infrastructure company for a EPC contract. We have been awarded the project.Our share is 74% and we are the lead partner. Both the consortium partner had to do their share of Work and share the profit accordingly.We again executed a contract with our consortium partner deciding all the work to be done by us and to give them a fixed amount. Now we made payment to them when received payment from our client. Is tds applicable on this payment transaction. And if yes then under which section? Please reply asap. Thanks in advance
21 December 2018
TDS not applicable. Joint venture/consortium is temporary partnership hence same is assessed under IT Act as Firm and any profit earned by JV shall be taxable in the hand of JV at normal rates -30% since same is taxable in the hand of JV, its distribution to partners is exempt. thus share of profit from JV is exempt u/s 10(2A),
21 December 2018
Thank you sir for your response. Sir it's not JV. It's a consortium. Also how do we treat the payment made to them in our books. Right now we have shown it as advance to consortium partner. Now we have to book it in our p&l. Should we treat it like deducting it directly from our profits/reserves in balance sheet or we should take it in our P & L as expense like payment to consortium partner.
21 December 2018
Such payment will be considered as commission for which TDS applicable deduct it. Charge it in p and l as expenses. Under consotium arrangements only sharing of work allowed not profit sharing. See the link. https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.incometaxindia.gov.in/Communications/Circular/Circular-7-2016.pdf&ved=2ahUKEwiszeDJo7DfAhWHwI8KHVZKC28QFjAAegQIBRAB&usg=AOvVaw3LlBCDqpXf1vmUU6ojvkYY
21 December 2018
Sir we are consortium partner. But now all the work will be done by us and we pay only fixed amount . Are we paying commission ? And if yes then for what?
21 December 2018
Each consortium partner has to share the work and execute independently and earn his profit. Not doing any work and getting payment will be treated as commission only and deduct TDS.
21 December 2018
I also concur with Seetharaman sir's reply, except for one point.
Dear sir, I think S.10(2A) is not the applicable provision in this case and S.86 is applicable. Kindly rectify me if wrong.
S.86. Where the assessee is a member of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India), income-tax shall not be payable by the assessee in respect of his share in the income of the association or body computed in the manner provided in section 67A
Sir, also said that "Each consortium partner has to share the work and execute independently and earn his profit." But, I believe, even if the work is not demarcated, and is carried out jointly, it shall still be a JV/AOP and provisions of TDS shall not apply. (Kindly confirm Seetharaman sir)
21 December 2018
We maintained accounts for that project but not as a particular JV but as project accounts. All the expenditure is to be done by us for that project. So how should I treat it in accounts... deduct from reserve or as exp in p & L as you said now tds is not applicable.
21 December 2018
TDS applicable if you treat it as exp in P and I. If you work out JV profit and pay 30% tax on it it will be sharing of profit no TDS applicable.
CAclubindia
